<PAGE>   1
 
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                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
 
                                  FORM 10-KSB
 
<TABLE>
<C>               <S>
   (MARK ONE)
      [X]         ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED JUNE 30, 1998
      [  ]        TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
 
                          COMMISSION FILE NO. 0-19420
                             ---------------------
 
                            CREDIT DEPOT CORPORATION
                 (Name of small business issuer in its charter)
 
<TABLE>
<S>                                        <C>
                DELAWARE                              58-1909265
     (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)              Identification No.)
 
700 WACHOVIA CENTER, GAINESVILLE, GEORGIA               30501
(Address of principal executive offices)              (Zip Code)
</TABLE>
 
         Issuer's Telephone Number, including Area Code (770) 531-9927
 
         SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
 
<TABLE>
<S>                             <C>
     TITLE OF EACH CLASS        NAME OF EACH EXCHANGE ON WHICH REGISTERED
             N/A                                   N/A
</TABLE>
 
         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
 
                         COMMON STOCK, $.001 PAR VALUE
                                (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 required was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
 
     Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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.  [ ]
 
     Issuer's revenues for its most recent fiscal year: $4,722,159
 
     The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold or the average bid and asked price of such common equity as of
September 14, 1998 was approximately $957,000.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's definitive Proxy Statement, to be filed within
120 days after the end of the Registrant's fiscal year, are incorporated by
reference into Part III of this Annual Report.
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<PAGE>   2
 
                                     PART I
 
ITEM 1.  DESCRIPTION OF BUSINESS
 
GENERAL
 
     Credit Depot Corporation (the "Company") is a mortgage finance company
engaged in originating, purchasing, and selling first and second mortgage loans
secured by single family (one to four family) residences made to credit-impaired
individuals who are generally unable to obtain financing from conventional
lending sources. The Company's customers borrow funds generally for debt
consolidation or to refinance first mortgages on the customer's primary
residence. The Company's mortgage loans are at higher interest rates than
conventional mortgage loans, which the Company's customers are willing to incur
because of their inability to obtain financing from conventional sources. While
the typical borrowers from the Company may not have attractive credit histories
due to a pattern of credit weakness, unverifiable income, insufficient credit
history or a previous bankruptcy or insolvency, it is the Company's experience
that these borrowers nevertheless have generally demonstrated an ability to make
payments due under their loans because the loans are generally secured by first
mortgages on their primary residences, and the Company generally requires that
such borrowers have significant equity in their residences. The Company believes
its underwriting procedures generally enable it to determine which borrowers
with substandard credit histories are likely to meet their mortgage obligations.
 
     The Company believes that the lending practices of conventional financing
sources (such as commercial banks and savings and loan associations) have made
access to credit more difficult for the Company's target customer base. In
addition, the emergence of secondary mortgage markets has resulted in a reduced
willingness on the part of traditional financing sources to offer mortgages that
depart from the strict underwriting and documentation standards required by
government sponsored enterprises such as the Government National Mortgage
Association ("GNMA") and the Federal National Mortgage Association ("FNMA"). The
Company believes that the tightening of underwriting guidelines from traditional
financing sources has resulted in a large population of creditworthy borrowers
seeking alternative sources of financing.
 
     Generally, mortgage lenders evaluate a borrower according to four primary
criteria: (i) the ratio of the borrower's debt to his gross income; (ii) the
loan-to-value ratio of the property securing the loan; (iii) the borrower's
credit history; and (iv) the responses to requests for third-party documentation
(such as employment and other verifications and credit references). Based on
these criteria, the Company will evaluate a loan application or loan (if
purchasing a loan from another source) and determine if the criteria fall within
the guidelines of the Company's current loan programs, also known as an
"underwriting matrix." The Company's target customer base traditionally
consisted of homeowners with at least 20% equity in their homes (typically with
values ranging from $35,000 to $200,000), a debt-to-gross-income ratio not
exceeding 50% (as compared to approximately 36% for conventional lenders), and
stable employment.
 
     During the years ended June 30, 1996, 1997 and 1998 (referred to as "Fiscal
1996", "Fiscal 1997", and "Fiscal 1998") the Company originated $37,035,000,
$79,323,000, and $95,921,000 of loans, respectively. The average original
principal balance of the loans originated by the Company during Fiscal 1996,
1997, and 1998 was $49,000, $50,000, and $57,000, respectively, with an average
annual interest rate to the Company of approximately 11.5%, 12.1%, and 10.8%,
respectively. During Fiscal 1996, 1997, and 1998, approximately 91%, 90%, and
88%, respectively, of the Company's loans originated for each period had an
original principal balance of between approximately $10,000 and $130,000. During
Fiscal 1996, 1997, and 1998, the weighted average loan-to-value ratio at the
time of origination of the Company's loans originated during those periods was
approximately 74%, 70%, and 76%, respectively, and the weighted average
debt-to-gross-income ratio for the Company's borrowers was approximately 36%,
35%, and 35%, respectively.
 
     Prior to October 1994, substantially all of the mortgage loans originated
by the Company were balloon loans, with periodic payments based generally on a
15-year amortization schedule and a single payment of the remaining balance of
the balloon loan due five years after origination. At June 30, 1998, the Company
was servicing approximately $1,695,000 of balloon loans, either in the Company's
own portfolio or for other entities. In October 1994, the Company changed its
mortgage product line from balloon to primarily self-
 
                                        1
<PAGE>   3
 
amortizing mortgages, and also began to originate somewhat higher quality loans
(although the target customers remained credit-impaired borrowers who are unable
to obtain loans from conventional lenders), which resulted in slightly lower
average annual interest rates and slightly higher loan-to-value ratios.
Currently, the loans originated by the Company are generally for 15- 20- or 30-
year terms.
 
     Since 1993, the Company has expanded the geographic scope of its mortgage
activities from a single office in Gainesville, Georgia, and currently employs
personnel in ten additional states (Florida, Indiana, Louisiana, Maryland,
Michigan, Mississippi, North Carolina, Ohio, South Carolina, and Tennessee) from
which mortgage loans are originated. The Company is also licensed to originate
loans in several other states where it is not required to maintain a physical
presence. The Company originates and processes its loans utilizing a "spoke and
hub" system, wherein sales representatives forward loan applications to one of
three designated regional processing offices for initial processing. The
underwriting department at the corporate headquarters in Gainesville, Georgia
issues final approval and funding of each loan.
 
     The Company was incorporated in Delaware in 1990 and is the successor by
merger to a corporation organized in 1986. Unless the context otherwise
requires, reference to the "Company" includes the operations of the Company, its
predecessor and its wholly-owned subsidiaries. Also unless otherwise noted, all
dollar figures presented are rounded to the nearest $1,000 and are approximate.
The Company's executive offices are located at Wachovia Center, Suite 700,
Gainesville, Georgia 30501, telephone (770) 531-9927.
 
LOAN FINANCING
 
     General.  Although the Company's principal product is a non-conforming
residential first mortgage loan with a fixed interest rate and term to maturity,
it does offer a limited variable rate and second mortgage product and other
programs, all of which the Company believes keeps its product line competitive
in the marketplace without sacrificing underwriting guidelines. These loans are
distinct from residential mortgage revolving lines of credit, not offered by the
Company, which are generally secured by a second mortgage and typically carry a
floating interest rate. The proceeds of the loan will usually be used by the
borrower for debt consolidation or to refinance a first mortgage on his
property. Costs incurred by the borrower for loan origination, including
origination points and appraisal, legal and title fees, are often included in
the amount financed.
 
     The following table summarizes the Company's lending activities during each
of the periods indicated:
 
<TABLE>
<CAPTION>
                                                     FISCAL YEAR ENDED JUNE 30,
                                              -----------------------------------------
                                                 1998           1997           1996
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Principal amount of loans originated........  $95,921,000    $79,323,000    $37,035,000
Number of loans originated..................        1,752          1,601            757
Servicing portfolio:
  Serviced for the Company..................  $ 9,171,000    $ 5,205,000    $ 6,617,000
  Serviced for purchasers of loans..........      432,000      2,027,000      3,575,000
                                              -----------    -----------    -----------
          Total servicing portfolio.........    9,603,000      7,232,000     10,192,000
Loan sale proceeds:
  Loans sold servicing released -- whole....  $80,907,000    $ 5,244,000    $13,506,000
  Loans sold servicing released -- retained
     interest...............................   12,225,000     77,020,000     19,321,000
                                              -----------    -----------    -----------
          Total loan sale proceeds..........   93,132,000     82,264,000     32,827,000
  Gain on sales of loans(1).................  $ 4,402,000    $ 5,181,000    $ 1,697,000
  Overall gain on sale percentage(1)........         4.73%          6.30%          5.17%
  Interest rate differential on loans sold
     with a retained interest(2)............         2.66%          2.70%          2.01%
Premium received on Whole loan sales(3).....         4.02%          0.00%          2.27%
</TABLE>
 
---------------
 
(1) This is a gross gain on sale from all types of loan sales, and excludes any
    write-down of any asset with a retained interest (see "Sale of Mortgage Loan
    Pools"), which is netted against the gain on sale of loans in the financial
    statements.
                                        2
<PAGE>   4
 
(2) This represents the difference between the mortgage loan interest rate and
    the contractual rate paid by the purchaser of loans sold on an Interest-Only
    basis. This type of sale involves a cash premium or discount to the Company
    at the time of sale.
(3) This represents the net cash premium received on loans sold Whole. This
    percentage is calculated on the net proceeds (after premiums paid) divided
    by the principal amount of the loan.
 
     Origination.  Loan applications are brought to the Company's attention in
its branch offices by referral sources such as mortgage loan brokers,
prospective borrowers, or mortgage companies. Completed loan applications are
transferred to the Company's loan processors who verify certain information
contained in the applications such as employment information and credit history.
The loan processor also makes the arrangements necessary to have the applicant's
real property, offered as security for the loan, appraised by an independent
appraiser. Reference is made to the responses to Items 3 and 6 of this Annual
Report with respect to the payment of yield spread premiums and certain
warehouse lines of credit, respectively, as they relate to the Company's ability
to originate loans.
 
     The Company's loan processor then reviews the application, the applicant's
credit history (including verifying any senior mortgages on the applicant's
property) and the appraisal, and uses this information to categorize the
application, a process which consists of determining the preliminary
loan-to-value ratio as well as ascertaining the applicant's other obligations.
The loan-to-value ratio is determined by dividing the requested loan amount by
the appraised value of the borrower's property. The Company requires that the
loan-to-value ratio of a property offered as collateral generally not exceed
85%, and, historically, such rate has averaged approximately 71%. The Company
requires that a loan applicant's total monthly debt payments to gross monthly
income generally not exceed 50%, and, historically, such rate has averaged
approximately 36%. If the loan processor concludes that the applicant may be a
suitable candidate for a loan, the loan processor prepares an "in-file" credit
report which provides a computer analysis of the applicant's credit history,
including outstanding indebtedness. Based upon the loan-to-value ratio,
debt-to-gross-income ratio, an analysis of the applicant's creditworthiness and
the appraisal of the applicant's property offered as security for the loan, a
loan committee, consisting of senior credit officers at the Corporate office,
determines whether or not to approve the application.
 
     In all instances in which borrowers have advised the Company that all or a
portion of the loan will be used to repay outstanding debt, the Company's
closing agent will disburse such funds directly to the borrower's creditors.
Borrowers have a right under federal truth-in-lending laws to rescind their
loans for a period of three days after entering into the loan agreement and
prior to the disbursement of the funds. After the disbursement of loan proceeds,
the Company's closing attorney records the mortgage security interest in the
county in which the property securing the loan is located, thus perfecting the
Company's interest. The closing attorney obtains, on behalf of the Company, a
title insurance policy insuring perfection of the Company's lien position.
 
     Delinquency Information.  Typically, promptly after failure to receive
timely payment, the Company commences collection efforts, and for loans which
become 60 days past due the borrower is verbally notified that the Company may
initiate the foreclosure process. The Company then notifies the borrower via a
letter from an attorney of the serious nature of the delinquency but also
affords the borrower an opportunity (generally the minimum amount of time
prescribed by state statute) to bring the loan current. However, if the loan
continues to remain delinquent, the Company engages an attorney to complete the
foreclosure proceedings. The Company arranges for sale at public auction of all
collateral in order to satisfy the unpaid indebtedness to the Company.
 
     Delinquency information herein gives effect to all mortgage loans
originated by the Company which are either retained in the Company's portfolio
or which have been sold to third parties servicing retained. As of June 30,
1998, 15 borrowers had filed for protection under the federal bankruptcy laws,
representing $458,000, or approximately 6.1% of the principal amount of all
loans being serviced. Of the 15 borrowers who have filed for bankruptcy, 14 have
made their scheduled payments on a timely basis.
 
                                        3
<PAGE>   5
 
     The following is a table setting forth certain information with respect to
the aggregate delinquency rates for loans in the Company's loan portfolio and
serviced loan portfolio:
 
<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED JUNE 30,
                                                ---------------------------------------
                                                   1998          1997          1996
                                                ----------    ----------    -----------
<S>                                             <C>           <C>           <C>
Number of loans...............................         164           199            296
Amount of loans...............................  $7,545,000    $7,232,000    $10,192,000
Delinquency period(1)(3):
  30-59 days..................................        1.36%         3.12%          3.50%
  60-89 days..................................        0.51%         2.79%          2.13%
  90-119 days.................................        0.60%         0.64%          0.83%
  120 days and over...........................        2.97%         7.45%          5.59%
Foreclosed properties(2)......................        1.01%         1.21%           .04%
Amount of loans owned by the Company..........  $7,113,000    $5,205,000    $ 6,617,000
Amount of loans serviced for third parties....     432,000     2,027,000      3,575,000
</TABLE>
 
---------------
 
(1) Represents the dollar amount of delinquent loans as a percentage of the
    total "Amount of loans" as of the date indicated.
(2) Foreclosed property as a percentage of loans serviced and foreclosed
    properties. These amounts reflect foreclosures during the applicable period
    on mortgage loans originated since 1988.
(3) From time to time, the Company grants payment extensions or revises
    repayment schedules. The above information does not list as delinquent those
    payments for which extensions have been granted.
 
     In Fiscal 1996, 1997, and 1998, the Company experienced defaults which led
to the foreclosure of the mortgaged property on 11, 19, and 12 loans,
respectively. As a result of such foreclosures, the Company experienced an
aggregate net loss on those related mortgage loans of $130,000, $195,000, and
$242,000 during Fiscal 1996, 1997, and 1998, respectively.
 
     In a continuing period of economic decline, the rates of delinquencies,
foreclosures and losses on the mortgage loans could be higher than those
previously experienced in the mortgage lending industry in general. In addition,
adverse economic conditions (which may or may not affect real estate property
values) may affect the timely payment by borrowers of scheduled payments of
principal and interest on the mortgage loans and, accordingly, the actual rates
of delinquencies, foreclosures and losses with respect to the Company's
portfolio of mortgage loans.
 
SALE OF MORTGAGE LOANS
 
     As a fundamental part of its business and financing strategy, the Company
intends to sell all of the loans it originates in the secondary mortgage market
rather than holding such mortgage loans for its own account. Generally, the
Company has sold its loans using one of three sales methods. The first method
involves selling loans to third parties service-released (the Company no longer
services the loan after the sale) with no further obligations or interest in the
loan after the sale. The premium (or discount) on the loan is received (or
deducted) in cash at the time of the sale. This method of loan sale is referred
to as selling loans "Whole". In the second sales method, loans are sold
service-retained (the Company continues to service the loan after the sale),
with a residual interest and obligation. The interest the Company receives is a
percentage of the interest portion of a borrower's loan payment, and the
obligation owed in this case is a commitment by the Company to repurchase the
loan, at the option of the investor who purchased the loan, if it should become
over 90 days past due. The gain on sale recorded using the second sales method
is calculated as the present value of the difference between the interest rate
charged by the Company to a borrower and the interest rate paid to the investor
who purchased the loan less contractual servicing costs, referred to as a
"Service" sale. The third sales method involves selling loans service-released
with a residual interest and obligation. The interest due the Company is the
same as with a Service sale except that there is no deduction to the investor
for servicing costs. The Company is also subject to a "first loss" provision,
wherein if the loan is ever foreclosed upon by the investor and the investor
should incur a loss upon the sale of the property, then the Company is obligated
to reimburse the investor for the amount of loss. This third type of sale is
referred to as an "Interest-Only" sale.
                                        4
<PAGE>   6
 
An important distinction between the sales methods is that in a Whole loan sale,
the cash premium is received at the time of sale, whereas in the other two
methods the cash premium is received over the life of the loan as it is
collected. Reference is made to "Certain Accounting Considerations" in the
response to Item 6 of this Annual Report for a more complete discussion of how
the Service and Interest-Only sales are recorded.
 
     Prior to Fiscal 1994, the Company sold most of its mortgage loans in groups
or "pools" of loans totaling anywhere from $500,000 to $2,000,000 a pool on a
Service basis to banks, life insurance companies, and other entities. At June
30, 1998, the aggregate balance of loans outstanding subject to the residual
repurchase obligation of the Service sale was $432,000, none of which was past
due by over 90 days and subject to repurchase at the option of the investor.
 
     From March 1996 to October 1997, the Company sold most of its mortgage
loans to a major financial institution on an Interest-Only basis, who in turn
placed the Company's loans (along with loans from other companies) into the
asset-backed securitization market. The agreement with the major financial
institution (referred to as the "Securitizer") allowed the Company to sell loans
into the asset-backed securitization market without having to accumulate the
relatively large pools of loans necessary to participate in this market on an
individual basis. Additionally, the agreement with Securitizer allowed the
Company to sell loans in small pools or on a one-by-one basis (known as selling
loans on a "Flow" basis). This was important as the Company did not have a
warehouse line of credit with which it could retain a substantial number of
loans pending sale. The Company sold $108,626,000 of loans to the Securitizer
pursuant to this agreement. At June 30, 1998, $64,665,000 of these loans were
still being serviced by the Securitizer. Through Fiscal 1998, the Company
recorded losses of $44,000 pursuant to the first loss provision of the agreement
with the Securitizer. The Company maintains an allowance for credit losses
estimated to cover losses both from loans held by the Company for its own
portfolio and for loans sold with a residual obligation.
 
     Because the gain recognized in the year of sale of loans on an
Interest-Only basis is equal to the present value of the certain estimated
future cash flows, the amount of cash which the Company is entitled to receive
over the lives of the loans can exceed the gain recognized at the time the loans
were sold. In the subsequent years, the Company would recognize additional
income and fees to the extent actual cash flows from such loans exceed the
amortization. If actual prepayments with respect to sold loans occur faster than
they were projected at the time such loans were sold or loans go into
foreclosure, the carrying value of the Company's Servicing Asset or
Interest-Only strips receivable is written down through a charge to earnings in
the period of adjustment. During the year ended June 30, 1998, the actual
prepayments exceeded those previously anticipated at the time of the sale of the
loans and the Company reduced the value of the Servicing Asset and Interest-Only
strips receivable previously recorded by $19,000 and $2,233,000, respectively,
to reflect the actual prepayments. There can be no assurance that a change in
the prepayment speed of the loans or other changes in the assumptions used to
calculate the original value of the Servicing Asset or Interest-Only Strips
Receivable will not necessitate a significant write-down in their carrying
values in the future.
 
     In June 1997, the Company was able to obtain a substantial warehouse line
of credit and therefore the capability to accumulate pools of mortgages. Loans
sold Whole in pools yield a higher premium than loans sold Whole on a flow
basis. Even though the loans sold on an Interest-Only basis to the Securitizer
yielded a higher premium than Whole loan sales, the Company decided in September
1997 to begin selling loans on a Whole basis because of the improved current
cash flow. See "Liquidity and Capital Resources" under Item 6 herein for a more
complete discussion of liquidity issues. In addition to improving cash flow,
selling loans Whole to a variety of third party purchasers ("Purchasers")
allowed the Company to expand its product line and offer certain types of
mortgages that were not part of the Securitizer's product line. However, the
Company does not have a sales contract with any of these Purchasers, and
therefore the Company has no guarantee that its mortgage loans will be purchased
at a given rate as the premium received on each sale of a pool of loans is
negotiated at the time of sale. Also, the loan products that these Purchasers
are willing to buy can change from time to time, and, without a sales contract,
the Company could fund loans that it may be unable to sell, or unable to sell
without a substantial discount. These Purchasers can also exit the non-
conventional market altogether, thereby decreasing the number of outlets for the
Company's loan sales. Purchasers remaining in the non-conventional market could
offer lower premiums for the Company's loans as a result of fewer competitors
for the purchase of non-conventional loans. The Company does not currently
                                        5
<PAGE>   7
 
hedge its sales against changes in interest rates, and does not believe the
costs associated with hedging offset the risk taken by not hedging at this point
in time. However, there can be no assurance that changes in interest rates in
the future will not adversely affect the Company.
 
BRANCH OFFICES
 
     The Company intends to continue to expand its "spoke and hub" network as
resources permit. Given its limited resources, the Company has consolidated its
processing hubs down to three offices in Georgia, North Carolina, and Ohio, and
has focused on developing the sales personnel who supply loan applications to
those hub offices. These sales personnel require much less overhead expense than
a processing office. The Company currently maintains sales personnel in Florida,
Georgia, Indiana, Maryland, Michigan, Mississippi, North Carolina, Ohio, South
Carolina, and Tennessee, and is licensed to do business in several other states
where it does not maintain a salesperson. The states in which the Company
operates have been divided into three regions. The sales for each region are
overseen by a regional manager. The Company has completed an internal
reorganization begun in 1997 and does not anticipate consolidating any more
offices.
 
MARKETING
 
     The Company provides promotional materials and other support for the sales
personnel in the various states to enable them to target the mortgage brokerage
community at the local level. The Company also provides some training, although
its recruiting efforts tend to focus on those individuals with some previous
industry experience.
 
CUSTOMERS
 
     The most likely market for loans financed by the Company has been and will
continue to be credit-impaired homeowners who are unable to obtain loans from
conventional sources. Typical borrowers approved by the Company for loans are
individuals who are generally unable or unwilling to obtain financing from
conventional lending sources due to an established pattern of credit weakness,
unverifiable income, insufficient credit history, or a previous bankruptcy or
insolvency. The inability of these borrowers to obtain conventional financing
makes them willing to pay the higher rates charged by the Company. While the
typical borrowers from the Company may not present attractive credit histories,
the Company has found and believes that these types of individuals nevertheless
demonstrate an ability and desire to preserve their loans in good standing
because the loans are secured by first mortgages on their primary residences.
The Company obtains most of its mortgage applications from mortgage brokers (as
opposed to soliciting the borrowers directly), and the Company anticipates that
mortgage brokers will remain its most significant source of loan applications.
 
COMPETITION
 
     The Company faces intense competition in connection with the origination,
purchase, and sale of mortgage loans from numerous providers of financial
services. Traditional competitors in the financial services business include
independent mortgage companies, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these companies are substantially larger
and have more capital and other resources than the Company. Competition among
lenders can take many forms including convenience in obtaining a loan, customer
service, size of loans, interest rates and other types of finance or service
charges, duration of loans, the nature of the risks which the lender is willing
to assume and the type of security, if any, required by the lender. The Company
competes, among other ways, through efficient underwriting and the timely
response to applicants.
 
GOVERNMENT REGULATION
 
     The Company's operations are subject to extensive regulation, supervision
and licensing by federal, state and local government authorities. Regulated
matters include, without limitation, loan origination, credit activities,
maximum interest rates and finance and other charges (including state usury
laws), disclosure to customers and requirements of the federal
"truth-in-lending" laws, the terms of secured transactions, the
 
                                        6
<PAGE>   8
 
collection, repossession and claims handling procedures utilized by the Company,
multiple qualification and licensing requirements for doing business in various
jurisdictions as mortgage lenders and brokers and other trade practices.
 
     The Company's operations are subject to regulation by state statutes
governing loan interest rates and terms (i.e., usury statutes) and federal
"truth-in-lending" laws governing disclosure requirements applicable to lenders.
The Company's operations are also subject to RESPA and the Rules and
Regulations. The Company believes it has complied in all material respects in
the states in which it operates with state laws regarding the licensing of
mortgage lenders and mortgage brokers.
 
     In order to conduct its business in the State of Georgia, the Company must
be licensed by the Georgia Department of Banking and Finance (the "Department").
The Company's license expired on September 2, 1998 and was reinstated on
September 30, 1998, pursuant to a Memorandum of Understanding between the
Company and the Department (the "Memorandum of Understanding"). Pursuant to the
Memorandum of Understanding, the Company has agreed to comply with the
requirements of the Memorandum of Understanding. In addition to complying with
certain minimum financial requirements, the Department has imposed certain
additional conditions upon the Company relating to, among other things, the
timely delivery of financial information to the Department, the Company's net
worth, a delisting of the Common Stock by the NASDAQ SmallCap Market, and the
Company's business plan resulting in a cumulative profit for the fiscal year
ended June 30, 1999 ("Fiscal 1999"). If the Department is not satisfied with the
Company's compliance with such conditions, the Department may summarily suspend
or revoke the Company's license. As is the case with all licensed mortgage
lenders in Georgia, the Company's present license expires on December 31, 1998.
While the Company has applied for renewal of the license for Fiscal 1999, there
can be no assurance that the Department will renew the Company's license or not
suspend or revoke the license during the remainder of 1998 or, if renewed,
thereafter. Furthermore, there can be no assurance that similar or harsher
action will be taken against the Company by other governmental agencies. Any
loss or suspension of the Company's license in any jurisdiction in which it
originates loans could have a material adverse effect on the Company .
 
     There can be no assurance that restrictive laws, rules and regulations will
not be adopted in the future which could make compliance by the Company more
difficult and expensive and which could further limit or restrict the amount of
interest and charges assessed under loans originated by the Company or otherwise
adversely affect the business and prospects of the Company.
 
     The Company's loan financing activities are subject to the provisions of
Title 1 of the Federal Consumer Credit Protection Act, commonly known as the
Truth-In-Lending Act ("TILA") and Regulation Z promulgated pursuant thereto.
TILA contains disclosure requirements designed to provide consumers with simple
understandable information with respect to the terms and conditions of loans and
credit transactions in order to give them the ability to "shop" credit. TILA
also guarantees consumers a three-day right to cancel certain credit
transactions, including any refinanced mortgage or junior mortgage on a
consumer's primary residence. In September 1994, the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Riegle Act") was
enacted. Among other things, the Riegle Act makes certain amendments to TILA.
The TILA amendments, which became effective in October 1995, generally apply to
mortgage loans with (i) total points and fees upon origination in excess of
eight percent of the loan amount or (ii) an annual percentage rate of more than
ten percentage points higher than United States Treasury securities of
comparable maturity ("Covered Loans"). A substantial majority of the loans
originated or purchased by the Company are not Covered Loans.
 
     The TILA amendments impose additional disclosure requirements on lenders
originating Covered Loans and prohibit lenders from originating Covered Loans
that are underwritten solely on the basis of the borrower's home equity without
regard to the borrower's ability to repay the loan. The Company believes that
only a small portion of loans it originated are of the type that, unless
modified, would be prohibited by the TILA amendments. The Company's underwriting
criteria have always taken into consideration the borrower's ability to repay.
 
                                        7
<PAGE>   9
 
     The TILA amendments also prohibit lenders from including prepayment fee
clauses in Covered Loans to borrowers with a debt-to-income ratio in excess of
50% or Covered Loans used to refinance existing loans originated by the same
lender. The TILA amendments impose other restrictions on Covered Loans,
including restrictions on balloon payments and negative amortization features,
which the Company believes does not have a material impact on its operations.
 
     The Company is also required to comply with the Equal Credit Opportunity
Act ("ECOA") which prohibits creditors from discriminating against applicants on
the basis of race, color, sex, age or marital status. Regulation B promulgated
under ECOA restricts creditors from obtaining certain types of information from
loan applicants. It also requires certain disclosures by the lender regarding
consumer rights and requires lenders to advise applicants who are turned down
for credit for the reasons therefore. The Fair Credit Reporting Act requires a
lender to provide an individual, whose application for credit was denied as a
result of information obtained from a consumer credit agency, with the name and
address of the reporting agency.
 
     In certain circumstances the Company may acquire properties securing loans
on foreclosure. There is a risk that hazardous wastes may be found on such
properties. In such event, it is possible that the Company could be held liable
for clean-up costs under the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA") or similar state statutes.
 
EMPLOYEES
 
     As of June 30, 1998, the Company had 68 full-time employees in its Credit
Depot offices, and approximately 30 full and part-time employees in its Cash
Back Mortgage subsidiary. The Company considers its relations with its employees
to be satisfactory.
 
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
     Certain statements contained in the responses to Items 1, 6, and 7 of this
Annual Report such as statements concerning the Company's future cash and
financing requirements, the Company's ability to originate and/or acquire
mortgage loans, including, but limited to the Company's continuing ability to
pay yield spread premiums, the Company's ability to enter into securitization
transactions and/or otherwise sell mortgage loans to the third parties and the
returns therefrom and other statements contained herein regarding matters that
are not historical facts are forward looking statements; actual results may
differ materially from those projected in the forward looking statements, which
statements involve risks and uncertainties, including but not limited to, the
following: the outcome of certain litigation, the Company's ability to obtain
future financing; the uncertainties relating to the Company's ability to
participate in securitizations; and market conditions and other factors relating
to the mortgage lending business. Investors are also directed to the other risks
discussed herein and in other documents filed by the Company with the SEC.
 
ITEM 2.  DESCRIPTION OF PROPERTIES
 
     The Company's principal executive offices and a regional processing office
are located at 700 Wachovia Center, Gainesville, Georgia 30501, where it leases
approximately 12,650 square feet of space at a monthly rental of $22,000. The
lease for this office expires in October 1999. The Company also leases office
space for its other two processing offices and maintains executive suites in
certain additional states as required by state mortgage licensing regulations.
The processing offices have 2,000 to 3,000 square feet and rent for $3,000 to
$4,000 per month. The executive suites generally have about 120 square feet and
rent from $200 to $700 per month. The Company believes that its corporate
facilities are adequate for the Company's present and anticipated needs for at
least the next 12 months.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     On February 27, 1998, Terry Lee Flowers and Rosemary Flowers, (the
"Plaintiffs") on behalf of themselves and a purported class of others brought an
action against a wholly-owned subsidiary of the Company in the United States
District Court for the Northern District of Mississippi. The Plaintiffs alleged
that the subsidiary made payments to mortgage brokers which constituted referral
fees, kickbacks and
                                        8
<PAGE>   10
 
duplicative payments in violation of RESPA and the Rules and Regulations and, as
a result, the Plaintiffs and others were charged higher rates of interest by the
subsidiary than would have otherwise been the case. The Court has not ruled on
whether the action will proceed as a class action. The Plaintiffs are seeking a
non-specified amount of compensatory damages. In the event of a finding against
the subsidiary in the action, in addition to a material amount of monetary
damages which may be assessed against the subsidiary, the Company's ability to
continue to obtain referrals from mortgage brokers could be significantly
impaired. Substantially all of the Company's business is presently derived from
referrals from mortgage brokers. The Company has become aware that the United
States Court of Appeals for the Eleventh Circuit (the "Eleventh Circuit"), in an
action in which the Company was not a party, held that certain fees paid to
mortgage brokers represent "yield spread premiums" which constitute referral
fees in violation of RESPA. Certain Federal District Courts have reached similar
conclusions. The Company believes that the defendant will seek to have the
Eleventh Circuit reconsider its holding and, if necessary, ultimately appeal the
holding to the United States Supreme Court. The Eleventh Circuit is the federal
appellate court for cases arising in the Federal District Courts in Alabama,
Florida and Georgia. The Company originates a significant amount of loans in
Georgia and Florida and pays yield spread premium on a portion of those
originations. In addition to possible criminal violations for unlawful payments
in violation of RESPA, a payor can be held liable for damages in the amount of
300% of the unlawful payments. If the Company is ever found to be liable to such
extent, the Company would not have sufficient resources with which to pay such
damages and could be expected to file for bankruptcy protection. The subsidiary
intends to vigorously defend the action.
 
     On February 9, 1998, the Company and another of its wholly-owned
subsidiaries were named as defendants in an action filed in the Court of Common
Pleas of Cuyahoga County, Ohio (the "State Court") by Alan Schiff, a former
employee of the subsidiary (the "Plaintiff"). The case was removed to the United
States District Court for the Northern District of Ohio. In connection with the
purchase by the subsidiary of an enterprise in which the Plaintiff was a
principal, the Plaintiff signed an employment contract and a non-
competition/non-solicitation agreement. The Plaintiff asserted claims for (1)
breach of the purchase and employment agreements; (2) rescission of the purchase
agreement and all other agreements; (3) a declaration of his rights under the
agreements; and (4) an injunction enjoining the Company and the subsidiary from
enforcing restrictive covenants in the agreements which, pursuant to their
terms, would prohibit the Plaintiff from competing against the Subsidiary in the
mortgage business, and from any further alleged breaches of the agreements. The
Plaintiff sought compensatory damages of $1,000,000 and punitive damages of
$2,000,000. The Company and the subsidiary denied the Plaintiff's substantive
claims and asserted counterclaims against the Plaintiff for (a) unspecified
damages for (1) breach of the purchase agreement; (2) breach of his employment
agreement; (3) breach of fiduciary duty; and (b) a declaratory judgment to the
effect that the Company and the subsidiary did not breach any agreement with the
Plaintiff. The action was settled on September 4, 1998, with neither party
receiving any damage award. All claims by both parties were dismissed with
prejudice.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
 
     Not applicable.
 
                                        9
<PAGE>   11
 
                                    PART II
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The principal market where the Company's common stock (the "Common Stock")
is traded is the Nasdaq SmallCap Market. The following table sets forth the high
and low bid prices for the Common Stock as reported by the Nasdaq SmallCap
Market for the periods indicated. A one-for-five reverse stock was effected on
November 3, 1997. For prices quoted below prior to that date, the actual prices
originally reported have been adjusted to give effect to the reverse stock
split. The prices set forth below represent inter-dealer prices without retail
mark-up, mark-down or omission and may not necessarily represent actual
transactions.
 
<TABLE>
<CAPTION>
                                                                COMMON STOCK
                                                              -----------------
                                                               HIGH       LOW
                                                              -------   -------
<S>                                                           <C>       <C>
FISCAL 1997
Quarter ended September 30, 1996............................  $23.125   $12.500
Quarter ended December 31, 1996.............................   21.250    14.688
Quarter ended March 31, 1997................................   20.313    16.875
Quarter ended June 30, 1997.................................   18.750     6.250
 
FISCAL 1998
Quarter ended September 30, 1997............................    7.815     2.190
Quarter ended December 31, 1997.............................    4.000     1.000
Quarter ended March 31, 1998................................    1.500     0.563
Quarter ended June 30, 1998.................................    1.500     0.750
</TABLE>
 
     As of September 2, 1998, the Company had 111 holders of record of the
Common Stock. The Company believes there are in excess of 300 beneficial holders
of the Common Stock.
 
     The Company has not declared any cash dividends on its Common Stock during
the past two fiscal years. The terms of the Company's outstanding Convertible
Secured Notes and Convertible Preferred Stock effectively eliminate its ability
to pay cash dividends on its Common Stock.
 
     From November 12, 1997 to December 23, 1997, the Company issued an
aggregate of 4,914,000 shares of Common Stock in exchange for the Company's 10%
Secured Convertible Promissory Notes in the aggregate principal amount of
$6,970,000 and 315,000 shares of the Company's Series A Convertible Preferred
Stock. The Company claimed exemption from registration under the Securities Act
of 1933 (the "Securities Act") pursuant to the provisions of Section 3(a)(9)
thereof because the transaction constituted an exchange by the Company with its
existing securityholders exclusively where no commission or other remuneration
was paid or given directly or indirectly for soliciting such exchange.
 
     On November 12, 1997, the Company issued an aggregate of 20,000 shares of
its Common Stock to two consultants in consideration for consulting services
rendered by them. The Company claimed exemption from registration under the
Securities Act pursuant to the provisions of Section 4(2) thereof inasmuch as no
public offering was involved.
 
     From July 30, 1997 to March 12, 1998, the Company borrowed an aggregate of
$2,200,000 from five lenders. In connection with such loans, the Company issued
10% Secured Convertible Promissory Notes in the aggregate principal amount of
$2,200,000 and warrants to purchase an aggregate of 1,100,000 shares for the
Company's Common Stock. Reference is made to Note 8 in the "Notes to the
Consolidated Financial Statements" in Item 7. The Company claimed exemption from
registration under the Securities Act pursuant to the provisions of Section 4(2)
thereof inasmuch as no public offering was involved.
 
     From November 19, 1997 to December 31, 1997 the Company issued warrants to
purchase an aggregate of 144,000 shares of its Common Stock to certain members
of its then Board of Directors. Reference is made to Note 8 in the Notes to the
Consolidated Financial Statements 3 and 12 of Notes to Consolidated Financial
 
                                       10
<PAGE>   12
 
Statements. The Company claimed exemption from registration under the Securities
Act pursuant to the provisions of Section 4(2) thereof inasmuch as no public
offering was involved.
 
     On January 31, 1998, the Company issued warrants to purchase 333,334 shares
of the Company's Common Stock to Heiko H. Thieme in consideration for services
rendered to the Company by Mr. Thieme. The warrants are exercisable at $1.24 per
share, subject to adjustment, and expire on January 31, 2008. The Company
claimed exemption from registration under the Securities Act pursuant to the
provisions of Section 4(2) thereof inasmuch as no public offering was involved.
 
     On June 12, 1998, the Company issued 21,000 shares of Series C Convertible
Redeemable Preferred Stock and a warrant for the purchase of 2,800,000 shares of
its Common Stock to The Global Opportunity Fund, Inc. (the "Global"). Reference
is made to Notes 3 and 8 of Notes to Consolidated Financial Statements. Global
has agreed not to convert such shares or exercise such warrants until the
earlier of ratification of the transaction by the Company's shareholders or
December 31, 1998. The Company claimed exemption from the registration
provisions of the Securities Act pursuant to the provisions of Section 3(a)(9)
thereof because the transaction constituted an exchange by the Company with an
existing securityholder exclusively where no commission or other remuneration
was paid or given directly or indirectly for soliciting such exchange.
 
     In connection with the issuance of certain of the securities described
above, the Company has agreed to register such securities or securities
underlying such securities under the Securities Act.
 
     In August 1998 a hearing was held by the Nasdaq Stock Market ("Nasdaq") to
determine if the Company's Common Stock would be delisted from Nasdaq. At the
hearing, the Company submitted a plan to achieve and maintain compliance with
several requirements mandated by Nasdaq for continued listing. Specifically, the
Company has from time to time failed to meet minimum tangible net worth and
stock price requirements and requirements for shareholder approval for the
issuance of certain securities. A special meeting of the shareholders has been
called for October 15, 1998 to vote on several proposals that are intended to
rectify these various deficiencies. In the event these proposals are not
approved, or if Nasdaq, in its discretion, determines that the Company will be
unable to maintain compliance with all listing requirements, the Company's
Common Stock will be delisted. If the Common Stock is delisted, the Common Stock
would trade on the Over-The-Counter Bulletin Board, and could become subject to
Rule 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act"), which
imposes additional sales practice requirements on broker-dealers which sell such
securities to certain persons. For transactions covered by that rule, a broker-
dealer must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, such rule may adversely affect the ability of broker-dealers to
sell the Company's common stock. Additionally, the Securities and Exchange
Commission (the "SEC") imposes regulations on trades of "penny stocks",
generally defined as any non-Nasdaq equity security that has a market price (as
therein defined) of less than $5.00 per share subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks. If the Company's Common Stock were subject to rules relating to
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
 
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION
 
     This section presents management's discussion and analysis of the
consolidated financial condition and results of operations of the Company for
the fiscal years ended June 30, 1998 and 1997. The discussion should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes to the consolidated financial statements (see Item 7). Also
see "Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995" under "Item 1."
 
                                       11
<PAGE>   13
 
CERTAIN ACCOUNTING CONSIDERATIONS
 
     A portion of the Company's revenues consists of gain on loans sold by the
Company servicing retained ("Service") or with servicing released but retaining
an interest in the mortgage loan ("Interest-Only"). The gross gain on a Service
sale principally represents the present value of the difference between the
interest rate paid by the borrower and the interest rate received by the
investor who purchased the loans, reduced by a contractual loan servicing fee.
The corresponding asset established to record this gain is the Servicing Asset.
A separate reserve for prepayments is calculated and also concurrently recorded,
which reduces the gross gain on sale. The Company has not sold loans on a
Service basis since March 1995. The corresponding asset established in
connection with the gain on an Interest-Only sale is known as an Interest-Only
Strip Receivable. In this type of sale, prepayment assumptions, including credit
losses, are included in and effectively reduce the gross gain on sale, so no
separate reserve is recorded for prepayment. The Company has not sold loans on
an Interest-Only basis since October 1997. In both types of sales, the Company
recognizes the gain on sale of loans in the fiscal year in which such loans are
sold, although cash is received by the Company over the lives of the loans. Both
types of assets are computed in part based upon, and amortized over, the
estimated lives of the loans.
 
     Because the gain recognized in the year of sale is equal to the present
value of the estimated future cash flows in both types of sales, the amount of
cash actually received over the lives of the loans may exceed the gain
previously recognized at the time the loans were sold. In subsequent years where
such cash exceeds the previously recorded gain, the Company recognizes
additional income and fees to the extent actual cash flows from such loans
exceed the amortization of either type of asset. If actual prepayments with
respect to sold loans occur faster than were projected at the time such loans
were sold, the carrying value of the Servicing Asset or Interest-Only Strip
Receivable is reduced through a charge to earnings in the period of adjustment.
See "Sale of Mortgage Loans" in Item 1 for adjustments made due to a change in
the rate of prepayments.
 
     In addition, provisions for credit losses are charged to income in amounts
sufficient to maintain the allowance for credit losses at a level considered by
the Company to be adequate to absorb possible losses of principal in both the
existing portfolio and the remaining loans sold with a residual obligation,
based upon calculations of the collectibility of loans receivable and on prior
credit loss experience. The Company charges write-off's of loans receivable
against the allowance for credit losses when it believes, based upon a loan-by-
loan review, that the collectibility of principal is unlikely. The Company's
exposure to credit loss in the event of nonperformance by the borrower is
represented as the outstanding principal balance of the respective loans less
the value of the collateral obtained, which value is based upon the Company's
current review of the appraisal. While the Company uses available information to
recognize losses on loans, future additions to the allowance for credit losses
may be necessary based upon a number of factors including changes in economic
conditions.
 
RESULTS OF OPERATIONS
 
     Three items accounted for 90% of the $12,881,000 loss for Fiscal 1998.
Specifically, debt conversion expense of $5,576,000, amortization and write-down
of the Interest-Only Strip Receivable and Servicing Asset of $4,310,000, and
financing and goodwill amortization of $1,731,000 comprised $11,617,000 of the
$12,881,000 loss. None of these three items represented cash outlays by the
Company in Fiscal 1998. In their audit report, the Company's independent
auditors included an explanatory paragraph discussing conditions that, in their
opinion, raise substantial doubt about the Company's ability to continue as a
going concern. Note 13 in the "Notes to the Consolidated Financial Statements"
in Item 7 details Management's plans to address each of the conditions cited by
the independent auditors. Note 13 should be read in conjunction with Item 6
herein.
 
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
 
     The Company's net loss was $12,881,000 in Fiscal 1998 as compared to a net
loss of $3,363,000 in Fiscal 1997, an increase in net loss of 283%. The single
largest item contributing to this increase was the recording of $5,576,000 of
debt conversion expense in October 1997, which did not involve any cash
expenditures.
 
                                       12
<PAGE>   14
 
Following are line item comparisons in order of presentation in the
"Consolidated Statements of Operations" in Item 7.
 
     Net revenues decreased from $5,918,000 in Fiscal 1997 to $4,722,000 in
Fiscal 1998, or 20%. The single largest decrease among the components of net
revenue was gain on sale of receivables, which decreased from $5,142,000 in
Fiscal 1997 to $4,402,000 in Fiscal 1998, or 14%. The primary reason for the
decrease in this line item was the change in sales methods which occurred during
the year as described under "Sale of Mortgage Loans" in Item 1. The Company
actually sold more loans in Fiscal 1998 than in Fiscal 1997 ($93,132,000 in
Fiscal 1998 compared to $82,264,000 in Fiscal 1997), but the method of sale
changed. The Company sold $77,020,000 of loans on an Interest-Only basis in
Fiscal 1997, compared to $12,225,000 in Fiscal 1998. Loans sold on an
Interest-Only basis yield a greater gain on sale margin than loans sold Whole,
but the gain is accrued as opposed to a Whole loan sale wherein the entire
premium is received in cash at the time of sale. See "Certain Accounting
Considerations" above for a discussion on how the two different types of sales
are recorded.
 
     Another component of net revenue, finance income and fees earned, decreased
from $757,000 in Fiscal 1997 to $153,000 in Fiscal 1998. Gross finance income
actually increased from $2,051,000 in Fiscal 1997 to $4,489,000 in Fiscal 1998.
However, amortization of the Interest-Only Strip Receivable and Servicing Asset
is netted against gross finance income. The amortization from these two assets
was $1,294,000 in Fiscal 1997 and $4,310,000 in Fiscal 1998. See Note 5 to the
Financial Statements in Item 7 for more discussion regarding these assets and
their respective amortization. The third item comprising net revenues, other
income, increased from $20,000 in Fiscal 1997 to $167,000 in Fiscal 1998. Most
of this increase was the result of how processing fees are reflected on the
financial statements as opposed to significant increases in other income.
 
     Salaries and employee benefits increased from $4,194,000 in Fiscal 1997 to
$4,797,000 in Fiscal 1998, or 14%. This increase was due to $1,174,000 of
payroll expense from the Company's Cash Back telemarketing subsidiary acquired
in April 1997. Excluding this acquisition, the Company's salary expense
decreased from $3,776,000 in Fiscal 1997 to $3,503,000 in Fiscal 1998. The
Company expanded rapidly during the first half of 1997. The number of full-time
employees was 57 at June 30, 1996, and 80 at June 30, 1997. After the change in
management was made later in 1997, full-time employees were reduced to 54
persons at December 31, 1997. This reduction included nearly all of the
Company's sales personnel, three processing centers, and several corporate
office staff and officers. The Company subsequently re-established its sales
department with new employees without increasing its corporate office personnel,
and had 68 full-time employees at June 30, 1998.
 
     Legal and professional fees increased from $525,000 in Fiscal 1997 to
$675,000 in Fiscal 1998, or 29%. While the Company was able to decrease its
consulting expenses during Fiscal 1998, legal expenses associated with the two
lawsuits mentioned in Item 3 significantly increased legal fees during the year.
Additionally, fees from the Company's independent auditors increased
significantly for the annual audit and other accounting services.
 
     Other operating expenses decreased from $2,893,000 in Fiscal 1997 to
$2,838,000 in Fiscal 1998, or 2%. In general, the decrease resulted from the
closing of three processing offices and the implementation of several cost
reduction measures mandated by new management during Fiscal 1998. The single
largest line item decrease in this category was in Travel and Entertainment.
 
     The provision for credit losses increased from $225,000 in Fiscal 1997 to
$301,000 in Fiscal 1998. See Note 4 in the "Notes to the Consolidated Financial
Statements" in Item 7 for a more detailed breakdown of the allowance for credit
losses. While the Company did experience a greater amount of charge-offs in
Fiscal 1998 than in Fiscal 1997, the pools of loans from which most of these
charge-offs originate (loans originated prior to 1994) decreased significantly
during the year. Management believes the provision for credit losses at June 30,
1998 of $267,000 is adequate.
 
     Goodwill of $911,000 was recorded upon the acquisition of a telemarketing
mortgage broker in April 1997 and is being amortized on a straight line basis
over 15 years. The goodwill was written down to $607,000 at June 30, 1998, based
on an evaluation of the value of the asset at that time.
 
                                       13
<PAGE>   15
 
     Interest expense and amortization of deferred financing costs increased
from $1,444,000 in Fiscal 1997 to $3,113,000 in Fiscal 1998, or 115%. Financing
cost amortization comprised $1,427,000 of this line item. Most of the
amortization was the result of the complete write-off of certain deferred costs
associated with debt that matured or was converted to equity in Fiscal 1998. At
June 30, 1998, the balance of deferred financing charges to be amortized was
$131,000. Interest expense increased from $1,224,000 in Fiscal 1997 to
$1,686,000 in Fiscal 1998. While interest expense on convertible debt decreased
a the result of conversion to equity or payment of the debt, interest expense on
the warehouse lines of credit increased significantly as the balance in these
lines increased from $3,356,000 at June 30, 1997 to $8,149,000 at June 30, 1998.
The increase in warehouse line balances reflected an increase in loan
originations and the Company's cessation of using significant amounts of working
capital to fund new loan originations.
 
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
 
     The Company's net loss was $3,363,000 in Fiscal 1997 as compared to a net
loss of $4,115,000 in Fiscal 1996, representing an improvement in operating
results of 18%. This decrease in net loss was primarily the result of increased
gain on sale, as revenues increased 159% to $3,640,000 and expenses increased
45% to $2,888,000 in Fiscal 1997 from Fiscal 1996. This improvement was not
sufficient, however, to offset the costs of maintaining the Company's loan
production and support operations and the costs of raising capital.
 
     Finance income and fees for Fiscal 1997 increased 15% to $757,000 in Fiscal
1997 from Fiscal 1996 as both the amount of Company's average loan portfolio and
interest rate on that portfolio increased. The increase in the average size of
the Company's loan portfolio balance was a result of the increased loan volume
in Fiscal 1997. The average interest rate yield on mortgage loans originated in
Fiscal 1997 increased by 0.52% to 12.05%, compared to an average of 11.53% in
Fiscal 1996, a 4.5% increase. This increase was primarily a result of the
Company purchasing more loans in the "C" and "D" credit grade as compared to
loans originated in Fiscal 1996.
 
     Gains on sales of mortgage loans increased to $5,142,000 for Fiscal 1997
from $1,578,000 during Fiscal 1996 due to the increased volume of loan sales and
the higher margins received on those sales. The Company sold $82,264,000 of
loans in Fiscal 1997 as compared to $37,035,000 in Fiscal 1996. The gain on sale
margin on the loans sold also improved as the average gain on sale percentage
increased from 5.17% to 6.30%, or a 22% improvement in Fiscal 1997 from Fiscal
1996, reflecting the change in sales methods. For most of the first three
quarters of Fiscal 1996, loans were sold on a Whole basis, whereas for all of
Fiscal 1997 loans were sold on an Interest-Only basis.
 
     Salaries and employee benefits increased 53% to $4,194,000 in Fiscal 1997
from $2,734,000 in Fiscal 1996, reflecting the Company's expansion effort. The
number of Company employees increased from 57 to 80 full-time employees, or 40%,
from June 30, 1996 to June 30, 1997, exclusive of the 30 full and part-time
personnel employed by Cash Back Mortgage Corporation acquired in April 1997.
 
     Legal and professional fees increased 82% to $525,000 in Fiscal 1997 from
Fiscal 1996, with most of the increase in the form of consulting fees.
Consultants were paid primarily in connection with assisting the Company locate
additional financing or warehouse lines.
 
     Other operating expenses increased by 50% to $2,893,000 in Fiscal 1997 from
Fiscal 1996. A substantial portion of the expenses in this category increased as
a result of the 40% increase in number of employees between the comparable
periods. However, increases in certain expenses were incurred in connection with
the loan origination expansion effort undertaken in Fiscal 1997 and not directly
attributable to just an increase in the number of employees. The largest of
these types of increases was in Advertising & Promotion expense, which increased
$109,000 from Fiscal 1996 to Fiscal 1997.
 
     Interest expense and amortization of deferred financing costs increased 20%
to $1,444,000 in Fiscal 1997 from Fiscal 1996 as the Company had most of the
$9,000,000 in convertible debt raised during the summer of 1996 outstanding for
Fiscal 1997. In addition, costs incurred with raising this debt also began
amortizing in Fiscal 1997 and increased the expense for this category.
 
                                       14
<PAGE>   16
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The business strategy employed by the Company in previous years required
continual access to short-term and long-term sources of debt and equity capital.
By selling loans on an Interest-Only or Service basis, the Company would have to
amass a very large pool of loans wherein the amount of interest collected and
remitted on a monthly basis was greater than the cash expenditures incurred
during the month in order to generate a positive cash flow. Since this did not
occur, the shortfall in working capital was provided by placements of debt and
equity. The Company will always require access to short-term sources of debt,
specifically warehouse lines of credit. The Company will likely require cash
infusions from external sources to provide working capital to expand operations,
and possibly to maintain operations. However, the strategy of exclusively
selling loans Whole for a cash premium at time of sale during Fiscal 1998 has
made a significant improvement in the negative cash flow that was being incurred
under the previous strategy. The last cash infusion received by the Company from
the sale of debt or equity was in March 1998. The Company's capital requirements
arise principally from loan originations and loan repurchases, payments of
operating and interest expenses, capital expenditures, and start-up expenses for
expansion into new geographic markets. While the Company has generated enough
cash from sales of loans since March 1998 to pay its operating expenses, the
Company has been unable to create a cash reserve. Additionally, the Company has
little capacity to repurchase loans, either from its pool of serviced loans that
contain a buyback provision or from the warehouse lines which generally have a
limit of 90 days that a loan can remain in the line. The Company currently does
not have enough resources available should a significant amount of loans need to
be repurchased. During Fiscal 1998, the Company used a net of $5,718,000 in its
loan operations, of which $4,792,000 was provided by an increase in the
warehouse lines of credit. The Company did place an additional $2,200,000 of
convertible debt during Fiscal 1998, which provided capital for the balance of
operational needs. To date, in addition to the Company's capital raising
efforts, the sources of cash have been (1) sales into secondary markets of the
loans the Company originates and purchases, (2) borrowings under a mortgage
warehouse line of credit secured by its loans, (3) finance income earned on
Company owned loans and servicing fees generated on the loan servicing
portfolio, (4) borrowings under a repurchase line of credit (5) other borrowings
(discussed below), and (6) the conversion of the Servicing Asset and
Interest-Only Strip Receivable into cash over the lives of the loans in the
servicing portfolio, including an advance against that conversion described more
fully below. Additional information regarding the following narrative on the
financing activities of the Company is set forth in Note 3 in the "Notes to the
Consolidated Financial Statements" in Item 7.
 
     In July 1994, the Company completed the placement of $5,550,000 of 8%
Senior Subordinated Convertible Notes due 2004 (the "8% Notes"). In October
1995, the Company agreed to certain conditions as a prerequisite for obtaining a
waiver for technical covenant violations contained in the indenture relating to
the 8% Notes. When these conditions were not met at December 31, 1995, the
maturity date of 8% Notes was accelerated to March 30, 1996. The Company repaid
$3,250,000 of the 8% Notes in June 1996 ($2,250,000 of which was paid out of the
proceeds of the sale of the 8% Notes described below) and the remaining
$2,300,000 of 8% Notes was exchanged for loans under a secured warehouse lending
facility. During Fiscal 1998, the balance of this secured lending facility was
reduced from $2,300,000 to $800,000. The Company has signed an agreement with
this lender to continue to reduce the balance of this facility at the rate of
$100,000 per quarter. The funds necessary to reduce the balance of this facility
are anticipated to come from the proceeds of the sale or payout of the loans
securing the facility.
 
     In 1995, the Company completed an offering of $3,000,000 of convertible
mortgage participations and warrants to purchase common stock to be used solely
for the purpose of originating and acquiring mortgage loans. The borrowings bore
an interest rate of 10% per annum, payable monthly, secured by underlying
mortgage loans. The proceeds from the sale of any assigned mortgage loans were
used to originate new mortgage loans in which the lenders will have
participations. In October 1995, $2,500,000 of the borrowings were converted by
the lenders of these participations into Preferred Stock and warrants as part of
a placement of $6,400,000 of 9% Convertible Preferred Stock (the "Series A
Preferred Stock") and warrants to purchase Common Stock. Of the remaining
$500,000 of participations, $400,000 was converted to Common Stock and $100,000
was repaid during Fiscal 1997. Of the original holders of 315,000 shares of
Series A Preferred Stock, one holder converted 5,000 shares into Common Stock
during Fiscal 1997. The balance of the Series A
 
                                       15
<PAGE>   17
 
Preferred Stockholders converted their stock and unpaid dividends into Common
Stock as part of the Company's conversion offer in October 1997, and none of the
Series A Preferred Stock was outstanding at June 30, 1998.
 
     In January 1996, the Company obtained a $1,050,000 term loan at a 10%
interest rate secured by certain mortgage loans of the Company. The loan was
scheduled to mature in February 1997, and had an outstanding $925,000 principal
balance at June 30, 1996. This loan was repaid in August 1996. In February 1996,
the Company sold $500,000 of convertible mortgage participations on similar
terms to the $3,000,000 of participations sold in June 1995 described above.
These participations matured in February 1998, and per an agreement with the
lender $250,000 was repaid by June 30, 1998, and $250,000 remains as debt in the
form of restricted cash securing a letter of credit for the Company which
matures on December 31, 1998. It is anticipated this debt will be repaid with
the restricted cash upon expiration of the letter of credit.
 
     The Company completed the sale of $9,000,000 of 10% Convertible Secured
Notes (the "10% Notes") in August 1996, resulting in net proceeds to the Company
after expenses of approximately $8,000,000. $3,250,000 of the proceeds were used
to repay the 8% Notes described above. The 10% Notes are partially secured by
essentially all otherwise unpledged assets of the Company and are convertible
into Common Stock. During Fiscal 1997, holders of $860,000 of the 10% Notes
converted their notes into Common Stock. In October 1997, holders of $6,970,000
of the 10% Notes converted their notes into Common Stock in response to the
Company's conversion offer. In June 1998, a holder of $1,000,000 of the 10%
Notes exchanged its note for shares of Series C Preferred Stock as more fully
described below. The balance of 10% Notes at June 30, 1998 was $170,000. These
notes mature in June 2001.
 
     In November 1996, the Company entered into an agreement with the
Securitizer wherein the Company received advances on the Company's portion of
the interest-only strip collected from the borrower over the life of the loan.
The advance was originally being repaid over 36 months, although this term was
accelerated to 30 months by the Securitizer during Fiscal 1998 as permitted by
certain provisions in the advance agreement. Each advance bears an interest rate
set at the time the loans underlying the interest-only strip receivable were
sold to the Securitizer. The advance and the interest charge associated with it
are deducted from the monthly collections of interest due to the Company by the
Securitizer. At June 30, 1998, the Company had been advanced $1,620,000 net of
repayments under this agreement.
 
     In March 1997, the Company obtained a total of $550,000 in warehouse lines
of credit bearing an interest rate of 12%. These lines became unnecessary and
were terminated by the Company in August 1997 with the addition of more
substantial warehouse lines described below.
 
     In April 1997, the Company sold 16,740 shares of Series B 11% Redeemable
Convertible Preferred Stock (the "Series B Preferred Stock") for $1,674,000,
resulting in net proceeds to the Company of approximately $1,498,000. Purchasers
of the Series B Preferred Stock received warrants to purchase 669,000 shares of
Common Stock at $2.50 per share. The conversion and exercise prices,
respectively, of the Series B Preferred Stock and associated warrants were
changed to $1.80 per share during Fiscal 1998 as a result of anti-dilution and
other provisions. Dividends are payable quarterly in cash or in additional
Series B Preferred Stock. The Company has paid all dividends to- date in
additional stock. Payment of the dividend for the quarter ended June 30, 1998 in
additional stock triggered voting rights for the Series B Preferred
Stockholders, and payments of dividends in additional stock after this date will
be calculated at a 20% discount to the market price of the Common Stock.
 
     In June 1997, the Company obtained a revolving warehouse line of credit for
$3,000,000 from Pinnacle Mortgage Acceptance Corporation ("Pinnacle"). In
October 1997, this agreement was terminated and a new agreement with Pinnacle
was executed. At June 30, 1998, the balance in this warehouse line was $450,000.
In August 1998, the Company executed an agreement directly with the financial
institution providing financing for Pinnacle, Sterling Bank & Trust
("Sterling"). This action was taken when Sterling ceased to provide financing to
Pinnacle due to a legal dispute not involving the Company. The agreement with
Sterling provided a warehouse line under the same terms as the agreement with
Pinnacle, except that the Sterling agreement expires on November 12, 1998. The
Company is in the process of reapplying for a warehouse line of credit directly
with Sterling with the intention of having a new one-year agreement in place
before the current
                                       16
<PAGE>   18
 
agreement expires. The Company has ceased adding loans to this line and is
reducing the outstanding balance until a new agreement, if any, is executed.
While Management believes the remaining loans in this line will be sold prior to
the expiration of this agreement, no assurance can be given that the Company
will do so or that the agreement with Sterling will be renewed on terms not
unfavorable to the Company, if at all.
 
     In February 1998, another warehouse line of credit agreement was executed
with First Bankshares Mortgage. First Bankshares Mortgage was subsequently
purchased by Regions Bank ("Regions"), but this acquisition did not change the
terms of the agreement with the Company. This warehouse line has a $15,000,000
credit limit and may be canceled at the discretion of the lender with 45 days
notice to the Company. At June 30, 1998, the balance in this line was
$7,699,000.
 
     Each of the Company's warehouse lenders requires that each mortgage loan in
a pool complies with all applicable provisions of federal and state laws and
regulations, which include RESPA and the Rules and Regulations. Both the
Sterling and Regions agreements allow the respective lenders to demand
withdrawal of any loan from the line after 90 days, with full payment of
principal and interest due at the time of withdrawal. No loans had been in
either line more than 90 days at June 30, 1998. However, the Company has
occasionally had loans in the line more than 90 days, and no assurance can be
given that the Company will be able to sell all loans within 90 days. In the
event the Company is unable to sell a substantial amount of loans within 90 days
and the respective lenders should exercise their right to demand repayment, the
Company may not have sufficient cash to comply with the repayment demand.
 
     The Company is substantially dependent upon its warehouse lines to fund
loan originations. Management believes that in the event the agreement with
Sterling is not renewed that the $15,000,000 credit limit with Regions would be
adequate to fund the Company's currently level of loan production. However,
failure to obtain another warehouse line or increase the credit limit of the
Regions line could impair the ability of the Company to increase its loan
production beyond certain levels in the future.
 
     During Fiscal 1998, the Company received a total of $2,200,000 in a private
placement of 10% convertible debt, referred to as the "Bridge Loan". The holders
were issued warrants to purchase 1,100,000 shares of Common Stock at an exercise
price of $2.00 per share, subject to certain anti-dilution adjustments. In June
1998, the holder of $1,100,000 of the Bridge Loan exchanged its debt for shares
of Series C Preferred Stock as described below. The maturity date of the
outstanding Bridge Loan has been extended several times, and the balance of
$1,100,000 is due on October 31, 1998. The Company is in the process of
negotiating a settlement of this debt which may involve a portion of the Bridge
Loan being paid out over an extended period of time and a portion being
converted to preferred stock.
 
     In June 1998, the Company issued 21,000 shares of 11% Series C Convertible
Redeemable Preferred Stock (the "Series C Preferred Stock") in exchange for the
conversion of $1,000,000 of 10% Notes (described above) and $1,100,000 of the
Bridge Loan (described above). Both debt issuances were held by a single
investor. The Series C Preferred Stock was originally convertible into Common
Stock at the rate of $0.75 per share, but was subsequently adjusted to $0.50 per
share pursuant to a provision related to a decrease in the market price of the
Common Stock. Additionally, the holder of the stock received a warrant to
purchase 2,800,000 shares of Common Stock at an exercise price of $1.25 per
share. The holder of this stock has signed an agreement with the Company not to
convert any of the Series C Preferred Stock until the earlier of a) December 31,
1998, or b) shareholder approval for the issuance of stock and the associated
warrant. A proposal to obtain shareholder approval will be considered at the
special shareholders meeting scheduled to be held on October 15, 1998.
 
     During Fiscal 1998, loans receivable increased from $5,517,000 to
$9,171,000. Such increase was financed primarily by an increase in the warehouse
lines of credit. The Company ceased selling loans by the Interest-Only method in
October 1997, and the Interest-Only Strip Receivable decreased from $7,269,000
at June 30, 1997, to $4,118,000 at June 30, 1998 from a combination of scheduled
amortization and valuation adjustments. Convertible notes decreased from
$10,440,000 to $2,070,000 during Fiscal 1998 primarily as a result of
conversions to equity. Net worth increased from $377,000 to $2,458,000 from June
30, 1997 to June 30, 1998, although goodwill is excluded from net worth
calculations by Nasdaq and state mortgage licensing agencies which monitor the
Company's net worth.
                                       17
<PAGE>   19
 
     While the Company has improved its debt to equity ratio and reduced its
negative cash flow, it is still possible that the Company will require
additional capital for operations and probable that it will require additional
capital for expansion, establishing a cash reserve, and payment of preferred
stock dividends in cash. Even if the Company does not need cash to pay operating
expenses, the Company will still require additional tangible net worth to
maintain its Nasdaq listing. While some or all of this net worth may be obtained
from the conversion of the Bridge Loan as described above, net worth derived
from the conversion of the remainder of existing debt would probably not be
possible, requiring the issuance of new equity securities to obtain more net
worth. While the minimum amount of tangible net worth required by the various
state mortgage licensing agencies is much less than the $2,000,000 required by
Nasdaq, a significant negative adjustment to the value of the Interest-Only
Strip Receivable as a result of an increase in the prepayment rate of the loans
underlying that asset could result in a large enough reduction in net worth to
jeopardize the ability of the Company to maintain a lending license in some of
the states in which it currently operates. Involuntary suspension of a lending
license in one state could trigger license renewal problems in other states and
effectively reduce the ability of the Company to originate enough loans to
remain viable. Management also considers a lending facility for loans that
cannot be sold within the 90 days permitted by the warehouse lenders to be an
important component in expanding its loan production and preventing unplanned
uses of working capital. Finally, the payout terms on the Bridge Loan described
above must be negotiated such that the projected cash flow of the Company could
accommodate the payout. Cash flow and payment of debt have been listed as
reasons for going concern by the independent auditors. See "Going Concern" below
and Note 13 in the "Notes to the Consolidated Financial Statements" in Item 7
for more discussion on liquidity and capital resource issues as they relate to
the viability of the Company.
 
FLUCTUATIONS IN INTEREST RATES AND OTHER FACTORS
 
     Although the Company's customers are generally not interest rate sensitive
in determining to utilize the mortgage loan programs offered by the Company, the
primary assets and liabilities of the Company are interest rate sensitive.
Potential profitability is directly affected by the level of and fluctuations in
interest rates and is dependent upon the Company's ability to earn a spread
between the earnings on its assets and the costs associated with its
liabilities. Additionally, the value and potential maturity of the Company's
assets and the cost and duration of its liabilities are affected by changes in
interest rates. While the Company monitors the interest rate environment, there
can be no assurance that any potential profitability and/or liquidity of the
Company would not be adversely affected during any period of unexpected
volatility in the interest rate environment. A significant reduction in interest
rates also could decrease the size of the loan servicing portfolio by increasing
the level of loan prepayments.
 
     The collateral for the mortgage loans originated and owned by the Company
are secured by residential real estate. An overall decline in the residential
real estate market or the condition of particular properties, together with
other related factors, could adversely affect the values of the properties
securing the Company's mortgage loans. Therefore, in a continuing period of
economic decline, the rates of delinquencies, foreclosures and losses on
mortgage loans could be higher than those heretofore experienced by the Company
and in the mortgage lending industry in general. In addition, adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
mortgage loans.
 
GOING CONCERN
 
     In its report on the Company's financial statements for Fiscal 1998 and
Fiscal 1997, the Company's independent auditors included an explanatory
paragraph noting that the financial statements had been prepared assuming the
Company would continue as a going concern. The independent auditors noted
several factors that, in their opinion, formed a basis for raising substantial
doubt regarding the Company's ability to continue as a going concern. The
reasons for this doubt were significant recurring losses, significant negative
operating cash flow, significant debt maturing within the next fiscal year, and
significant accumulated deficit. The potential delisting of the Common Stock
from Nasdaq was also given as another reason for including the explanatory
paragraph.
 
                                       18
<PAGE>   20
 
  Management's Plans
 
     Following are Management's plans in regards to those specific issues cited
by the independent auditors as a reason for including the explanatory paragraph.
 
     Nasdaq listing.  Management recognizes that listing on the Nasdaq Small Cap
Market is important to many shareholders and enhances the Company's ability to
raise capital. At the same time, Management believes that failure to maintain
the listing would have no direct bearing on the loan operations of the Company,
nor eliminate all sources of potential capital. Management does not believe that
having its Common Stock trade in the over-the-counter market constitutes a
viability issue. Nevertheless, Management and the Board of Directors would like
to maintain the listing, and to that end officers of the Company met with
officials from Nasdaq in August 1998. In order to maintain its listing, the
Company must (a) obtain approval from the shareholders for the issuance of the
Series "C" Preferred Stock and anticipated issuance of a new series of preferred
stock in connection with the retirement of the Bridge Loan, (b) maintain a
minimum $2,000,000 tangible net worth, and (c) maintain a minimum $1 bid price
on the Common Stock. A special meeting of the shareholders has been called for
October 15, 1998, to obtain approval for the issuance of the two series of
preferred stock and warrants and to approve a one-for-five reverse stock split.
The reverse stock split is intended to cause the bid price of the Common Stock
to be at least $1. The conversion of a portion of the Bridge Loan is expected to
result in a tangible net worth in excess of $2,000,000. Failure of the
shareholders to approve any proposal for the special meeting, or failure of the
Common Stock to maintain a bid price of at least $1 after the reverse split, or
failure to convert a portion of the Bridge Loan to preferred stock would almost
certainly result in immediate delisting of the Common Stock from Nasdaq. Even if
all actions are successful, Nasdaq retains discretionary authority to delist the
Common Stock if it believes these actions will not result in continued
compliance with its regulations.
 
     Accumulated deficit.  Management cannot take any action that will directly
effect the accumulated deficit except attempt to improve operations to the point
where positive net income is achieved.
 
     Maturing debt.  The Company has approximately $3,059,000 of debt maturing
in Fiscal 1999. This figure is comprised primarily of four items: (a) $1,100,000
Bridge Loan maturing on October 31, 1998. Plans regarding this debt have been
discussed above. Holders of this debt, although not legally bound to do so, have
agreed in principle to either convert their notes to preferred stock or accept
an extended payout under terms the Company projects it could accommodate.
However, there can be no assurance that any of the holders of the outstanding
Bridge Loan will enter into any agreement with the Company on terms not
unfavorable to the Company, if at all, (b) $1,226,000 of the advance obtained on
the Interest-Only Strip Receivable is due to be repaid during Fiscal 1999. It is
anticipated that cash due to the Company from the interest-only strip will be
used to repay this obligation. In the event that cash due to the Company from
the Interest-Only Strip Receivable is less than the outstanding principal
balance of the advance, the Securitizer could seek the difference from the
Company, (c) $400,000 is due in Fiscal 1999 in connection with a reduction in a
secured lending facility described above. It is anticipated the proceeds from
the sale or payout of mortgage loans securing this facility will provide the
funds to reduce this debt, (d) $250,000 is due on December 31, 1998 in
connection with a modified mortgage participation agreement. It is anticipated
that $250,000 of restricted cash underlying this obligation will be used to
repay this debt. The remaining $83,000 of debt due in Fiscal 1999 is scheduled
to be repaid from working capital.
 
     Negative operating cash flow.  Since April 1998, the Company has realized a
small positive operating cash flow. Prior to that time, the Company had never
realized a positive operating cash flow. The Company has not been able to retain
any amount of cash reserves to pay expenses during periods where its loan sales
are significantly less than projected. And while the Company will probably not
generate enough cash to pay preferred stock dividends in cash or retire
significant debt obligations for some time, it has been able to maintain its
operations from cash generated by its operations since April 1998. Management
continues to maintain austerity measures implemented shortly after the new
President was named in November 1997 to keep cash expenditures at a minimum.
Hiring of additional staff has been restricted to coincide with an increase in
loan production as opposed to hiring staff in anticipation of additional
production. Sales personnel have been added at a measured rate to avoid a surge
in payroll which is not offset by increased loan sales.
 
                                       19
<PAGE>   21
 
Expansion plans involving the addition of processing offices have been curtailed
until sufficient cash is available to sustain the opening of a new office until
it can create enough loan sales to offset its start-up costs. Two months or more
of less than projected loan sales could result in negative cash flow which the
Company does not have the resources to fund. A relatively small amount of
unprojected cash requirements as described in "Liquidity and Capital Resources"
could also create negative cash flow which the Company cannot fund. However, the
Company could continue to increase its cash flow with increased loan sales.
 
     Operating losses.  Many of the austerity measures implemented by Management
to address cash flow have also positively impacted operating losses. The closure
of three processing offices in less productive regions and reduction in
corporate office staff have significantly reduced the minimum amount of expenses
necessary to maintain operations. However, several items pertaining to the
previous business strategy continue to keep the minimum amount of revenue
necessary to offset all expenses at a higher level than would otherwise be
required if these items did not exist. Specifically, the amortization of the
Interest-Only Strip Receivable exceeds the actual income being received from
this asset, creating a negative revenue amount. The Company still incurs some
rent expense in excess of the minimum amount necessary to maintain its
operations. While Management believes that some of this excess physical space
could be addressed in Fiscal 1999, the "negative revenue" will probably continue
to be an issue during all of Fiscal 1999. Only continued increases in loan
production and sales will allow the Company to offset all expenses and "negative
revenue" to the point where net income could be recorded. While Management has
projected that net income can be achieved in Fiscal 1999, this projection is
based on the assumption that loan production can be increased approximately 25%
from current levels without a significant increase in overhead expenses. There
can be no assurance that this increase can be obtained, or even if it is
obtained, that gain on sale margins will not diminish to the point where the
estimated increase in loan volume would be insufficient to generate enough
revenue from loan sales to accomplish the targeted increase in revenues.
 
     In summary, Management has taken definitive actions where possible to
address both the specific concerns cited by the independent auditors in their
report as well as various other business issues. If all the actions taken prove
successful, the Company would likely continue operations in Fiscal 1999, and
possibly obtain profitability. However, if one or more of the initiatives taken
by Management should fail, or if market conditions (particularly a deterioration
of the margin on the gain on sale of loans) become worse, the Company could be
forced to curtail its lending activities until an alternative action, if any,
could be implemented.
 
ITEM 7.  FINANCIAL STATEMENTS
 
     The following consolidated financial statements of Credit Depot Corporation
are included in Item 7 (See page F-1):
 
          Report of Independent Auditors
 
          Consolidated Balance Sheets -- June 30, 1998 and 1997.
 
          Consolidated Statements of Operations -- Years ended June 30, 1998,
     1997 and 1996.
 
          Consolidated Statements of Stockholders' Equity -- Years ended June
     30, 1998, 1997, 1996, and 1995.
 
          Consolidated Statements of Cash Flows -- Years ended June 30, 1998,
     1997 and 1996.
 
          Notes to Consolidated Financial Statements.
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES
 
     Not applicable.
 
                                       20
<PAGE>   22
 
                                    PART III
 
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT
 
     The information required under this item will be set forth in the Company's
proxy statement to be filed with the SEC on or before October 28, 1998 and is
incorporated herein by reference.
 
ITEM 10.  EXECUTIVE COMPENSATION
 
     The information required under this item will be set forth in the Company's
proxy statement to be filed with the SEC on or before October 28, 1998 and is
incorporated herein by reference.
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required under this item will be set forth in the Company's
proxy statement to be filed with the SEC on or before October 28, 1998 and is
incorporated herein by reference.
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required under this item will be set forth in the Company's
proxy statement to be filed with the SEC on or before October 28, 1998 and is
incorporated herein by reference.
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) 1. Financial Statements. An index to the Consolidated Financial
Statements appears on page F1.
 
     2. Schedules. All financial statement schedules are omitted because they
are not applicable, not required under the instructions or all the information
is set forth in the financial statements or notes thereto.
 
     3. Exhibits.
 
<TABLE>
<C>      <C>  <S>
  3.1     --  Certificate of Incorporation of the Registrant, as
              amended(1)
  3.2     --  Certificate of Merger of Equithrift, Inc., a Georgia
              corporation, with and into the Registrant(1)
  3.3     --  By-Laws of the Registrant(1)
  3.4     --  Certificate of Designation of Series A Convertible Preferred
              Stock(8)
  3.5     --  Certificate of Amendment of the Certificate of
              Incorporation(9)
  3.6     --  Certificate of Designation for Series B Convertible
              Preferred Stock(10)
  3.7     --  Certificate of Designation for Series C Convertible
              Preferred Stock(11)
  4.1     --  1993 Stock Option Plan(4)
  4.2     --  1993 Stock Option Plan, as amended(5)
  4.3     --  1993 Stock Option Plan, as amended(6)
  4.4     --  Registration Rights Agreement between the Company and The
              Robinson-Humphrey Company, Inc., dated as of July 27,
              1994(2)
  4.5     --  Redeemable Warrant to Purchase Common Stock issued to
              Robinson-Humphrey dated January 25, 1995(7)
  4.6     --  Form of Warrant issued to purchasers of Convertible Mortgage
              Participations(7)
  4.7     --  Specimen Common Stock certificate(1)
  4.8     --  Form of Warrant issued to placement agent in connection with
              Series A Preferred Stock offering(8)
  4.9     --  Loan Agreement for 10% Convertible Secured Notes due 2001(8)
</TABLE>
 
                                       21
<PAGE>   23
<TABLE>
<C>      <C>  <S>
  4.10    --  Form of Warrant issued to placement agent in connection with
              10% Convertible Notes Offering(8)
  4.11    --  Form of Warrant issued to purchasers of Series B Preferred
              Stock(10)
  4.12    --  Form of Warrant issued to Placement Agent in connection with
              Series B Preferred Stock Offering(10)
  4.13    --  Form of Purchase Agreement between the Registrant and
              certain lenders, and accompanying exhibits(11)
  4.14    --  Form of Warrant issued to certain lenders(11)
  4.15    --  Form of Warrant issued to certain members of the Board of
              Directors.
  4.16    --  Warrant issued to Heiko Thieme dated January 31, 1998.
  4.17    --  Warrant issued to The Global Opportunity Fund dated June 12,
              1998.
 10.1     --  Lease Agreement between the Registrant and Lessor for the
              Registrant's corporate office space(3)
 10.2     --  Amendment to Lease Agreement between the Registrant and
              Lessor(7)
 10.3     --  Purchase and Sale Agreement between the Registrant and
              Access Financial Lending Corp.(8)
 10.4     --  Warehouse Lending Agreement and Promissory Note between the
              Registrant and NewSouth Equities and associated parties(8)
 10.5     --  Addendum to Warehouse Lending Agreement between the
              Registrant and NewSouth Equities and associated parties(8)
 10.6     --  Forward Commitment and Offset Agreement between the
              Registrant and Access Financial Lending Corporation(9)
 10.7     --  Acquisition Agreement between the Registrant and Cash Back
              Mortgage Corporation(11)
 10.8     --  Participation Agreement between the Registrant and Pinnacle
              Mortgage Acceptance Corporation
 10.9     --  Whole Sale Loan Agreement between the Registrant and First
              Bankshares Mortgage and Investments, Inc.
 10.10    --  Amended and Restated Promissory Note between the Registrant
              and NewSouth Special Equities and associated parties.
 10.11    --  Participation Agreement between the Registrant and Sterling
              Bank and Trust, FSB.
 21.1     --  List of Subsidiaries
 23.1     --  Consent of Independent Auditors
 27.0     --  Financial Data Schedule (for SEC use only)
</TABLE>
 
     (b) Reports on Form 8-K.
 
     The Company filed 2 reports on Form 8-K during the three month period ended
June 30, 1998. The first report, filed on April 1, 1998, for an event date of
February 9, 1998, provided information regarding the two lawsuits described in
Item 6 herein, information about the new warehouse line, information about the
modification of a mortgage participation, and information about the effect of a
negative adjustment to the valuation of the Interest-Only Strip Receivable. The
second report, filed on June 11, 1998, for an event date of May 22, 1998,
provided information regarding the status of the Company's Nasdaq listing and
pending lawsuits and details regarding the issuance of the Series C Preferred
Stock. A pro forma balance sheet and income statement were included with this
report to show the effect of the issuance of the Series C Preferred Stock on
these statements as if the preferred stock had been issued on March 31, 1998.
---------------
 
 (1) These exhibits were filed as exhibits to the Company's Registration
     Statement on Form S-1 (File No. 33-37416) and are incorporated herein.
 (2) These exhibits were filed as exhibits to the Company's report on Form 8-K,
     filed with respect to a reported event dated July 27, 1994 and are
     incorporated herein.
 
                                       22
<PAGE>   24
 
 (3) These exhibits were filed as exhibits to the Company's report on Form
     10-KSB for the fiscal year ended June 30, 1993 and are incorporated herein.
 (4) This exhibit was filed as an exhibit to the Company's proxy statement dated
     February 22, 1993, filed on February 23, 1993, and is incorporated herein
     by reference.
 (5) This exhibit was filed as an exhibit to the Company's proxy statement dated
     December 7, 1993 filed and is incorporated herein by reference.
 (6) This exhibit was filed as an exhibit to the Company's proxy statement dated
     March 21, 1995 and is incorporated herein by reference.
 (7) This agreement was filed as an exhibit to the Company's report on Form
     10-KSB for the fiscal year ended June 30, 1995, and is incorporated herein
     by reference.
 (8) This exhibit was filed as an exhibit to the Company's report on Form 10-KSB
     for the fiscal year ended June 30, 1996, and is incorporated herein by
     reference.
 (9) This exhibit was filed as an exhibit to the Company's report on Form 10-Q
     for the quarterly period ended December 31, 1996 and is incorporated herein
     by reference.
(10) This exhibit was filed as an exhibit to the Company's report on Form 10-Q
     for the quarterly period ended March 31, 1997 and is incorporated herein by
     reference.
(11) This exhibit was filed as an exhibit to the Company's report on Form 10-KSB
     for the fiscal year ended June 30, 1997, and is incorporated herein by
     reference.
 
                                       23
<PAGE>   25
 
                                   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.
 
                                          CREDIT DEPOT CORPORATION
 
                                          By:      /s/ RALPH J. DEBEE
                                            ------------------------------------
                                                       Ralph J. DeBee
                                                         President
 
October 12, 1998
 
     In accordance with the Exchange Act, this report has been signed below by
the following on behalf of the registrant and in capacities and on the dates
indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                    TITLE                     DATE
                      ---------                                    -----                     ----
<C>                                                    <S>                             <C>
 
                 /s/ RALPH J. DEBEE                    President                       October 12, 1998
-----------------------------------------------------
                   Ralph J. DeBee
 
                 /s/ HEIKO H. THIEME                   Chairman of the Board           October 12, 1998
-----------------------------------------------------
                   Heiko H. Thieme
 
               /s/ CHARLES D. FARRAHAR                 Chief Financial Officer         October 12, 1998
-----------------------------------------------------
                 Charles D. Farrahar
 
               /s/ JOHN C. THOMAS, JR.                 Director                        October 12, 1998
-----------------------------------------------------
                 John C. Thomas, Jr.
 
                 /s/ MARVIN V. BOLT                    Director                        October 12, 1998
-----------------------------------------------------
                   Marvin V. Bolt
 
                /s/ JOHN R. MARSHALL                   Director                        October 12, 1998
-----------------------------------------------------
                  John R. Marshall
 
                  /s/ CARLOS MUNOZ                     Director                        October 12, 1998
-----------------------------------------------------
                    Carlos Munoz
</TABLE>
 
                                       24
<PAGE>   26
 
                            CREDIT DEPOT CORPORATION
 
                       CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 
                                    CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Stockholders' Equity.............  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>
 
                                       F-1
<PAGE>   27
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Credit Depot Corporation
 
     We have audited the accompanying consolidated balance sheets of Credit
Depot Corporation and subsidiaries (the "Company") as of June 30, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Credit Depot
Corporation and subsidiaries at June 30, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
 
     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 13,
the Company has incurred significant recurring operating losses and significant
operating cash flow deficiencies, has significant amounts of debt maturing
within the next fiscal year, and has a significant accumulated deficit. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 13. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
 
                                          /s/ ERNST & YOUNG LLP
 
Atlanta, Georgia
September 30, 1998
 
                                       F-2
<PAGE>   28
 
                            CREDIT DEPOT CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                       JUNE 30
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                        ASSETS
Loans receivable:
  Consumer, collateralized by real estate...................  $ 9,171,205   $ 5,517,002
  Allowance for credit losses...............................     (267,252)     (260,484)
                                                              -----------   -----------
Net loans receivable........................................    8,903,953     5,256,518
Cash........................................................      304,002     1,332,934
Cash subject to withdrawal restrictions.....................      498,668       203,318
Property and equipment......................................      281,046       524,695
Real estate held for sale...................................       76,101        89,021
Other assets:
  Receivable due from related parties, net..................       15,848        17,398
  Prepaid expenses and other assets.........................      415,171       269,750
  Servicing asset...........................................       22,290        77,007
  Interest-only strips receivable...........................    4,118,284     7,268,930
  Accrued interest receivable...............................       83,348        35,503
  Deferred financing costs..................................      131,131     1,338,822
  Goodwill..................................................      607,000       910,825
                                                              -----------   -----------
          Total assets......................................  $15,456,842   $17,324,721
                                                              ===========   ===========
 
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible notes...........................................  $ 2,070,000   $10,440,000
Warehouse lines-of-credit...................................    8,148,924     3,356,386
Advance on interest-only strips receivable..................    1,619,553     2,100,651
Other borrowings............................................      450,154       500,000
Accounts payable............................................      310,380       291,235
Accrued liabilities.........................................      341,225        85,340
Dividends payable...........................................       58,227       174,271
                                                              -----------   -----------
          Total liabilities.................................   12,998,463    16,947,883
Stockholders' equity:
  Series "A" Preferred stock, $.001 par value; 1,080,000
     shares authorized, 315,000 shares issued at June 30,
     1997...................................................           --           315
  Series "B" Preferred Stock, $.001 par value; 60,000 shares
     authorized, 17,875 and 16,740 shares issued at June 30,
     1998 and 1997..........................................           18            17
  Series "C" Preferred Stock, $.001 par value; 34,000 shares
     authorized, 21,000 shares issued at June 30, 1998......           21            --
  Common stock, $.001 par value; 35,000,000 shares
     authorized, 5,748,555 and 4,072,761 shares issued and
     outstanding at June 30, 1998 and 1997..................        5,749         4,073
  Additional paid-in capital................................   31,775,980    16,435,808
  Accumulated deficit.......................................  (29,323,389)  (16,063,375)
                                                              -----------   -----------
          Total stockholders' equity........................    2,458,379       376,838
                                                              -----------   -----------
          Total liabilities and stockholders' equity........  $15,456,842   $17,324,721
                                                              ===========   ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-3
<PAGE>   29
 
                            CREDIT DEPOT CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                         ----------------------------------------
                                                             1998          1997          1996
                                                         ------------   -----------   -----------
<S>                                                      <C>            <C>           <C>
Revenues:
  Finance income and fees earned.......................  $    152,544   $   756,847   $   640,390
  Gain on sale of receivables..........................     4,402,393     5,141,695     1,578,088
  Other................................................       167,222        19,918        60,421
                                                         ------------   -----------   -----------
                                                            4,722,159     5,918,460     2,278,899
Expenses:
  Salaries and employee benefits.......................     4,797,177     4,194,149     2,733,814
  Legal and professional fees..........................       675,366       525,333       288,012
  Other operating expenses.............................     2,837,707     2,893,121     1,980,443
  Provision for credit losses..........................       300,625       225,231       185,000
  Debt conversion costs................................     5,576,000            --            --
  Goodwill amortization................................       303,825            --            --
  Interest expense and amortization of financing
     costs.............................................     3,112,958     1,443,625     1,206,450
                                                         ------------   -----------   -----------
                                                           17,603,658     9,281,459     6,393,719
                                                         ------------   -----------   -----------
Loss before provision for income taxes.................   (12,881,499)   (3,362,999)   (4,114,820)
Provision for income taxes.............................            --            --            --
Net loss...............................................  $(12,881,499)  $(3,362,999)  $(4,114,820)
                                                         ------------   -----------   -----------
Induced conversion of preferred stock..................     3,584,700            --            --
Preferred dividends....................................       378,515       601,772       415,677
                                                         ------------   -----------   -----------
Net loss attributable to common stockholders...........  $(16,844,714)  $(3,964,771)  $(4,530,497)
                                                         ============   ===========   ===========
Basic and diluted loss per share.......................  $      (3.74)  $     (5.36)  $     (6.70)
                                                         ============   ===========   ===========
Weighted average shares outstanding....................     4,506,605       740,314       675,752
                                                         ============   ===========   ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   30
 
                            CREDIT DEPOT CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                PREFERRED STOCK                                  ADDITIONAL
                             -----------------------------------------------------   ----------------------------------
                                SERIES "A"         SERIES "B"        SERIES "C"          COMMON STOCK
                             -----------------   ---------------   ---------------   --------------------     PAID-IN
                              SHARES    AMOUNT   SHARES   AMOUNT   SHARES   AMOUNT     SHARES     AMOUNT      CAPITAL
                             --------   ------   ------   ------   ------   ------   ----------   -------   -----------
<S>                          <C>        <C>      <C>      <C>      <C>      <C>      <C>          <C>       <C>
Balance at June 30, 1995...        --   $  --        --    $--         --    $--      3,378,761   $ 3,379   $ 7,788,382
 Issuance of preferred
   stock...................   320,000     320        --     --         --     --             --        --     5,453,849
 Dividends declared on
   preferred stock.........        --      --        --     --         --     --             --        --            --
 Net loss..................        --      --        --     --         --     --             --        --            --
                             --------   -----    ------    ---     ------    ---     ----------   -------   -----------
Balance at June 30, 1996...   320,000     320        --     --         --     --      3,378,761     3,379    13,242,231
 Issuance of preferred
   stock...................        --      --    16,740     17         --     --             --        --     1,412,266
 Dividends declared on
   preferred stock.........        --      --        --     --         --     --             --        --            --
 Conversion of preferred
   stock...................    (5,000)     (5)       --     --         --     --         40,000        40           (35)
 Conversion of convertible
   loan participation......        --      --        --     --         --     --        160,000       160       399,840
 Conversion of convertible
   debt....................        --      --        --     --         --     --        344,000       344       838,656
 Issuance of common stock..        --      --        --     --         --     --        150,000       150       542,850
 Net loss..................        --      --        --     --         --     --             --        --            --
                             --------   -----    ------    ---     ------    ---     ----------   -------   -----------
Balance at June 30, 1997...   315,000     315    16,740     17         --     --      4,072,761     4,073    16,435,808
 Interest on convertible
   debt paid in common
   stock...................        --      --        --     --         --     --         88,607        89       221,411
 Dividends declared on
   preferred stock (in
   kind)...................        --      --     1,135      1         --     --             --        --       172,915
 Conversion of preferred
   stock...................  (315,000)   (315)       --     --         --     --      1,938,459     1,938        (1,623)
 Reverse stock split.......        --      --        --     --         --     --     (3,258,209)   (3,258)        3,258
 Conversions of convertible
   debt....................        --      --        --     --     21,000     21      2,788,000     2,788    14,595,186
 Issuance of common stock..        --      --        --     --         --     --         20,000        20        27,480
 Dividends on preferred
   stock paid in common
   stock...................        --      --        --     --         --     --         98,937        99       321,545
 Net loss..................        --      --        --     --         --     --             --        --            --
                             --------   -----    ------    ---     ------    ---     ----------   -------   -----------
Balance at June 30, 1998...        --   $  --    17,875    $18     21,000    $21      5,748,555   $ 5,749   $31,775,980
                             ========   =====    ======    ===     ======    ===     ==========   =======   ===========
 
<CAPTION>
                              ADDITIONAL
                             ------------
 
                             ACCUMULATED
                               DEFICIT
                             ------------
<S>                          <C>
Balance at June 30, 1995...  $ (7,568,107)
 Issuance of preferred
   stock...................            --
 Dividends declared on
   preferred stock.........      (415,677)
 Net loss..................    (4,114,820)
                             ------------
Balance at June 30, 1996...   (12,098,604)
 Issuance of preferred
   stock...................            --
 Dividends declared on
   preferred stock.........      (601,772)
 Conversion of preferred
   stock...................            --
 Conversion of convertible
   loan participation......            --
 Conversion of convertible
   debt....................            --
 Issuance of common stock..            --
 Net loss..................    (3,362,999)
                             ------------
Balance at June 30, 1997...   (16,063,375)
 Interest on convertible
   debt paid in common
   stock...................            --
 Dividends declared on
   preferred stock (in
   kind)...................      (198,621)
 Conversion of preferred
   stock...................            --
 Reverse stock split.......            --
 Conversions of convertible
   debt....................            --
 Issuance of common stock..            --
 Dividends on preferred
   stock paid in common
   stock...................      (179,894)
 Net loss..................   (12,881,499)
                             ------------
Balance at June 30, 1998...  $(29,323,389)
                             ============
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   31
 
                            CREDIT DEPOT CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                      -------------------------------------------
                                                          1998            1997           1996
                                                      -------------   ------------   ------------
<S>                                                   <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................  $ (12,881,499)  $ (3,362,999)  $ (4,114,820)
Adjustments to reconcile net loss to cash used in
  operating activities:
  Provision for credit losses.......................        300,625        225,231        185,000
  Depreciation and amortization.....................      1,915,647        393,983        672,673
  Debt conversion costs.............................      5,576,000             --             --
  Changes in operating assets and liabilities:
  Cash subject to withdrawal restrictions...........       (295,350)      (177,431)       (25,887)
  Due from related parties..........................          1,550        204,811        (22,515)
  Prepaid expenses and other........................       (145,421)        95,148         12,558
  Deferred financing costs..........................       (219,425)      (600,964)       191,004
  Loans originated..................................    (95,921,421)   (79,322,866)   (37,035,070)
  Loans repurchased.................................     (1,855,639)    (3,115,846)    (1,061,976)
  Deferred fee income...............................             --             --         (8,672)
  Servicing asset...................................         54,717        116,031        218,864
  Interest-only strips receivable...................      3,150,646     (5,951,855)    (1,317,075)
  Proceeds from loans sold servicing released.......     93,132,476     82,263,716     32,827,220
  Principal collections on loans not sold...........      1,194,190      1,401,890      1,801,102
  Accounts payable and accrued liabilities..........        275,030       (530,725)       (25,571)
                                                      -------------   ------------   ------------
  Net cash used in operating activities.............     (5,717,874)    (8,361,876)    (7,703,165)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment..................        (26,578)      (177,538)       (94,933)
Disposal of property and equipment..................         43,516             --         37,599
Purchase of assets and liabilities, net of cash
  received..........................................             --        (25,905)            --
                                                      -------------   ------------   ------------
Net cash provided by (used in) investing
  activities........................................         16,938       (203,443)       (57,334)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from preferred stock issuance..........             --      1,412,283      2,954,169
Cash dividends on preferred stock...................             --       (427,500)      (415,677)
Proceeds from warehouse lines of credit.............    107,869,457      3,356,386             --
Payment on warehouse lines of credit................   (103,076,919)            --             --
Proceeds from issuance of convertible notes.........      2,200,000      2,800,000      7,570,000
Payment on issuance of convertible notes............     (1,500,000)            --     (5,550,000)
Proceeds from other borrowings......................        729,989      2,100,651      3,250,000
Payment on other borrowings.........................     (1,550,523)    (1,025,000)      (125,000)
                                                      -------------   ------------   ------------
Net cash provided by financing activities...........      4,672,004      8,216,820      7,683,492
                                                      -------------   ------------   ------------
Net decrease in cash................................     (1,028,932)      (348,499)       (77,007)
Cash at beginning of period.........................      1,332,934      1,681,433      1,758,440
                                                      -------------   ------------   ------------
Cash at end of period...............................  $     304,002   $  1,332,934   $  1,681,433
                                                      =============   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for interest............  $   1,497,652   $  1,194,232   $    654,877
                                                      =============   ============   ============
  Conversion of loans receivable to real estate held
     for sale.......................................  $     650,758   $    645,202   $    491,667
                                                      =============   ============   ============
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   32
 
                            CREDIT DEPOT CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1998
 
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 
     Credit Depot Corporation ("CDC" or the "Company") was organized in August
1990 under the name of NBL Corporation. Concurrent with its formation, NBL was
merged with the business of Equithrift, Inc. (the "Predecessor Company") and its
name changed to Credit Depot Corporation. Since 1993, the Company has expanded
operations into various states through the creation of wholly owned
subsidiaries. At June 30, 1998, the Company has lending operations in the states
of Georgia, South Carolina, North Carolina, Tennessee, Florida, Ohio, Illinois,
Michigan, Mississippi, Louisiana, Maryland and Kentucky. Reference herein to the
"Company" includes CDC and its wholly owned subsidiaries. The Company is
regulated in several of these states.
 
     CDC is a mortgage finance company which provides residential first and
second mortgage loans through its branch network. The Company's borrowers are
generally unable or unwilling to obtain financing from conventional lending
sources due to an established pattern of credit weakness, unverifiable income,
insufficient credit history, or a previous bankruptcy or insolvency. The Company
is subject to competition from other financial institutions.
 
     On April 1, 1997, the Company acquired Cash Back Mortgage Corporation
("Cash Back") through a newly-organized wholly owned subsidiary of the Company,
Cash Back Acquisition Corporation. Cash Back is a mortgage finance company which
provides residential first and second mortgage loans generally to individuals in
Ohio. The Company acquired substantially all of the assets and liabilities of
Cash Back in exchange for 150,000 shares of common stock in the Company at the
date of acquisition. An additional 600,000 shares of common stock in the Company
are currently held in escrow for future distribution in accordance with the
purchase agreement to the shareholders of Cash Back. Additional consideration is
based solely on the achievement of various performance targets by Cash Back. The
acquisition of Cash Back was accounted for as a purchase. The results of
operations of Cash Back are included in the consolidated financial statements
from the date of acquisition for the fiscal year ended June 30, 1997. In
conjunction with this transaction, goodwill of $910,825 was recorded. This
amount is being amortized on a straight-line basis over 15 years. Goodwill is
measured periodically for impairment and any impairment is recognized as a
charge to current period earnings. During the year ended June 30, 1998, the
Company reduced the carrying value of the goodwill by $227,925 based on
management's estimate of impairment.
 
     During fiscal year 1997 and part of fiscal year 1998, the Company sold the
majority of its loan production to a major loan securitizer for inclusion in
asset securitizations. All loan production for the remainder of fiscal 1998 was
sold as whole loan sales, with servicing released to third parties, for a cash
premium at the time of sale.
 
     The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany balances
and transactions have been eliminated in consolidation. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Material
estimates that are particularly susceptible to significant change in the near
future relate to the determination of the allowance for credit losses,
evaluation of goodwill impairment, and valuation of the interest-only strips
receivable. In connection with the determination of the allowance for credit
losses, management considers independent appraisals previously obtained for all
properties. Goodwill impairment is calculated based on consideration of the
ongoing contribution of the acquired company to the consolidated results.
Prepayment experience, both Company and industry, is used as the basis for
estimating future prepayment rates in valuing the interest-only strips
receivable. Additionally, the ultimate collectibility of the Company's loans
receivable is susceptible to changes in market conditions.
 
                                       F-7
<PAGE>   33
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
REVENUE RECOGNITION
 
     Interest income on loans receivable is recognized over the term of the
loans using methods which generally result in level rates of return on principal
amounts outstanding. Loans receivable are generally placed on nonaccrual status
when full payment of principal or interest is in doubt.
 
     Gain on sale of receivables sold into asset securitizations principally
represents the present value of the differential between the interest rates
charged by the Company and the interest rates passed on to the purchaser of the
receivables, after considering the effects of estimated prepayments and in the
case of loans sold with servicing retained, contractually specified servicing
fees. Gains on the sale of loans receivable are recorded on the settlement date
generally using the specific identification method. Gains on the sale of a
portion of a loan are based on the relative fair market value of the loan
portion sold as compared to that portion retained.
 
     Gains on sales of receivables to third parties for a cash premium represent
the difference between the amount paid by the third party and the principal
balance of the loan, net of any related deferred costs, at the time of sale.
 
     Finance income includes servicing fees and interest income on loans
retained by the Company. The servicing asset is carried at the lower of
amortized cost or fair value. Interest-only strips receivable are carried at
fair value.
 
     The fair value of the interest-only strip receivable is analyzed quarterly
by the Company on a disaggregated basis to determine whether prepayment and
default experience has an impact on this fair value. Expected cash flows of the
underlying loans sold are reviewed based upon current economic conditions and
are revised as necessary using the original discount rate used in calculating
the gain on sale. The interest-only strip receivable is classified as a trading
security. Accordingly, unrealized gains and losses are recorded in income.
 
LOAN RECEIVABLES
 
     All loans receivable are considered to be held for sale and are carried at
the lower of aggregate cost or market values. Market value is determined by
outstanding commitments from investors or current investor yield requirements.
There was no allowance for market losses on loans receivable held for sale at
June 30, 1998 and 1997.
 
CREDIT LOSSES
 
     Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance at a level considered adequate by management to absorb
possible losses of principal and interest in the existing portfolio, based on
calculations of the collectibility of loans receivable and prior credit loss
experience. Loans receivable are charged against the allowance for credit
losses, based on a loan-by-loan review, when management believes that the
collectibility of the principal is unlikely. The Company's exposure to credit
loss in the event of nonperformance by the borrower is represented by the
outstanding principal balance of the respective loans less the value of
collateral obtained. The amount of collateral obtained is based on management's
credit evaluation pursuant to the Company's lending and underwriting policies.
 
     While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions.
 
                                       F-8
<PAGE>   34
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     Loans receivable are recorded on the balance sheet at an amount that
approximates fair market value. The servicing asset is periodically evaluated
for impairment and, as such, are recorded at values that approximate fair market
value. Interest-only strips receivable are recorded at fair value. The carrying
value of fixed rate debt is a reasonable estimate of fair value due to the
relatively stable rate environment during the fiscal year and the time period in
which the debt was originated.
 
PROPERTY AND EQUIPMENT
 
     Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated usefu1 lives of furniture and equipment (five years) or
the term of the related lease.
 
INCOME TAXES
 
     The Company accounts for income taxes using the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
 
LOSS PER COMMON SHARE
 
     The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share." SFAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. In computing diluted
earnings per share, only potential common shares that are dilutive, those that
reduce earnings per share, are included. The exercise of options and warrants or
conversion of convertible securities is not assumed if the result would be
antidilutive, such as when a loss from continuing operations is reported or if
options are "out-of-the-money." All loss per share amounts for all periods
presented have been restated to conform to the requirements of SFAS 128.
 
RECLASSIFICATIONS
 
     Certain reclassifications of prior years amounts have been made to conform
to the current year presentation.
 
STOCK OPTIONS
 
     The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
 
SECTION 401(K) RETIREMENT SAVINGS PLAN
 
     The Company sponsors a Section 401(k) retirement savings plan.
Substantially all employees are eligible to participate in the plan after
meeting certain length of service conditions. The Company does not make any
contributions to the plan. The Company uses a third party servicer/trustee for
the plan.
 
                                       F-9
<PAGE>   35
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     Beginning January 1, 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130 "Reporting Comprehensive Income," which is
effective for annual and interim periods beginning after December 15, 1997. SFAS
130 requires that all items that are required to be recognized under accounting
standards as comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The adoption
of SFAS No. 130 had no impact on the Company's consolidated financial
statements.
 
     Beginning January 1, 1998, the Company adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which is effective for
annual and interim periods beginning after December 15, 1997. This statement
establishes standards for the method that public entities use to report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographical areas and
major customers. The adoption of SFAS No. 131 had no impact on the Company's
consolidated financial statements.
 
3. COMMON STOCK TRANSACTIONS
 
     At a special meeting of the shareholders of the Company held on October 24,
1997, a majority of the holders of the Company's common stock approved a reverse
stock split in which each five shares of issued and outstanding common stock of
the Company was reclassified and changed into one share of common stock. The
reverse stock split was effected on October 29, 1997. All loss per share data
has been restated to reflect this reverse split as if it occurred on the
earliest date presented in the financial statements.
 
     In November 1997, 20,000 shares of common stock were issued to two
individuals as compensation for consulting services performed for the Company.
 
     In conjunction with obtaining a $6,000,000 warehouse line of credit, the
Company granted warrants to purchase 200,000 shares of common stock exercisable
through May 31, 2003 at $9.00 per share ($45 per share for the purchase of
40,000 shares, split adjusted) to certain intermediaries. The underlying shares
are no longer registered. This warehouse line of credit matured on June 16, 1995
and was not renewed.
 
     In conjunction with obtaining a $3,000,000 financing arrangement, as
discussed in Note 8, the Company granted warrants to purchase 201,389 shares of
common stock exercisable through August 12, 2000 at $2.50 per share ($12.50 per
share for the purchase of 40,278 shares, split adjusted) to a placement agent.
In connection with this agreement, warrants to purchase 27,779 shares of common
stock at $2.50 per share ($12.50 per share for the purchase of 5,556 shares,
split adjusted) were issued to the lender which are exercisable at the option of
the lender at any time on or prior to June 16, 1999.
 
     In conjunction with obtaining a $500,000 financing arrangement, as
discussed in Note 8, the Company granted warrants to purchase 100,000 shares of
common stock at $2.50 per share ($12.50 per share for the purchase of 20,000
shares, split adjusted) to the lender, exercisable at the option of the lender
at any time on or prior to February 22, 2000.
 
     In conjunction with obtaining $5,550,000 in convertible notes, as discussed
in Note 8, the Company granted warrants to purchase 92,500 shares of common
stock exercisable through January 25, 2000 at $7.25 per share ($36.25 per share
for the purchase of 18,500 shares, split adjusted) to an investment banker. The
underlying shares are no longer registered.
 
     In conjunction with obtaining a $2,300,000 warehouse lending agreement, as
discussed in Note 8, the Company granted warrants to purchase 920,000 shares of
common stock exercisable through June 30, 2001 at
 
                                      F-10
<PAGE>   36
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
$2.50 per share ($12.50 per share for the purchase of 184,000 shares, split
adjusted) to the lender, subject to certain anti-dilution adjustments. The
underlying shares are no longer registered.
 
     In conjunction with obtaining a financing agreement with a lender, the
Company granted warrants to purchase 300,000 shares of common stock at a price
of $5.25 per share ($26.25 per share for the purchase of 60,000 shares, split
adjusted) to the lender, exercisable at the option of the lender at any time on
or prior to November 8, 2000. The underlying shares are no longer registered.
The Company repaid and terminated this financing agreement in March 1996.
 
     In conjunction with obtaining $6,400,000 in Series "A" Convertible
Preferred Stock as discussed in Note 8, the Company granted warrants to the
stock purchasers for the purchase of 800,000 shares of the Company's common
stock at an exercise price of $4 per share expiring on October 10, 1999. Also,
the placement agent was granted warrants to purchase 146,250 shares of the
Company's common stock under terms similar to those received by the purchasers
of the Series "A" Convertible Preferred Stock. In April 1996, by agreement with
the placement agent, the exercise price on the warrants issued to both the
placement agent and the Preferred Stock holders was adjusted to $2.50. In
October 1997, as a result of the 5-to-1 reverse common stock split and
conversion offer accepted by all holders of the Series "A" Preferred Stock, the
exercise price of the warrants issued to the Preferred Stock holders was
adjusted to $4.50 and the number of shares of the Company's common stock that
they could purchase was adjusted to 160,000. For the aforementioned reasons, the
exercise price of the warrants issued to the placement agent was adjusted to
$2.50 per share and the number of shares of the Company's common stock that they
could purchase was adjusted to 29,250.
 
     In conjunction with obtaining $9,000,000 in 10% convertible secured notes,
as discussed in Note 8, the Company granted warrants to the placement agent to
purchase 540,000 shares of common stock exercisable through August 12, 2000, at
a price of $2.50 per share, subject to certain anti-dilution adjustments.
Subsequently, the number of shares changed to 108,000 as a result of the 5-to-1
reverse common stock split, and the price changed to $2.50 as a result of
certain anti-dilution adjustments related to the placement of additional
convertible securities. See Note 11.
 
     Purchasers of the 11% Series "B" Convertible Redeemable Preferred Stock, as
discussed in Note 8, received warrants to purchase 669,600 shares of the
Company's common stock exercisable at $2.50 per share, subject to certain
adjustments, exercisable at the option of the Series "B" Preferred Stockholders
at any time on or prior to April 12, 2000. Subsequently, the number of shares
changed to 133,920 as a result of the 5-to-1 reverse common stock split and the
price changed to $1.80 as a result of certain anti-dilution adjustments related
to the placement of additional convertible securities and delays in registering
the underlying common stock of the Series "B" Convertible Redeemable Preferred
Stock issuance.
 
     In conjunction with obtaining $1,674,000 in Series "B" Convertible
Redeemable Preferred Stock, as discussed in Note 8, the Company granted warrants
to the placement agent to purchase 69,600 shares of common stock exercisable
through April 21, 2002 at a price of $2.50 per share, subject to certain
anti-dilution adjustments. Subsequently, the number of shares changed to 13,920
as a result of the 5-to-1 reverse common stock split, and the price changed to
$2.50 as a result of certain anti-dilution adjustments related to the placement
of additional convertible securities.
 
     In conjunction with obtaining two warehouse lines-of-credit totaling
$550,000, as discussed in Note 7, the Company granted warrants to purchase
18,000 shares of common stock exercisable through March 25, 1999 at $3.25 per
share ($16.25 per share for the purchase of 3,600 shares, split adjusted) to an
agent. In addition, the Company issued warrants to purchase 15,000 shares of
common stock at $3.25 per share ($16.25 per share for the purchase of 3,000
shares, split adjusted) exercisable at the option of the lenders at any time on
or prior to March 25, 1999.
 
                                      F-11
<PAGE>   37
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As additional nominal consideration for services in connection with
investor relations, the Company granted warrants to purchase 150,000 shares of
common stock exercisable through November 1, 2001 at $2.50 per share ($12.50 per
share for the purchase of 30,000 shares, split adjusted). The underling shares
are no longer registered.
 
     As additional nominal consideration for consulting services, the Company
granted warrants to purchase 35,000 shares of common stock exercisable through
January 15, 2001 at $4.00 per share ($20.00 per share for the purchase of 7,000
shares, split adjusted). The underlying shares are no longer registered.
 
     During fiscal 1998, warrants to purchase 1,100,000 shares of the Company's
common stock at an exercise price of $2.00 per share, subject to certain
anti-dilution adjustments, were granted to investors in the Bridge Loan as
discussed in Note 8. See Note 11.
 
     In June 1998, the holder of 21,000 shares of Series "C" Convertible
Redeemable Preferred Stock was granted a warrant for the purchase of 2,800,000
shares of common stock at a current exercise price of $1.25, expiring June 12,
2003. See Note 8.
 
     The new Chairman of the Board, elected in December 1997, was granted
warrants for the purchase of 333,334 shares of the Company's common stock at an
exercise price of $1.24 per share. These warrants expire on January 31, 2008.
 
     With the exception of one Director, all Directors on the Board at November
16, 1997 had all of their stock options canceled. In return, warrants to
purchase a total of 144,000 shares of the Company's common stock were issued
with an exercise price of $1.24 per share expiring on December 31, 2000. See
Note 12.
 
     Warrants at June 30, 1998 were outstanding for 5,234,358 shares of the
Company's common stock, with exercise prices ranging from $1.24 to $45.00 and
expiration dates extending to May 31, 2003.
 
     Convertible preferred stock and convertible debt at June 30, 1998 could
potentially convert into 5,828,682 shares of the Company's common stock with
exercise prices ranging from $.50 to $12.50. See Note 14.
 
     Unless full cumulative dividends on the Company's outstanding Preferred
Stock have been declared and paid (or declared and cash set aside for subsequent
payment), no dividends can be declared or paid on the Company's common stock.
 
4. LOANS RECEIVABLE
 
     Prior to June 30, 1994, sales of loans were generally made with the
provision that the Company would repurchase at the request of the investor any
loan that becomes past due by over 90 days or in accordance with those
circumstances which may occur from time to time as outlined in the respective
sale agreements. Investors may not request or demand repurchase without cause as
defined in the respective sale agreement. The balance subject to repurchase
under these agreements included in the Company's servicing portfolio is
approximately $425,000 at June 30, 1998.
 
     Loans sold during 1996 and 1997 to a major loan securitizer are subject to
limited recourse provisions. At June 30, 1997, the aggregate balance of loans
originated by the Company subject to limited repurchase provisions was
approximately $82,483,000, of which none was past due over 90 days and subject
to repurchase at the option of the investor. These recourse provisions expired
150 days after the last loan sale. At June 30, l998, the repurchase provisions
had expired. These loans were sold servicing released with an interest-only
strip retained on the loans.
 
     At June 30, 1998 the Company's servicing portfolio totaled approximately
$7,545,000 including approximately $7,113,000 of Company-owned loans receivable.
 
                                      F-12
<PAGE>   38
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     It is the Company's experience that a substantial portion of the Company's
loan portfolio generally is sold, repaid or foreclosed upon before contractual
maturity dates. Additionally, the Company may extend the maturity of a loan
receivable for past-due payments.
 
     At June 30, 1998, there were loans receivable with an aggregate principal
balance of approximately $80,000 for which the accrual of interest had been
suspended. Borrowers with loans totaling approximately $458,000 were paying
under a court-approved bankruptcy plan at June 30, 1998. Of this amount,
borrowers representing $27,000 aggregate principal balance were delinquent per
the terms of the bankruptcy plan.
 
     Changes in the allowance for credit losses were as follows:
 
<TABLE>
<S>                                                           <C>
Balance as of June 30, 1996.................................  $ 250,260
  Provision for credit losses...............................    225,231
  Charge-offs...............................................   (235,657)
  Recoveries................................................     20,650
                                                              ---------
Balance as of June 30, 1997.................................    260,484
  Provision for credit losses...............................    300,625
  Charge-offs...............................................   (335,932)
  Recoveries................................................     42,075
                                                              ---------
Balance as of June 30, 1998.................................  $ 267,252
                                                              =========
</TABLE>
 
     The allowance for credit losses includes a provision for credit losses that
may be incurred as a result of the obligation to repurchase certain loans sold.
This reserve is included in the allowance for credit losses since it has been
the Company's practice to repurchase loans sold to investors under continuing
servicing agreements prior to foreclosure. The resulting gain or loss on the
foreclosed property is recognized on the books of the Company.
 
5. SERVICING ASSET AND INTEREST-ONLY STRIPS RECEIVABLE
 
     The servicing asset represents the unamortized balance of previously
recognized servicing rights and excess servicing receivables. This amount is
amortized over the estimated lives of the underlying receivables sold. The
carrying value of the servicing asset at June 30, 1998 and 1997 approximates
fair value.
 
     The activity in the servicing asset is summarized as follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                                                       --------------------------------
                                                         1998        1997       1996
                                                       ---------   --------   ---------
<S>                                                    <C>         <C>        <C>
Balance, beginning of year...........................  $ 191,038   $ 77,007   $ 411,902
Unscheduled amortization.............................    (19,446)   (81,421)   (118,765)
Scheduled amortization...............................    (35,271)   (34,610)   (100,099)
                                                       ---------   --------   ---------
Balance, end of year.................................  $  22,290   $ 77,007   $ 193,038
                                                       =========   ========   =========
</TABLE>
 
     The interest-only strips receivable represents the unamortized balance of
the present value of the interest rate differential between the rate charged to
the borrower and the contractual rate paid by the Company to the investor for
the pool of loans after taking into consideration the Company's estimate for any
early prepayments and bad debt expense resulting from the sale of loans
servicing released. This amount is amortized in relation to the related cash
flows over the estimated lives of the underlying receivables sold. Discount
rates of 12% were used to compute the interest-only strips receivable at June
30, 1998 and 1997. The carrying value of the interest-only strips receivable at
year-end approximates fair value.
 
                                      F-13
<PAGE>   39
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The activity in the interest-only strips receivable account is summarized
as follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
<S>                                                           <C>           <C>
Balance, beginning of year..................................  $ 7,268,930   $ 1,317,075
Additions from sales of loans receivable....................    1,150,857     7,162,973
Unscheduled amortization....................................   (2,233,233)      (40,000)
Scheduled amortization......................................   (2,068,270)   (1,171,118)
                                                              -----------   -----------
Balance, end of year........................................  $ 4,118,284   $ 7,268,930
                                                              ===========   ===========
</TABLE>
 
     In fiscal 1998 and 1997, the Company recognized expenses related to the
write down of the servicing asset resulting from unanticipated prepayments.
These prepayments are primarily a result of certain competitors targeting the
higher interest rate loans serviced by the Company and refinancing such loans at
lower interest rates. The expenses are recorded in finance income and fees
earned on the Consolidated Statement of Operations.
 
6. PROPERTY AND EQUIPMENT
 
     Property and equipment are as follows:
 
<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              ---------------------
                                                                1998        1997
                                                              --------   ----------
<S>                                                           <C>        <C>
Furniture and equipment.....................................  $922,129   $1,138,407
Leasehold improvements......................................    53,585       64,679
                                                              --------   ----------
                                                               975,714    1,203,086
Less accumulated depreciation and amortization..............   694,668      678,391
                                                              --------   ----------
                                                              $281,046   $  524,695
                                                              ========   ==========
</TABLE>
 
     Depreciation expense for 1998 and 1997 totaled $184,706 and $171,348,
respectively.
 
7. MORTGAGE WAREHOUSE LINES-OF-CREDIT
 
     On June 11, 1997, the Company obtained a $3,000,000 mortgage warehouse
line-of-credit from a mortgage warehouse lender. The Company utilizes this
line-of-credit for the purpose of financing the origination of single family
residential mortgage loans. This line bears interest at prime plus 2% payable
monthly and the Company generally has an available borrowing base equivalent to
the lesser of $3,000,000 or 95% of the original mortgage amount or the
commitment price from an investor for eligible mortgage loans as defined under
the agreement. The maturity date of the line is the earlier of the 90th day
after funding of each note or the date on which funds are received from the
take-out investor for purchase of the eligible mortgage loan securing such note.
As of June 30, 1998 and 1997, the outstanding balance was $450,016 and
$2,806,386, respectively.
 
     In January 1998, the Company obtained a warehouse line-of-credit from
another lender under similar terms as the aforementioned warehouse
line-of-credit, except that the borrowing base is $15,000,000, advance rate is
100% and the interest rate is 1.75% over prime. At June 30, 1998, the
outstanding balance on this warehouse line-of-credit was $7,698,908.
 
     On March 25, 1997 and March 31, 1997, the Company obtained warehouse
lines-of-credit in the amounts of $450,000 and $100,000, respectively, from
individuals. The Company utilizes the lines-of-credit for the purpose of
financing the origination of single family residential mortgage loans. The lines
bear an interest rate of 12% and mature one year from the date of origination.
In connection with this agreement, the Company issued warrants to purchase
shares of the Company's common stock (see Note 3). The outstanding
 
                                      F-14
<PAGE>   40
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
balances on these warehouse lines of credit totaled $550,000 at June 30, 1997.
During fiscal 1998, both of the lines were repaid and terminated.
 
     In July 1997, the Company obtained a $7,000,000 mortgage warehouse line-of
credit. The Company utilized this line-of credit for the purpose of originating
residential mortgage loans. The line had an advance rate of 100% and an interest
rate of two percent over prime. During February 1998, this line of credit was
paid and terminated.
 
     Acquired in April 1997 (see Note 1), Cash Back Mortgage utilized a mortgage
warehouse line-of-credit for financing a portion of its loan originations. This
line contained a 100% advance rate and an interest rate of 1.75% over prime. In
June 1998, this subsidiary was incorporated into the Company's $15,000,000
warehouse lending agreement.
 
     Mortgage warehouse lines-of-credit are considered short-term borrowings of
the Company. Their weighted-average interest rate based on outstanding balances
was 10.03% and 10.75% at June 30, 1998 and 1997, respectively.
 
8. CONVERTIBLE PREFERRED STOCK, CONVERTIBLE NOTES AND OTHER BORROWINGS
 
     The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock covering all series.
 
     On July 27, 1994 the Company completed a private placement offering of 8%
notes due 2004, convertible into common shares of the Company at $5 per share.
The gross proceeds of the offering totaled $5,550,000. The private placement
resulted in net proceeds to the Company of approximately $5,005,000. The notes
were subordinate to any warehouse lines-of-credit up to $50 million and the
Company was required to comply with various restrictive covenants. During fiscal
year 1996, all outstanding principal and interest due per the agreement was paid
in full. One lender accepted a warehouse lending agreement in lieu of cash in
the amount of $2,300,000. The borrowings, which accrue interest at the rate of
10% per annum payable quarterly, are secured by the underlying mortgage loans.
The Company must provide loans to secure the promissory note in an amount
equivalent to 110% of the principal amount of the note. In the event of a
shortfall in collateral, the Company is required to pledge cash in a segregated
account. At June 30, 1998 and 1997, the Company had pledged $93,682 and
$203,318, respectively, in cash to secure the note. At June 30, 1998, the
outstanding balance on this note was $800,000 and is included in "Convertible
Notes" on the Company's Consolidated Balance Sheet. Repayment terms were
modified during April, 1998 and now require quarterly $100,000 principal
payments, plus accrued interest, through April, 2000. In addition, as discussed
in Note 3, the Company has issued warrants to the lender for the purchase of
shares of the Company's common stock.
 
     On June 16, 1995, the Company entered into an agreement for the placement
of up to $3,000,000 in available borrowings to be used expressly for the purpose
of originating and acquiring mortgage loans. In connection with this agreement,
warrants to purchase shares of the Company's common stock were issued to the
lenders (see Note 3). This agreement expired on June 16, 1997. During fiscal
year 1996, $2,500,000 of the borrowings were converted into Series "A" 9%
Non-voting Convertible Preferred Stock. At June 30, 1998 and 1997, no balance
was outstanding under this agreement. An additional $500,000 in borrowings was
obtained through a similar agreement. Any outstanding borrowings are convertible
into Series "A" Preferred Stock at $2.50 per share ($12.50 per share, split
adjusted). In connection with this agreement, as discussed in Note 3, warrants
to purchase shares of the Company's common stock were issued to the lender. The
borrowings, which accrue interest at the rate of 10% per annum payable monthly,
are secured by the underlying mortgage loans. The Company has pledged loans
receivable as collateral related to these borrowings. The agreement contains a
default interest rate of 16% which accrues to the extent such borrowings are not
repaid on or prior to the maturity date. Such agreement matured on February 22,
1998. At maturity, the noteholder agreed to modify the note such that $250,000
was repaid and $250,000 was deposited with a bank as collateral for a letter of
credit used in the Company's lending operations. The $250,000 remaining balance,
included in "Other
 
                                      F-15
<PAGE>   41
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Borrowings" on the Company's Consolidated Balance Sheet, is due December 31,
1998, or earlier if the letter of credit arrangement is no longer needed.
 
     On October 10, 1995, the Company issued 250 units at an offering price of
$20,000 per unit, each unit consisting of 1,000 shares of Series "A" 9%
Non-voting Convertible Preferred Stock and warrants to purchase shares of the
Company's common stock (see Note 3), subject to certain adjustments, in exchange
for the conversion of $2,500,000 of other borrowings and $2,500,000 in cash. An
additional 70 units of the preferred stock were issued for cash in the amount of
$1,400,000. Dividends on the 9% Convertible Preferred Stock are cumulative from
the date of issuance and payable on a quarterly basis commencing on December 31,
1995. Shares of the preferred stock, totaling an initial investment of $100,000
(five units) in preferred stock, were converted during the year ended June 30,
1997 into 40,000 shares of common stock at $2.50 per share. In October 1997, all
remaining holders representing the $6,300,000 or 315,000 shares of the Series
"A" Convertible Preferred Stock accepted the Company's offer to convert their
shares to 1,938,459 shares (after the 5-to-1 reverse split) of the Company's
common stock at a conversion rate of $.65 per share. Unpaid dividends of
$321,545 were paid by the issuance of 98,937 shares (after the 5-to-l reverse
split) of the Company's common stock at the rate of one share for every $3.25 of
accrued dividends. Related to this conversion, $3,584,700 was added to the "loss
attributable to common shareholders" for disclosure and earnings per share
calculation purposes in accordance with Emerging Issues Task Force Topic No. D-2
"Effect of the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock."
 
     On May 24, 1996, the Company commenced a $9,000,000 10% Convertible Secured
Note offering. The notes are partially secured by essentially all otherwise
unpledged assets of the Company. The original notes were convertible into
3,600,000 shares of common stock at an exercise price of $2.50 per share and
impose limitations on the payments of dividends to common stockholders. After
the conversions noted below and the 5-to-1 reverse split of the Company's common
stock, the outstanding notes remaining at June 30, 1998 are convertible into
13,600 shares of the Company's common stock at an exercise price of $12.50. In
August 1996, the Company became fully subscribed to the maximum offering amount
of $9,000,000. The notes mature on June 30, 2001. During fiscal 1997, $860,000
of the notes were converted by the debt holders into 344,000 shares of common
stock of the Company at $2.50 per share. In October 1997, certain holders of
these notes accepted a conversion offer tendered by the Company. Of the
$8,140,000 outstanding on the notes, holders representing $6,970,000 elected to
convert their notes into 2,788,000 shares (after the 5-to-1 reverse split) of
the Company's common stock at a conversion rate of $.50 per share. Unpaid
accrued interest of $221,500 on these converted notes was also paid by issuance
of 88,607 shares (after the 5-to-1 reverse split) of the Company's common stock
at the rate of one share for every $.50 of interest. Related to this conversion,
a non-cash charge of $5,576,000 was recorded pursuant to FASB No. 84 "Induced
Conversions of Convertible Debt." The calculation of this expense utilized a
market price of the Company's common stock of $.50 per share. In June 1998, one
of the remaining holders of the outstanding notes accepted a conversion offer
from the Company (see Note 11). Of the $1,170,000 outstanding principal balance
on the remaining notes, a holder representing $1,000,000 elected to convert
notes into 10,000 shares of the Company's newly authorized Series "C"
Convertible Redeemable Preferred Stock (see below). Unpaid accrued interest on
the converted notes was paid in cash. Approximately $934,000 of previously
deferred financing costs related to these notes were expensed as a result of
these conversions. The outstanding balance on these notes at June 30, 1998 and
1997 was $170,000 and $8,140,000, respectively.
 
     On November 12, 1996, the Company entered into an agreement with a major
loan securitizer whereby the Company receives advances on the interest-only
strips receivable on the loans sold to be placed in securitizations, as
discussed in Note 5. The lender has the right to offset all sums owed to them by
the Company against the amounts owed by the Company under the loan sales
agreement. The interest rate on the advances is the 30-day LIBOR plus 400 basis
points. In the event of a default, the interest rate increases to the 30-day
LIBOR plus 700 basis points. The 30-day LIBOR rate at June 30, 1998 was 5.66%.
Each advance is
                                      F-16
<PAGE>   42
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
repaid over a 30-month period from the day the loan sale commitment that it
pertains to is filled. During October 1997, the Company received its last
advance under this agreement. As of June 30, 1998 and 1997, $1,619,553 and
$2,100,651 was outstanding under this agreement, respectively.
 
     On March 24, 1997, the Company issued 16,740 shares of Series "B" 11%
Non-voting Convertible Redeemable Preferred Stock at an offering price of $100
per share and warrants to purchase 669,600 shares of common stock at $2.50 per
share, subject to certain adjustments exercisable at the option of the
stockholders at any time on or prior to April 12, 2000. As discussed in Note 3,
subsequently the number of common shares changed to 133,920 as a result of the
5-to-1 reverse common stock split, and the price changed to $1.80 as a result of
certain anti-dilution adjustments related to the placement of additional
convertible securities and delays in registering the underlying common stock of
the Series "B" Convertible Redeemable Preferred Stock issuance. The shares of
Series "B" Preferred Stock were convertible into 669,600 shares of the Company's
common stock at $2.50 per share, subject to certain adjustments. Subsequently,
the number of common shares changed to 930,000 and the price changed to $1.80
per share as a result of the 5-to-1 reverse common stock split and certain
anti-dilution adjustments related to the placement of additional convertible
securities and delays in registering the underlying common stock of the Series
"B" Preferred stock issuance. Dividends on the Series "B" Preferred Stock are
cumulative from the date of issuance and payable on a quarterly basis commencing
on July 1, 1997. Through July 1, 1998, (for dividends accrued for the fourth
fiscal quarter in the fiscal year ending June 30, 1998) dividends are payable in
cash or in shares of additional Series "B" Preferred Stock (payable "in kind").
If the dividend is paid in kind, the shares are valued at the lessor of the
conversion price or the average closing bid price of the Company's common stock
as reported by NASDAQ for the twenty consecutive trading days ending five days
prior to the dividend record date, such record date being the 15th day of the
last month of each quarter. If the dividend is paid in kind on July 1, 1998 or
any payment thereafter, the Series "B" Preferred Stock holders are given voting
rights equivalent to the number of shares of the Company's common stock
underlying their Preferred Stock at the applicable record date for a meeting of
the shareholders of the Company. Additionally, if dividends are paid in kind on
October 1, 1998 or any payment date thereafter, the value of the Series "B"
Preferred Stock is computed as described above, then reduced by 20%. For the
year ended June 30, 1998, dividends totaling $184,140 were recorded. Payment for
dividends totaling $138,105 were paid in kind by the issuance of 905 shares of
the Series "B" Preferred Stock. These 905 shares are convertible into 135,082
shares of the Company's common stock at $1.80 per share. At June 30, 1998,
dividends of $46,035 for fiscal fourth quarter were accrued but unpaid for the
Series "B" Preferred Stock. See Note 14. The Series "B" Preferred Stock is
redeemable in cash at the option of the Company anytime after October 21, 1999
at par plus accrued and unpaid dividends. It is redeemable in cash at par plus
accrued and unpaid dividends anytime prior to October 21, 1999 with a 30-day
notice provided that the underlying common stock of the Company has been
registered and the average closing bid price of the Company's common stock, as
reported by NASDAQ for twenty out of thirty consecutive trading days ten days
prior to the notice date, is at or above 200% of the then current conversion
price.
 
     As noted above, during June 1998 a single investor converted $1,000,000 of
the 10% Convertible Notes and $1,100,000 of the Bridge Loan (see below) into
21,000 shares of the Company's Series "C" Convertible Redeemable Preferred
Stock. See Note 11. Dividends of the Series "C" Preferred Stock are cumulative
from the date of issuance and payable on a quarterly basis. Through July 1,
1999, the dividends are payable in cash or in shares of Series "C" Preferred
Stock (payable "in kind"). If the dividend is paid in kind, the shares are
valued at the lessor of the conversion price or the average closing bid price of
the Company's common stock as reported by NASDAQ for the twenty consecutive
trading days ending five days prior to the dividend record date, such record
date being the 15th day of the last month of each quarter. If dividends are paid
in kind on October 1, 1999 or on any payment date thereafter, the value of the
Series "C" Preferred Stock is computed as described above, then reduced by 25%.
The Series "C" Preferred Stock is redeemable, at the Company's option, in cash
at par plus accrued and unpaid dividends at anytime with a 30 day notice
provided that the underlying common stock of the Company has been registered and
the average closing bid price of the
 
                                      F-17
<PAGE>   43
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Company's common stock, as reported by NASDAQ for twenty out of thirty
consecutive trading days ten days prior to the notice date, is at or above 200%
of the then current conversion price. Each share of the Series "C" Preferred
Stock is convertible into one share of the Company's common stock at $.75 per
share. The conversion price will adjust to $.50 per share if the market price of
the Company's common stock closes at or below $.75 per share for twenty
consecutive trading days. The convertible feature of the Series "C" Preferred
Stock has not yet been ratified by the Company's common stockholders in
accordance with NASDAQ regulations. The holder of the Series "C" Preferred Stock
has agreed not to convert until such ratification is obtained. See Note 13. As
discussed in Note 3, the holder of the Series "C" Preferred Stock received
warrants to purchase shares of the Company's common stock.
 
     From July 1997 through March 1998, the Company issued $2,200,000 of 10%
Convertible Notes intended as interim financing for an equity placement. Such
notes are referred to by the Company as the "Bridge Loan" and are secured by the
portion of the interest-only strips receivable not securing the debt outstanding
on a separate agreement between the Company and a loan securitizer (see above).
These loans were due October 31, 1997, but were extended on several occasions
with the due date now extended to October 31, 1998. The Bridge Loan is
convertible into shares of the Company's common stock at $2 per share for every
one dollar outstanding debt (convertible into 550,000 shares at June 30, 1998).
As discussed in Note 3, the lenders of this loan were issued warrants to
purchase 1,100,000 shares of the Company's common stock at $2 per share. In June
1998, a holder of $1,100,000 of the Bridge Loan converted its note into 11,000
shares of the Company's Series "C" Convertible Redeemable Preferred Stock (see
above). See Note 11. The remaining outstanding balance on the Bridge Loan at
June 30, 1998 is $1,100,000.
 
     Convertible preferred stock and convertible debt at June 30, 1998 could
potentially convert into 5,828,682 shares of the Company's common stock with
exercise prices ranging from $.50 to $12.50. See Note 14.
 
     The aggregate maturities for long-term debt are as follows:
 
<TABLE>
<S>                                                           <C>
1999........................................................  $3,059,441
2000........................................................     885,749
2001........................................................     194,517
2002 and thereafter.........................................          --
                                                              ----------
                                                              $4,139,707
                                                              ==========
</TABLE>
 
9. INCOME TAXES
 
     Income tax expense (benefit) differs from the amount computed by applying
the graduated statutory federal income tax rates for the following reasons:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
                                                  ---------------------------------------
                                                     1998          1997          1996
                                                  -----------   -----------   -----------
<S>                                               <C>           <C>           <C>
Income tax expense (benefit) at statutory
  federal income tax rate applied to income
  (loss) before income taxes....................  $(4,379,710)  $(1,143,420)  $(1,540,369)
State income tax, net of federal income tax
  benefit.......................................     (425,098)     (110,979)     (149,506)
Tax benefit not currently recognizable..........    4,804,808     1,254,399     1,689,875
                                                  -----------   -----------   -----------
                                                  $        --   $        --   $        --
                                                  ===========   ===========   ===========
</TABLE>
 
                                      F-18
<PAGE>   44
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for income tax purposes. The primary sources of
these differences are the differing methods utilized for recognition of gains
associated with loan sales, accelerated tax depreciation, and the allowance for
credit losses. Significant components of the Company's deferred tax liabilities
and assets are as follows:
 
<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
<S>                                                           <C>           <C>
Deferred tax liabilities:
  Interest-only strips receivable basis differences.........  $(1,555,000)  $(2,711,000)
  Other, net................................................      (23,000)      (39,000)
                                                              -----------   -----------
Total deferred tax liabilities..............................   (1,578,000)   (2,750,000)
Deferred tax assets:
  Allowance for credit losses...............................      100,000        97,000
  Other reserves............................................        2,000        15,000
  Other, net................................................      100,000        71,000
  Net operating loss carryforwards -- State.................    1,651,000       876,000
  Net operating loss carryforwards -- Federal...............    9,358,000     5,475,000
                                                              -----------   -----------
Total deferred tax assets...................................   11,211,000     6,534,000
Valuation allowance for deferred tax assets.................   (9,633,000)   (3,784,000)
                                                              -----------   -----------
Net deferred tax assets.....................................    1,578,000     2,750,000
                                                              ===========   ===========
Net deferred tax assets (liabilities).......................  $        --   $        --
                                                              ===========   ===========
</TABLE>
 
     At June 30, 1998, the Company had net operating loss carryforwards for
Federal and state income tax purposes available to offset future taxable income
of approximately $29,000,000 expiring from 2009 through 2013.
 
10. COMMITMENTS
 
     The Company leases space for its corporate and branch offices in Georgia,
Ohio, North Carolina, Florida, Tennessee and Illinois. Future lease payments
under all such operating lease agreements are as follows (fiscal years):
 
<TABLE>
<S>                                                           <C>
1999........................................................  $456,015
2000........................................................   255,099
2001........................................................    13,881
2002 and thereafter.........................................        --
                                                              --------
                                                              $724,995
                                                              ========
</TABLE>
 
     Rental expense totaled $581,449, $516,435 and $480,779 for the years ended
June 30, 1998, 1997 and 1996, respectively.
 
11. RELATED PARTY TRANSACTIONS
 
     As discussed in Note 8, $1,000,000 of the 10% Convertible Notes were
converted into 10,000 shares of the Company's Series "C" Convertible Redeemable
Preferred Stock during the current fiscal year. As discussed in Note 3, holders
of these 10% Convertible Notes were also granted warrants to purchase shares of
the Company's common stock. This $1,000,000 portion of the notes that converted
into Series "C" Preferred Stock was held by an entity in which the Company's
current Chairman of the Board of Directors is an
 
                                      F-19
<PAGE>   45
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
executive officer. The Company's current Chairman of the Board was elected to
the Company's Board of Directors and elected Chairman on December 23, 1997.
 
     As discussed in Note 8, during the current fiscal year the Company borrowed
a total of $2,200,000 under a Bridge Loan. As discussed in Note 3, warrants to
purchase 1,100,000 shares of the Company's common stock were granted to these
lenders. Of this original $2,200,000 Bridge Loan, $1,100,000 was loaned to the
Company by an entity in which the Company's current Chairman of the Board is an
executive officer. As discussed in Note 8, subsequently $1,100,000 of the Bridge
Loan was converted into 11,000 shares of the Company's Series "C" Convertible
Redeemable Preferred Stock. This $1,100,000 of the Bridge Loan that was
converted represents the portion that was originally loaned to the Company by
the entity in which the Company's current Chairman of the Board of Directors is
an executive officer.
 
     The Company had a management consulting agreement with an entity in which
the Company's current Chairman of the Board of Directors is an executive
officer. Under this agreement, the Company was charged $10,000 per month for
services. This agreement became effective June 1995 and expired June 1996, but
was continued on a month-to-month basis until July 1997. Under this agreement,
the Company paid $120,000 in fiscal years 1996 and 1997 and $10,000 in fiscal
1998.
 
     During the year ended June 30, 1996, the Company advanced $100,000 to a
stockholder and director, originally due on September 15, 1996. On August 11,
1997, the maturity date was extended to August 20, 1998. The note bears interest
at 8% and is payable at maturity. The borrower was not a director of the Company
as of June 30, 1997. See Note 14.
 
     During the year ended June 30, 1995, the board approved an advance in the
amount of $100,000 to a director. This loan bears interest at 11% and all
interest and principal was due and payable on May 20, 1996. During the year
ended June 30, 1996, the maturity date was extended to May 20, 1997. The
borrower was no longer a director of the Company at June 30, 1998. In October
1997, the former director entered into a two year consulting agreement with the
Company. In lieu of cash compensation under the consulting agreement, the former
director agreed to apply the value of any services provided to the Company
toward repayment of the note. A reserve has been recorded for the advance in the
full amount of the outstanding balance.
 
12. STOCK OPTION PLAN
 
     In October 1990, the Company adopted the 1990 Stock Option Plan (the "1990
Plan") under which 250,000 shares of the Company's common stock are reserved for
issuance, pursuant to which officers, directors and key employees are eligible
to receive incentive and/or nonqualified stock options. In March 1992, the
Company amended the 1990 Plan and increased the number of shares reserved from
250,000 to 400,000 shares.
 
     In January 1993, subject to stockholder approval which was obtained in May
1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan") under
which 250,000 shares of the Company's common stock are reserved for issuance
similar to the 1990 Plan. Subsequently, the Company has amended the 1993 Plan
and increased the number of shares reserved to 1,200,000 shares. The 1990 Plan
and the 1993 Plan (collectively, the "Plans") are administered by a committee of
the Board of Directors. The option prices underlying all such agreements are
based upon the fair value of the stock on the date of grant.
 
     On October 29, 1997, the Company effected a one-for-five reverse stock
split, as discussed in Note 3. The total number of shares reserved in the 1990
Plan was reduced to 80,000 shares. The total number of shares reserved in the
1993 Plan was reduced to 240,000 shares. The exercise price of all options
granted at that time was increased by a factor of five, while the number of
shares in each grant was reduced by a factor of five. The Company then amended
the 1993 Plan, subject to stockholder approval which was obtained in December
1997, to increase the number of shares reserved to 825,000 shares.
 
                                      F-20
<PAGE>   46
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     On November 3, 1997, each option outstanding under the Plans, including
options held by directors and executive officers of the Company, was canceled
and reissued with an exercise price equal to $2.00 per share, equal to the then
current market price. Options to purchase 127,400 shares of common stock at
exercise prices ranging from $10.00 to $20.00 per share, with a weighted average
exercise price of $17.80 were repriced. All other terms and conditions of these
options remained the same.
 
     In fiscal 1998, options for the purchase of 239,300 shares were granted to
employees and directors of the Company at a per share price ranging from $1.00
to $2.00, with a weighted-average exercise price of $1.81. In fiscal 1997,
options for the purchase of 265,500 shares were granted to employees and
directors of the Company at a per share price ranging from $2.75 to $4.00, with
a weighted-average exercise price of $3.10. At June 30, 1998, there were a total
of 344,500 options outstanding with exercise prices ranging from $1.00 to $2.00,
with a weighted-average exercise price of $1.71. These options had a
weighted-average remaining contractual life of seven years. No options were
exercised during 1998 or 1997; however, 181,126 options outstanding, with a
weighted-average exercise price of $1.45, are vested and exercisable at June 30,
1998.
 
     Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its stock options
under the fair value method of that Statement. The fair value in these options
was estimated at the date of grant using the "minimum value" method allowed by
the Statement. Pro forma net loss and net loss per share were ($17,196,131) and
($3.82) and ($4,451,061) and ($6.01) for the years ended June 30, 1998 and 1997,
respectively. The weighted-average fair value of options granted during the
years ended June 30, 1998 and 1997 was $351,417 and $486,290, respectively.
 
     The following table reflects changes in the stock options issued under the
Plans:
 
<TABLE>
<CAPTION>
                                                                         APPROXIMATE PRICE
                                                              SHARES      RANGE PER SHARE
                                                            ----------   -----------------
<S>                                                         <C>          <C>
Options outstanding at June 30, 1995......................   1,209,500         $4-10
  Granted.................................................     194,000          4-6
  Exercised...............................................          --          --
  Canceled................................................     (88,500)         5-7
                                                            ----------   -----------------
Options outstanding at June 30, 1996......................   1,315,000          4-8
  Granted.................................................     265,500          2-4
  Exercised...............................................          --          --
  Canceled................................................    (223,500)         2-4
                                                            ----------   -----------------
Options outstanding at June 30, 1997......................   1,357,000          2-4
  Reverse Common Stock split..............................  (1,085,600)         --
  Granted.................................................     239,300          1-2
  Exercised...............................................          --          --
  Canceled................................................    (166,200)         2-4
                                                            ----------   -----------------
Options outstanding at June 30, 1998......................     344,500         $1-2
                                                            ==========   =================
</TABLE>
 
13. GOING CONCERN
 
     During the fiscal year ended June 30, 1998, the Company incurred losses of
$12,881,499 compared to losses of $3,362,999 for the fiscal year ended June 30,
1997. In addition, as of June 30, 1998, the Company had an accumulated deficit
of $29,323,389. Although the Company had modest earnings for its 1992 fiscal
year, it has incurred losses during all of its other years since 1991. In view
of its geographic expansion and the increased size of its corporate
infrastructure in connection therewith, the Company has been unable to generate
sufficient gain on sales of its mortgage loans in either individual sales, bulk
sales or through securitization to provide sufficient revenues to achieve
appropriate returns.
                                      F-21
<PAGE>   47
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company has experienced significant cash flow deficiencies over the
past years. By its nature, the Company's business requires continual access to
short-term and long-term sources of debt and equity capital. The Company's
capital requirements arise principally from loan originations and loan
repurchases, payments of operating and interest expenses, capital expenditures,
and start-up expenses for new geographic markets. To date, in addition to the
Company's capital raising efforts, the sources of liquidity have been (1) sales
of the loans it originates and purchases in secondary markets, (2) borrowings
under its mortgage warehouse lines-of-credit secured by its loans, in most cases
until such loans are sold and the lender can be repaid, (3) finance income and
fees generated by the loan servicing portfolio, and (4) the conversion of the
servicing asset and interest-only strips receivable into cash over the lives of
the loans sold.
 
     The Company has approximately $3,059,000 in debt that will be due within
the next twelve months and does not yet have other permanent financing plans in
place.
 
     The Company has received notification from NASDAQ stating that the Company
has failed to maintain a $1.00 minimum bid price on its common stock and has not
consistently met the $2,000,000 minimum in net tangible assets necessary for
continued listing on the NASDAQ Small Cap Market. The Company's net worth as of
June 30, 1998 was $2,458,379. NASDAQ has informed the Company that consistent
compliance with these requirements is necessary. It not certain if the Company
will be able to maintain continued listing on the NASDAQ Small Cap Market.
 
     There can be no assurance that the Company will be able to obtain necessary
financing or additional capital in the future or that the Company will continue
to be listed on the NASDAQ Small Cap Market. There can be no assurance that the
Company will be able to obtain, on acceptable terms, additional funds under
lines-of-credit, or otherwise, when needed, in which event the Company would be
required to curtail its lending activities and could be unable to comply with
the terms of covenants contained in the agreements relating to its outstanding
indebtedness.
 
MANAGEMENT'S PLANS
 
     Operating cash flows for the Company have shown improvement. The Company
ceased selling loans for an accrued profit in November 1997, and has since sold
all loans for a cash premium at time of sale. While this change in sales methods
has resulted in a lower gain on sale margin, the improved cash flow has allowed
the Company to operate without a cash infusion since March 1998. While no
assurance can be given that the Company will be able to generate a consistent
positive operational cash flow, management believes that the significant
infusions of additional cash required by previous business strategy are no
longer necessary for the Company to pay its operational expenses. Although a net
loss of $12,881,499 was reported for the fiscal year ended June 30, 1998,
several items which contributed to the loss were non-cash charges. For instance,
the Company recorded debt conversion costs of $5,576,000, writeoffs of
$2,233,000 of the interest-only strip receivable resulting from earlier than
anticipated prepayments of the underlying loans, and $1,731,000 of financing and
goodwill amortization.
 
     Management is developing a plan to address the $3,059,000 of debt due in
the upcoming fiscal year. The Company is in the process of restructuring the
remaining $1,100,000 of the Bridge Loan due on the extended due date of October
31, 1998. Preliminary discussions have been held with the holders of this
remaining debt to consider either converting their notes to equity or accepting
repayment over an extended time frame that the Company projects could be
accommodated by future cash flows. An additional $1,226,000 is due in the
upcoming fiscal year under an agreement whereby the Company received advances
against interest-only strips receivable. Repayment of this agreement is expected
to be offset against amounts owed to the Company from the interest-only strips
receivable. An additional $400,000 is due in the upcoming fiscal year for the 8%
Convertible Notes. Repayment of this debt is expected to come from the sale of
the underlying mortgages securing this debt. An additional $250,000 is due in
the upcoming fiscal year to pay the remaining balance under a placement
agreement used to originate and acquire mortgage loans. The Company plans to
repay this
                                      F-22
<PAGE>   48
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
debt from amounts currently held in restricted cash. The remaining $83,000 of
debt due in the upcoming fiscal year is expected to be paid from operating cash.
 
     While management does not believe having its common stock trade on the
Over-the-Counter (OTC) market as opposed to the Nasdaq SmallCap market will have
negative effect on its operations directly, management recognizes that continued
listing on the NASDAQ market is important to many stockholders, and that future
capital investment could be more difficult if the Company's common stock were
trading on the OTC market. Therefore, management has met with NASDAQ officials
to discuss the Company's continued listing on the exchange. To maintain its
listing, the Company must (a) obtain stockholders' ratification of the
conversion features of the Company's Series "C" Preferred Stock, (b) obtain
prior approval from stockholders for any potential equity placement from the
holders of the remaining Bridge Loan maturing on October 31, 1998, (c) maintain
tangible net assets of at least $2,000,000, and (d) maintain a minimum bid price
on the Company's common stock of $1.00 per share. The Company has called a
special meeting of the shareholders for October 15, 1998 to obtain the requisite
votes for (a) and (b) above, and to also seek approval for a reverse common
stock split intended to address (d) above. The Company will need at least
$200,000 of the $1,100,000 of Bridge Loan debt that will potentially convert to
equity to comply with (c) above as of June 30, 1998, plus an additional amount
at least equivalent to the expected loss for the quarter ending September 30,
1998. It is management's understanding from Nasdaq that failure to comply with
any of these requirements will result in immediate delisting of the Company's
common stock from the exchange. Management believes that compliance with all the
requirements is possible, although no assurance can be given that the Company's
common stock will not be delisted in the future.
 
     During November and December 1997, four out of seven Directors on the
Company's Board were not renominated for another term, and a new President was
named.
 
     The Company consolidated regional processing centers, reduced corporate and
branch support staff, and increased loan originations. These actions are
expected to have a positive impact on operating results ofthe Company. In
addition, management continues to analyze cost structures, delivery channels,
and loan origination volume.
 
14. SUBSEQUENT EVENTS
 
     As discussed in Note 8, the Company's Series "B" Convertible Redeemable
Preferred Stock contains a provision wherein if the Company pays the July 1,
1998 (accrued for fiscal fourth quarter for the fiscal year ended June 30, 1998)
dividends in kind, then the holders of the Series "B" Preferred Stock will
acquire rights to vote on any issues presented to the Company's common
shareholders. On July 1, 1998, the Company paid accrued dividends of $46,035 to
the holders of the Company's Series "B" Preferred Stock by issuing 399 shares of
Series "B" Preferred Stock (paid in kind). These 399 shares are convertible into
39,940 shares of the Company's common stock. The Series "B" shareholders as a
group have the equivalent of 931,537 shares of common stock for voting purposes.
 
     As discussed in Note 8, the Company's Series "C" Convertible Redeemable
Preferred Stock contains a conversion price adjustment (for the right to convert
into shares of the Company's common stock) if the market price of the Company's
common stock closes at or below $.75 for twenty consecutive trading days on the
NASDAQ exchange. In August 1998, the Company's common stock traded below $.75
for twenty consecutive trading days on the NASDAQ exchange, and the conversion
price related to the conversion rights was adjusted from $.75 to $.50. As a
result, the shares of Series "C" Preferred Stock are now convertible into
4,200,000 shares of the Company's common stock at $.50 per share.
 
     As discussed in Note 11, the Company has a $100,000 note receivable due
from a former member of the Company's Board of Directors. The note matured on
August 20, 1998 (extended due date) and was not paid
 
                                      F-23
<PAGE>   49
                            CREDIT DEPOT CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
or extended. The Company's efforts to collect this receivable have not been
successful. The Company continues to carry a reserve for the full outstanding
amount of this note receivable.
 
     On August 28, 1998, the Company's Board of Directors approved, subject to
subsequent stockholder approval, a proposal to amend the Company's Certificate
of Incorporation to effect a reverse common stock split. The Company's Board of
Directors has stated that it may abandon this proposed reverse stock split at
any time before stockholder approval. In addition, depending on prevailing
market conditions, the Company's Board of Directors has stated that it may deem
it advisable to implement the reverse common stock split and concurrently
declare a stock-for-stock dividend in a ratio to be determined by the Company's
Board of Directors.
 
                                      F-24