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


                                  FORM 10-KSB/A


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

             For the fiscal year ended December 31, 2003

                                       OR

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

          For the transition period from ____________ to ______________
                          Commission File Number 0-631

                            WEBFINANCIAL CORPORATION
                            ------------------------
                 (Name of small business issuer in its charter)

        Delaware                                       56-2043000
        --------                                       ----------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)

  590 Madison Avenue, 32nd Floor
      New York, New York                                  10022
      ------------------                                  -----
(Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number: (212) 758-3232

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

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

                     Common Stock, par value $.001 per share
                                (Title of Class)

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

                                 Yes [X] No [ ]

            Check if there is no disclosure of delinquent  filers in response 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. [ X ]

            Issuer's revenues for its most recent fiscal year: $5,813,000

            Based upon the closing price of the registrant's Common Stock, $.001
par value (the "Common Stock") on March 24, 2004, the aggregate  market value of
the 2,580,119  shares of Common Stock held by  non-affiliates  of the issuer was
$6,347,093.  Solely  for  the  purposes  of  this  calculation,  shares  held by
directors and officers of the  registrant  have been  excluded.  Such  exclusion
should not be deemed a determination or an admission by the issuer that all such
individuals are, in fact, affiliates of the issuer.

            As of March 29, 2004,  4,366,866 shares of the  registrant's  Common
Stock were issued and outstanding.

                    Documents incorporated by reference: None

  Transitional Small Business Disclosure Format (Check One): Yes [ ] No [ X ]




                                TABLE OF CONTENTS

                                     PART I                           Page No.
                                                                      --------

Item 1.    Description of Business                                       1


Item 2.    Description of Property                                       7

Item 3.    Legal Proceedings                                             7

Item 4.    Submission of Matters to a Vote of Security Holders           7

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters      9

Item 6.    Management's Discussion and Analysis or Plan of Operation     9

Item 7.    Financial Statements                                         22

Item 8.    Changes In and Disagreements With Accountants
           on Accounting and Financial Disclosure                       22

Item 8A.   Controls and Procedures                                      23

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control
           Persons; Compliance with Section 16(a) of the Exchange Act   24

Item 10.   Executive Compensation                                       27

Item 11.   Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters               28

Item 12.   Certain Relationships and Related Transactions               30

Item 13.   Exhibits and Reports on Form 8-K                             30

Item 14.   Principal Accountant Fees and Services                       31


Signatures

Exhibit Index







PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

            WebFinancial   Corporation  (formerly  Rose's  Holdings,   Inc.  and
referred  to  herein as the  "Company"),  was  incorporated  in 1997 to act as a
holding  company for Rose's  Stores,  Inc.,  an operator of general  merchandise
discount  stores.  On December 2, 1997, the Company sold all of the  outstanding
capital stock of Roses Stores, Inc.

            On August 31,  1998,  the  Company  acquired,  through  WebFinancial
Holding Corporation  ("WebFinancial  Holding") a wholly-owned  subsidiary of the
Company,  90% of the outstanding common stock of WebBank, a Utah industrial loan
corporation,  pursuant to an assignment  from Praxis  Investment  Advisers,  LLC
("PIA")  of  a  stock  purchase  agreement,  between  PIA  and  Block  Financial
Corporation ("Block"),  relating to the purchase by PIA of all of the issued and
outstanding shares of common stock of WebBank.  Pursuant to the assignment,  the
Company paid Block $5,071,000  (including $288,000 of acquisition costs) for the
shares of WebBank's common stock.

            On August 31, 1998, the Company formed Praxis  Investment  Advisers,
Inc. ("Praxis") and together with WebFinancial  Holding and Andrew Winokur,  the
holder of the 10% of Praxis not owned by the Company,  entered into a management
agreement.   The   management   agreement   provided   that  Praxis  could  make
recommendations  to and consult  with the  management  and board of directors of
WebBank  about the  deployment  of WebBank's  capital,  the  development  of its
business  lines,  its  acquisition  of  assets  and  its  distributions  to  its
stockholders.  During  2000,  the  Company  significantly  reduced  the level of
operations of Praxis and terminated the management agreement.

            On May 26,  1999,  the  Company  formed a wholly  owned  subsidiary,
WebFinancial  Government  Lending,  Inc., to hold and service U.S. Department of
Agriculture loans. In April 2000,  WebFinancial  Government Lending  transferred
the  majority of its loan  portfolio to WebBank in exchange for 28% of WebBank's
common stock.  WebFinancial  Government Lending has not actively engaged in loan
originations since that time.

            The  principal  executive  offices of the Company are located at 590
Madison Avenue,  32nd Floor, New York, New York 10022.  The Company's  telephone
number is (212) 758-3232.

BUSINESS


            The Company,  through its operating subsidiaries,  operates in niche
banking markets.  WebBank  provides  commercial and consumer  specialty  finance
transactions.  WebBank is  authorized  by the Federal  Deposit  Insurance Act to
charge  interest  (including  periodic  rates,  late fees and  prepayment  fees)
allowed  by Utah law on loans  made to  borrowers  who  reside  anywhere  in the
country.  Any inconsistent state law limits are preempted by federal law, except
for loans made in states that have opted out of the preemption  (i.e.,  Iowa and
Puerto Rico).  WebBank is a small,  business oriented institution insured by the
Federal Deposit Insurance Corporation ("FDIC") and examined and regulated by the
FDIC and the State of Utah Department of Financial Institutions.


            Part of the business  plan of WebBank  represents a  non-traditional
approach to generating growth within the context of the regulatory  standards of
safety and soundness. Prudent business goals and protection of WebBank's charter
are the key elements of the Company's business strategy for WebBank. Pursuant to
this  strategy,  WebBank has focused on several  lines of business as  described
below:


            o   ACCOUNTS  RECEIVABLE  FACTORING.  At December 31, 2003, accounts
                receivable  factoring  constituted  WebBank's  principal line of
                business.  Factoring  is a form of  collateral-based  commercial
                lending in which  companies sell their  receivables to a lender,
                principally to secure working capital.  The receivables are paid
                directly  to  the   lender.   WebBank  is  engaged  in  accounts
                receivable factoring utilizing a sourcing and servicing company.
                The Company has announced that a notice of termination  has been
                issued with respect to a certain accounts  receivable  factoring
                arrangement,  with the  termination to be effective in May 2004,
                and that another accounts  receivable  program was terminated in
                February 2004.  The accounts  receivable  factoring  arrangement
                that is scheduled to be terminated  effective May 2004 generated
                revenue and income in fiscal 2002 and 2003 which  accounted  for

                                       1





                (a) substantially all of the revenue and income generated by the
                Company's accounts  receivable  factoring  operating segment for
                those  years,  and  (b) a  significant  part of the  income  and
                revenue of the Company for those years.  It is possible that the
                May 2004  termination  may not take  effect as  provided  in the
                termination notice and the arrangement may continue. The Company
                believes  that the  termination  of the two accounts  receivable
                factoring arrangements will have a significant adverse effect on
                its net income  during 2004.  In the event of the  scheduled May
                2004 termination,  accounts receivable  factoring will no longer
                be, at that time, WebBank's principal line of business and there
                can  be  no   assurance   that  the  Company  will  be  able  to
                successfully   enter   into   a   replacement   arrangement   or
                arrangements. WebBank is currently considering potential options
                to remain in the accounts  receivable  factoring  business.  See
                "Risk  Factors  - Our  business  could be  harmed  if a  certain
                accounts   receivable    factoring   and   service   arrangement
                terminates."

            o   PRIVATE LABEL STUDENT LENDING.  This is a secondary product line
                in which WebBank is involved.  It is an alternative to federally
                subsidized student loan programs. A third party sourcing company
                is engaged to source these loans.  WebBank  provides  funding to
                the  students  and sells the  loans to the third  party  shortly
                after origination of each loan. The third party sourcing company
                engaged  to  source  private  label  student  loans on behalf of
                WebBank has given  notice to WebBank  that it will not renew the
                arrangement.  Consequently,  this  arrangement will terminate at
                the conclusion of its current term on May 31, 2004. See "Note 20
                - Subsequent  Events" to the  Company's  Consolidated  Financial
                Statements.  This  product  represented  2.6%  and  3.9%  of the
                Company's revenues in 2003 and 2002, respectively.


            o   ELECTIVE MEDICAL AND DENTAL TREATMENT  LENDING.  This is another
                secondary  product  line.  It is a form  of  unsecured  consumer
                lending  that allows  customers to finance  elective  surgery or
                other treatments not covered under traditional  health insurance
                plans.  A third party  company is engaged to source these loans.
                WebBank  provides funding to the patients and sells the loans to
                the third party shortly after origination of each loan.

            o   USDA BUSINESS AND INDUSTRY (B&I)  LENDING.  This is a commercial
                loan product of which 70% to 90% is guaranteed by the full faith
                and  credit  of the  Federal  government.  The loan  program  is
                administered  by the United States  Department of Agriculture to
                assist   businesses   located  in  rural  areas  (under   50,000
                population)  to  promote   industrial   modernization   and  job
                creation.  Originations  of new B&I loans were  discontinued  by
                WebBank in 2001. However,  WebBank continues to service loans in
                its existing  portfolio and for several other investors.  If the
                accounts receivable  factoring  arrangement is terminated in May
                2004 as described  above,  the  collection  of the remaining B&I
                Loans in WebBank's  existing  portfolio would temporarily become
                WeBank's principal line of business.

            The Company  continues to evaluate its different  business lines and
consider various  alternatives to maximize the aggregate value of its businesses
and increase  stockholder value,  including seeking  acquisitions  and/or merger
transactions, as well as product line extensions, additions and/or divestitures.
No firm  commitments  have been  realized and no binding  letters of intent have
been signed at this time.  There can be no  assurance  that the Company  will be
able to accomplish any of these alternatives and be profitable.


DISTRIBUTION OF ASSETS,  LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL

            The following is a  presentation  of the Company's  average  balance
sheets for the years ended December 31, 2003 and 2002. The presentation includes
all major categories of interest earning assets and interest bearing liabilities
(in thousands):

                                                      Year Ended December 31,
                                                      2003              2002
                                                      ----              ----
ASSETS
------

Interest bearing deposits in other banks            $ 3,826           $ 2,515
Federal funds sold                                    2,243             1,781
Investment securities                                 1,695             1,659
Loans                                                 9,776            12,018

                                       2





Purchased receivables
   Accounts receivable factoring                      6,908             3,890
   Other                                                368               726
                                                    -------           -------
      Total interest earning assets                  24,816            22,589

Allowance for credit losses                          (1,487)           (1,723)
Goodwill                                              1,380             1,380
Other assets                                          1,623             1,903
                                                    -------           -------

   Total assets                                     $26,332           $24,149
                                                    =======           =======

LIABILITIES
-----------

NOW/MMA deposits                                    $   718           $   381
Certificates of deposit                              12,181            11,869
   Total  interest bearing  liabilities              12,899            12,250

Non interest bearing demand deposits                    433               251
Other liabilities                                       230               369
                                                    -------           -------
    Total liabilities                                13,562            12,870


Minority interests                                      393               334

EQUITY
------

Common stock and paid-in-capital                     36,610            36,610
Accumulated deficit                                 (24,331)          (25,594)
Accumulated other comprehensive income (loss)            98               (71)
                                                    -------           -------
    Total Equity                                     12,377            10,945
                                                    =======           =======

    Total Liabilities and Equity                    $26,332           $24,149
                                                    =======           =======

            See "Management's  Discussion and Analysis or Plan of Operation" for
analysis of the Company's net interest margin with respect to yields on interest
earning  assets and rates on interest  bearing  liabilities  for the years ended
December 31, 2003 and 2002.

INVESTMENTS
-----------

            The  following  table  represents  the book  value of the  Company's
investments at December 31, 2003 and 2002 (in thousands):

                                                            December 31,
                                                            ------------
                                                      2003                 2002
                                                      ----                 ----

Obligations of states and political subdivisions    $    40           $     -
Mortgage backed securities                               74               122
Equity securities                                       258             1,619
                                                    -------           -------
      Total                                         $   372           $ 1,741
                                                    =======           =======

                                       3





            The following table indicates the respective maturities and weighted
average  yields of the Company's  investment  portfolio at December 31, 2003 (in
thousands):

                                                    Due in one year or less   Due after one year to five years
                                                    -----------------------   --------------------------------
                                                   Amount      Average yield     Amount        Average yield
                                                   ------      -------------     ------        -------------

Obligations of states and political subdivisions   $    -             -          $  40             2.25%
                                                   ------        --------        ------        -------------
Mortgage backed securities                              -             -              -                -
                                                   ------        --------        ------        -------------

                                                    Due after five years to ten years    Due after ten years
                                                    ---------------------------------    -------------------
                                                   Amount      Average yield     Amount        Average yield
                                                   ------      -------------     ------        -------------

Obligations of states and political subdivisions   $    -             -          $   -                -
                                                   ------        --------        ------        -------------
Mortgage backed securities                         $    -             -          $  74             6.32%
                                                   ------        --------        ------        -------------

LOAN PORTFOLIO

            The Company engages, through its  WebBank  subsidiary,    in several
lending programs. See "Description of Business - Accounts Receivable Factoring."
The  following  table  presents  various  categories  of loans  contained in the
Company's  loan  portfolio  and  the  total  amount  of  all  loans,   including
nonaccruing loans, at December 31, 2003 and 2002 (in thousands):

                                                              December 31,
                                                              ------------
                                                         2003              2002
                                                         ----              ----

Commercial, financial and agricultural                 $ 8,730           $11,658
Installment loans to individuals                            89               168
Purchased receivables
   Accounts receivable factoring                         7,352             4,622
   Other                                                   268               479
                                                       -------           -------
      Totals                                           $16,439           $16,927
                                                       =======           =======

            The following table presents  various  categories of loans contained
in the Company's  loan  portfolio and the maturity and interest  sensitivity  of
loans at December 31, 2003 (in  thousands).  Installment  loans to  individuals,
which have no stated maturity, are shown as due in one year or less.

                                                                       Due after one
                                                 Due in one year or   year through five    Due after five
                                                       less                 years              years
                                                       ----                 -----              -----
Commercial, financial and agricultural                $     -               $   323          $   8,407
Installment loans to individuals                           89                     -                  -
Purchased receivables
   Accounts receivable factoring                        7,352                     -                  -
   Other                                                    -                   268                  -
                                                      -------               -------          ---------
      Totals                                          $ 7,441               $   591          $   8,407
                                                      =======               =======          =========

            The following table presents  various  categories of loans contained
in the Company's loan portfolio due after five years by interest  sensitivity at
December 31, 2003 (in thousands):


                                       4





                                                             Loans with
                                            Loans with       floating or
                                           predetermined     adjustable
                                          interest rates    interest rates
                                          --------------    --------------
Commercial, financial and agricultural     $         -       $    8,730
Installment loans to individuals                     -               89
Purchased receivables
   Accounts receivable factoring                 7,352                -
   Other                                           268                -
                                           -----------       ----------
      Totals                               $     7,620       $    8,819
                                           ===========       ==========

            The following  table  presents  risk elements in the loan  portfolio
represented by  nonaccruing,  past due, and  restructured  loans (in thousands).
There were no foreign loans in the portfolio,  and there were no  concentrations
greater than 10% of the loan portfolio as of December 31, 2003.

                                                                    December 31,
                                                                    ------------
                                                               2003             2002
                                                               ----             ----

Nonaccrual loans                                             $  1,251         $  1,171
Accruing loans past due 90 days or more                            87                4
Troubled debt restructurings not shown above                        -                -
                                                             --------         --------
   Total                                                     $  1,338         $  1,175
                                                             ========         ========

Interest on nonaccrual loans above:
   Amount if interest had been accrued during period         $    111         $    150
   Amount of interest accrued during period                  $     17         $     36

            Accrual of  interest is  discontinued  on a loan when the loan is 90
days  past due or when  management  believes,  after  considering  economic  and
business  conditions  and  collection  efforts,  that the  borrower's  financial
condition is such that  collection of interest is doubtful.  Interest  income on
nonaccrual loans is credited to income only to the extent interest  payments are
received. Loans are restored to accrual of interest when delinquent payments are
received in full.  Additionally,  the Company uses the cost recovery  accounting
method to recognize interest income on impaired loans.

DEPOSITS

            The Company offers, through its WebBank subsidiary,  a limited range
of deposit products.  All of the Company's deposit products,  with the exception
of certificates of deposit,  are with business customers.  For a full discussion
of the  Company's  certificates  of  deposit,  see "Risk  Factors - Reliance  on
brokered  certificates  of deposit could have a negative effect on our liquidity
and operating results."

            The  following  table shows the  average  amount and rate on deposit
categories  in excess of 10% of  average  total  deposits  for the years  ending
December 31, 2003 and 2002 (in thousands).  The Company had no foreign  deposits
during these periods.

                                           Average Amount for Year Ended December 31,
                                           ------------------------------------------
                                                  2003                    2002
                                                  ----                    ----

Non interest bearing demand deposits           $    433                 $   251
NOW/MMA deposits                                    718                     381
Certificates of deposit                          12,181                  11,869
                                               --------                 -------
   Total deposits                              $ 13,332                 $12,501
                                               ========                 =======


                                       5






                                             Average Rate Paid for Year Ended December 31,
                                             ---------------------------------------------
                                                  2003                    2002
                                                  ----                    ----

Non interest bearing demand deposits              N/A                      N/A
NOW/MMA deposits                                2.51%                    2.36%
Certificates of deposit                         2.61%                    2.75%
   Total deposits                               2.60%                    2.73%

The  following  table  indicates  amounts  of time  certificates  of  deposit of
$100,000 or more and their  respective  maturities  as of December  31, 2003 (in
thousands):

           Remaining Term                               Amount
           --------------                               ------

Three months or less                                   $  2,229
Over three months through six months                      1,024
Over six months through twelve months                     3,020
Over twelve months                                        5,091
                                                       --------
   Total                                               $ 11,364
                                                       ========

Return on Equity and Assets

Returns on average  consolidated assets and average  consolidated equity for the
years ended December 31, 2003 and 2002 were as follows:

                                                    Year Ended December 31,
                                                     2003            2002
                                                     ----            ----

Return on average assets                            8.01%            1.90%
Return on average equity                           17.04%            4.19%
Dividend payout                                     0.00%            0.00%
Average equity to average assets                   47.00%           45.32%


COMPETITION

            The banking and financial  services industry is highly  competitive.
The increasingly competitive environment is primarily attributable to changes in
regulation,  changes  in  technology  and  product  delivery  systems,  and  the
accelerating  pace of  consolidation  among financial  services  providers.  The
Company competes for loans, deposits, and customers with other commercial banks,
thrift  institutions,  securities and brokerage  companies,  mortgage companies,
insurance companies,  finance companies,  money market funds, credit unions, and
other nonbank  financial service  providers.  Many of these competitors are much
larger in total  assets  and  capitalization,  have  greater  access to  capital
markets and offer a broader range of financial services than the Company.

REGULATION

            WebBank is regulated by Federal and state banking agencies including
the FDIC and the  State  of Utah  Department  of  Financial  Institutions.  As a
result,   WebBank  is  subject  to  various  regulatory   capital   requirements
administered by the Federal and state banking agencies.  Failure to meet minimum
capital  requirements  can  result  in the  initiation  of  certain  actions  by
regulators that, if undertaken, could have a direct material effect on WebBank's
and the Company's  financial  statements.  Under capital adequacy guidelines and
the  regulatory  framework  for  prompt  corrective  action,  WebBank  must meet
specific  capital  guidelines  that involve  quantitative  measures of WebBank's
assets,  liabilities,  and certain  off-balance  sheet items as calculated under
regulatory  accounting  practices.  WebBank's capital amounts and classification

                                       6





are also subject to qualitative  judgments by the regulators  about  components,
risk weightings, and other factors. Management believes that, as of December 31,
2003, WebBank met all capital adequacy requirements to which it is subject.

EMPLOYMENT

            As of March 29, 2004, the Company had 5 employees,  all of whom were
full-time  employees.  The Company  believes  that its  employee  relations  are
satisfactory.  Steel  Partners,  Ltd.,  an entity  controlled  by the  Company's
Chairman of the Board and Chief Executive Officer,  provides certain management,
consulting  and  advisory  services  to the  Company  pursuant  to a  Management
Agreement. James Henderson, the Company's President and Chief Operating Officer,
provides management, accounting and financial services to WebBank pursuant to an
Employee  Allocation  Agreement  between  WebBank and Steel  Partners,  Ltd. See
"Certain Relationships and Related Transactions."

ITEM 2.  DESCRIPTION OF PROPERTY

            The Company  occupies  office space  located at 590 Madison  Avenue,
32nd Floor,  New York,  New York 10022  pursuant to a Management  Agreement with
Steel Partners,  Ltd. See "Certain  Relationships and Related Transactions." The
Company  has the  non-exclusive  right to use the office  space along with Steel
Partners, Ltd. and several other entities.

            On March 20,  2000,  WebBank  entered  into a lease for 4,630 square
feet of headquarters office space in Salt Lake City, Utah. The term of the lease
runs through March 19, 2005.

            The Company  believes that the above facilities are adequate for its
current needs and that suitable additional space will be available as required.

ITEM 3.  LEGAL PROCEEDINGS

            In  January  2000,  Andrew  Winokur,  a  former  executive  officer,
director and stockholder of Praxis Investment Advisors, Inc. ("Praxis"),  one of
the Company's  subsidiaries,  filed a lawsuit in the Superior Court of the State
of  California,  County of Napa.  The lawsuit  alleges that Praxis  breached its
employment  agreement  with Mr.  Winokur.  The lawsuit also  asserts  claims for
interference with contract and unjust enrichment based upon his alleged wrongful
termination.  The lawsuit seeks damages of an unspecified  amount and compliance
by Praxis with the termination  pay-out  provisions in Mr. Winokur's  employment
agreement.

            On March 4, 2002, the lawsuit was submitted to binding  arbitration.
The panel found no breach of contract and no intentional  interference  with Mr.
Winokur's  contractual  rights.  However,  the panel found that Mr.  Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this  provision,  Mr. Winokur could  potentially be entitled to receive  certain
compensation  based on (i) an  investment  bank  valuation  of  WebBank,  if the
Company  accepts such valuation,  or (ii) the proceeds of a sale of WebBank,  if
the Company rejects such  valuation.  While Mr. Winokur would not be entitled to
receive  any  compensation  in the  event  that  the  sale  does  not  exceed  a
predetermined  amount as provided in the employment  agreement,  which amount is
defined as the  amount of capital  invested  by the  stockholders  of Praxis and
WebBank  in such  companies,  plus a  cumulative  annual  rate of  return of ten
percent as of the date of sale, the Company may be forced to sell WebBank if the
sale price exceeds such predetermined  amount, even if the Company does not want
to sell  WebBank.  In  addition,  if the  sale  price  of  WebBank  exceeds  the
predetermined  amount but is less than the investment bank valuation of WebBank,
the Company may be required to sell WebBank at less than its value.  The Company
does not have any alternative  financing plans to make this payment in the event
such payment is required.

            At the present time,  Mr.  Winokur has ceased to  participate in the
process of valuing  WebBank.  However,  since there may be no time limitation on
Mr. Winokur's claim, the valuation  process may proceed in the future and if the
Company is required to make a payment, its business could be harmed.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            On  December  18,  2003,  the  Company  held its  Annual  Meeting of
Shareholders  for the year ended December 31, 2002 whereby the  shareholders (a)
elected five (5) directors and (b) ratified the  appointment  of Grant  Thornton
LLP as independent accountants of the Company for the fiscal year ended December
31, 2003. The vote on such matters was as follows:

                                       7





(a) Election of Directors:
                                                     For          Withheld
                                                     ---          --------
            Warren G. Lichtenstein                3,417,107        36,441
            Jack L. Howard                        3,414,856        38,692
            Howard Mileaf                         3,416,607        36,941
            Joseph L. Mullen                      3,417,038        36,510
            Mark E. Schwarz                       3,417,107        36,441

(b) Ratification of Appointment of Independent Accountants:

                 For          Against          Abstain
                 ---          -------          -------
             3,421,842         31,000            706

                                       8





PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            The Company's  Common Stock is listed on the NASDAQ  SmallCap Market
under the  symbol  "WEFN."  The table  below  sets  forth the high and low sales
prices of the Common  Stock for the  periods  indicated  on the NASDAQ  SmallCap
Market.

                                   Year Ended                  Year Ended
                                December 31, 2003           December 31, 2002
                                High          Low          High           Low
                                ----          ---          ----           ---
1st Quarter                    $ 2.70       $ 1.73        $ 2.67         $ 2.05
2nd Quarter                    $ 2.63       $ 1.70        $ 2.40         $ 1.30
3rd Quarter                    $ 2.85       $ 2.00        $ 2.28         $ 1.31
4th Quarter                    $ 2.70       $ 2.10        $ 2.71         $ 1.56

            As of  March 9,  2004,  there  were 463  holders  of  record  of the
Company's Common Stock.

            The Company  paid no cash  dividends  on its Common Stock during the
last two fiscal  years.  The Company  intends to retain any future  earnings for
working capital needs and to finance potential future acquisitions and presently
does not intend to pay cash  dividends on its Common  Stock for the  foreseeable
future.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002.


            At December  31, 2003,  accounts  receivable  factoring  constituted
WebBank's principal line of business.  WebBank is engaged in accounts receivable
factoring utilizing a sourcing and servicing company.  The Company has announced
that a notice of termination has been issued with respect to a certain  accounts
receivable  factoring  arrangement,  with the termination to be effective in May
2004, and that another  accounts  receivable  program was terminated in February
2004.  The accounts  receivable  factoring  arrangement  that is scheduled to be
terminated  effective May 2004  generated  revenue and income in fiscal 2002 and
2003  which  accounted  for (a)  substantially  all of the  revenue  and  income
generated by the Company's accounts  receivable  factoring operating segment for
those years, and (b) a significant part of the income and revenue of the Company
for those  years.  It is  possible  that the May 2004  termination  may not take
effect as provided in the  termination  notice and the arrangement may continue.
The  Company  believes  that  the  termination  of the two  accounts  receivable
factoring  arrangements will have a significant adverse effect on its net income
during  2004.  The  Company  expects  that if the May 2004  termination  becomes
effective  during the second quarter of 2004,  WebBank will (a) not generate any
gain or loss from the May 2004 termination as the sourcing and servicing company
has elected to purchase the  portfolio of accounts  receivable  at WebBank's net
book value, and (b) generate  approximately  $5.9 million of cash as a result of
the sale of the portfolio. It is also anticipated that the cash generated by the
subject  termination  will be used to retire  Certificates  of  Deposit  as they
mature.  See "Risk Factors - Our business could be harmed if a certain  accounts
receivable factoring and service arrangement terminates."

            Net income was  $2,109,000,  or $.48 per common share,  for the year
ended December 31, 2003, compared to net income of $459,000,  or $.11 per common
share, for the year ended December 31, 2002. A summary of comparative changes in
the  major  components  of net  income  between  the two  years is shown  below,
including the effect of a deferred income tax benefit of $757,000  which was the
result of management's  determination that the Net Operating Loss resulting from
WebBank's prior year operations  would "more likely than not" be utilized in the
near future.


                                       9





            INTEREST INCOME.  Interest income  increased by $1,543,000,  or 57%,
from 2002 to 2003.  This increase was  primarily  due to a $1,771,000,  or 124%,
increase in interest and fees from purchased factoring receivables. Interest and
fee income on the loan portfolio decreased by $220,000, or 20%.

            The majority of the increase in interest income occurred at WebBank.
In January 2002, WebBank began a new accounts receivable  factoring program (the
"Factoring  Program").  The Factoring  Program resulted in an average balance of
outstanding  purchased factoring receivables of $2,976,000 with an average yield
of 45.2% and  interest  income of  $1,345,000  during 2002.  Later in 2002,  the
Company also began purchasing  participations in factoring accounts  receivable,
generating interest income of $84,000 for the year. In 2003, the average balance
of outstanding  purchased  factoring  receivables from the Factoring Program was
$6,221,000 with an average yield of 49.7% and interest income of $2,984,000. The
Company continued to purchase  participations in factoring  accounts  receivable
during 2003,  generating  interest income of $216,000 for the year. As discussed
above, the factoring  program  included two factoring  agreements that have been
terminated.

            The decrease in interest and fees on the loan portfolio was due to a
decrease in average  balances of loans at WebBank  from  $10,378,000  in 2002 to
$8,034,000 in 2003.  WebBank  discontinued  originations of commercial  loans in
2001.

            INTEREST EXPENSE.  Interest expense remained  approximately the same
from 2002 to 2003. All of the Company's interest expense was incurred by WebBank
during  both  years.   Although   WebBank's  average  deposits   increased  from
$12,501,000 in 2002 to  $13,333,000  in 2003, the average  interest rate paid on
those deposits decreased from 2.70% to 2.50%.



            The following is an analysis of the  Company's  net interest  margin
for the years  ended  December  31,  2003 and 2002 with  respect  to each  major
category of interest earning asset and interest bearing liability:

                                                  Average                          Average
       2003                                        Amount      Interest Earned    Yield/Rate
       ----                                     -----------    ---------------    ----------

INTEREST EARNING ASSETS
Interest bearing deposits in other banks          $ 3,826          $    17              0.44%
Federal funds sold                                  2,243               42              1.87%
Investment securities                               1,695               84              4.96%
Loans                                               9,776              858              8.78%
Purchased receivables
   Accounts receivable factoring                    6,908            3,200             46.33%
   Other                                              370               32              8.67%
                                                  -------          -------             ------
  TOTAL INTEREST EARNING ASSETS                   $24,816          $ 4,233             17.06%
                                                  =======          =======             ======

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                  $   718          $    18              2.51%
Certificates of deposit                            12,181              318              2.61%
                                                  -------          -------             ------
   TOTAL INTEREST BEARING LIABILITIES             $12,899          $   336              2.60%
                                                  =======          =======             ======

NET INTEREST INCOME                                                $ 3,897
                                                                   =======
NET INTEREST MARGIN                                                                    15.70%
                                                                                       ======

                                       10




                                                 Average                           Average
          2002                                    Amount       Interest Earned    Yield/Rate
          ----                                  -----------    ---------------    ----------

INTEREST EARNING ASSETS
Interest bearing deposits in other banks          $ 2,515           $    53              2.11%
Federal funds sold                                  1,781                28              1.57%
Investment securities                               1,659                39              2.35%
Loans                                              12,018             1,078              8.97%
Purchased receivables
   Accounts receivable factoring                    3,890             1,429             36.73%
   Other                                              726                63              8.68%
                                                  -------           -------           -------
  TOTAL INTEREST EARNING ASSETS                   $22,589           $ 2,690             11.91%
                                                  =======           =======           =======

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                  $   381           $     9              2.36%
Certificates of deposit                            11,869               326              2.75%
                                                  -------           -------           -------
   TOTAL INTEREST BEARING LIABILITIES             $12,250           $   335              2.73%
                                                  =======           =======           =======

NET INTEREST INCOME                                                 $ 2,355
NET INTEREST MARGIN                                                                     10.43%


            The  following  table  represents  the  effect of  changes in volume
(average  balances) and interest rates on interest  income and interest  expense
when  comparing the year 2003 to the year 2002 (in  thousands).  The effect of a
change in volume has been determined by applying the highest average rate to the
change in the average balances  between the two periods.  The effect of a change
in the average rate has been  determined by applying the highest average balance
to the change in average rates between the two periods. Changes resulting from a
mix of volume/rate variances were distributed proportionately between volume and
rate based on the relative  values of the volume and rate variances to the total
mix variance.

                                                 Year Ended December 31, 2003 Compared to 2002

                                               Due to Volume      Due to Rate       Total Change
                                               -------------      -----------       ------------

INCREASE (DECREASE) IN INTEREST INCOME
Interest bearing deposits in other banks          $     6           $   (42)          $   (36)
Federal funds sold                                      8                 6                14
Investment securities                                   2                43                45
Loans                                                (197)              (23)             (220)
Purchased receivables
   Accounts receivable factoring                    1,201               570             1,771

   Other                                              (31)             --                 (31)
                                                  -------           -------           -------
   TOTAL INTEREST INCOME                          $   989           $   554           $ 1,543
                                                  =======           =======           =======

INCREASE (DECREASE) IN INTEREST EXPENSE
NOW/MMA deposits                                  $     8           $     1           $     9
Certificates of deposit                                 8               (16)               (8)
                                                  -------           -------           -------
   TOTAL INTEREST EXPENSE                         $    16           $   (15)          $     1
                                                  =======           =======           =======



            PROVISION FOR CREDIT  LOSSES.  The credit loss  provision  increased
from a credit of  $(60,000)  in 2002 to a provision  of  $394,000  in 2003.  The
primary  reason  for the  increase  was a  higher  level of  charge  offs in the

                                       11





Factoring Program. During 2003, a total of $600,000 of factored receivables were
charged  off versus $0 in 2002.  The  charge  offs in 2003  required  additional
provision  for credit losses in order to restore the allowance for credit losses
to a level  adequate to absorb  potential  losses in the remaining  portfolio of
factored  receivables.  The  increase  in charge  offs  between the two years is
attributable to several factors. The average factoring  receivables  outstanding
under the  factoring  program  were over  $3,000,000  higher in 2003,  more than
double the average  outstandings  in 2002 when the  factoring  program was first
launched,  which created a higher probability of charge offs in the second year.
Another  reason for the  increase  in charge  offs  between the two years is the
higher  element of risk of the factoring  business  compared to the risk of most
other forms of lending,  which is evidenced by a higher yield. Factoring program
clients are generally not bankable in a traditional sense. Although underwriting
and  monitoring  standards did not change at WebBank from year to year, a number
of losses were  certain to occur with the passage of time  because of the credit
risk factor  involved.  Of the  $600,000  of charge offs in 2003,  approximately
$520,000 were due to client business difficulties and approximately $80,000 were
due to client collusion or fraud.  Collection efforts are ongoing. The increased
provision  for credit  losses was required to restore the  allowance  for credit
losses to an adequate  level  following  the charge offs in 2003.  Additionally,
amortization  and pay downs of  commercial  loans  reduced the amount  needed to
replenish the  allowance for credit losses in 2003 and created a $60,000  credit
loss credit in 2002.



            An analysis of the Company's  allowance for credit losses and credit
loss experience is furnished in the following table for the years ended December
31, 2003 and 2002 (in thousands):


                                                    Year Ended December 31,
                                                    2003              2002
                                                    ----              ----

Balance at beginning of year                       $ 1,526           $ 1,972

Charge-offs by category
   Commercial, financial and agricultural             --                 358
   Installment loans to individuals                     18                28
   Purchased receivables
      Accounts receivable factoring                    600              --
      Other                                           --                --
                                                   -------           -------
         Total charge-offs                             618               386

Recoveries by category
   Commercial, financial and agricultural             --                --
   Installment loans to individuals                   --                --
   Purchased receivables
      Accounts receivable factoring                   --                --
      Other                                           --                --
                                                   -------           -------
         Total recoveries                             --                --
                                                   -------           -------

Net charge-offs                                        618               386

Provision charge (credit) to operations                394               (60)
                                                   -------           -------

Balance at end of year                             $ 1,302           $ 1,526
                                                   =======           =======

Ratio of net charge-offs to average loans
   outstanding during the year                        3.62%             2.32%
                                                   =======           =======


            At December 31, 2003 and 2002,  the  allowance for credit losses was
allocated as follows (in thousands):


                                       12






                                                                     December 31,
                                                           2003                         2002
                                                           ----                         ----
                                               Amount of     % of loans in    Amount of     % of loans in
                                             allowance by     category to     allowance      category to
Balance at End of Year Applicable to:          category       total loans      category      total loans
-------------------------------------          --------       -----------      --------      -----------

Commercial, financial and agricultural          $1,130           53.11%         $1,382            68.87%
Installment loans to individuals                     1            0.54%              3             0.99%
Purchased receivables
   Accounts receivable factoring                   166           44.72%            131            27.31%
   Other                                             5            1.63%             10             2.83%
Unallocated                                       --              N/A              --               N/A
                                                ------       ---------          ------          -------
   Totals                                       $1,302          100.00%         $1,526           100.00%
                                                ======       =========          ======          =======



            The  allowance for credit losses is  established  upon  management's
evaluation of the potential  credit losses in the Company's loan  portfolio.  In
analyzing the adequacy of the Company's allowance,  management considers its own
review as well as the results of independent external credit reviews, changes in
the composition and volume of the loan portfolio,  levels of non-performing  and
charge-off  loans,  local and national economic  conditions,  and other factors.
Performing  loans are evaluated under the guidelines of FASB 5 and other current
accounting literature.  Performing commercial, financial, and agricultural loans
are evaluated on a loan by loan basis. Other performing loans are evaluated on a
pooled basis.  Nonperforming and other impaired loans are evaluated on a loan by
loan basis under the guidelines of FASB 114. (See "Critical  Accounting Issues -
Allowance for Credit Losses" for further details  regarding the determination of
the allowance).


            NONINTEREST INCOME.  Noninterest income increased from $1,161,000 in
2002 to $1,580,000  in 2003, a change of $419,000,  or 36%. Most of the increase
was due to gains on sale of equity securities by the Company. In 2003, a gain on
securities of $891,000 at  WebFinancial  Corporation  was partially  offset by a
loss on sale of other  assets of $80,000 at WebBank.  In 2002, a gain on sale of
securities at WebFinancial Corporation of $318,000 was supplemented by a gain on
sale of other assets of $90,000 at WebBank.  Miscellaneous income decreased from
$441,000 in 2002 to $275,000 in 2003. The primary difference between years was a
$112,000 recovery in 2002 of a security written off in a prior year.

            NONINTEREST EXPENSES.  Noninterest expense increased from $3,096,000
in 2002 to $3,623,000 in 2003, a change of $527,000, or 17%. The primary reasons
for  the  increase   were  a  $334,000   loss  on   impairment   of   securities
available-for-sale  in 2003 and a $268,000  increase between years in management
and broker fees incurred in the Factoring Program.


            INCOME TAXES.  Income tax benefits of $(756,000)  and $(10,000) were
recorded in 2003 and 2002,  respectively.  During 2003, the Company  reduced its
valuation reserve for a deferred tax asset by $1,302,000 resulting in a deferred
tax benefit of  $(757,000)  offset by a current  tax  provision  of $1,000.  The
decrease  in  valuation  reserve in 2003  represented  the  amount of  valuation
allowance  remaining  at  WebBank.  Since its  inception  in 1998,  WebBank  had
experienced a history of  inconsistent  earnings which made it "more likely than
not"  that  some  portion  or  all of  the  deferred  tax  assets  would  not be
recognized.  Therefore, a valuation allowance was established in accordance with
FASB 109,  paragraph 17e. As of December 31, 2003, the Company  determined that,
based  on the  two  previous  year's  earnings  and  the  prospect  for  similar
performance in the foreseeable future, it was "more likely than not" that all of
WebBank's deferred tax assets would be recognized. In 2002, the Company recorded
a current tax benefit of $(10,000).

INTEREST RATE RISK

            Movements in interest  rates can  significantly  impact the interest
the Company  earns on loans and  investments  as well as the interest it pays on
deposits and other borrowings.  The Company monitors the risk through the use of
gap measurement.  Gap measurement  analyzes the difference between the amount of
assets  that  reprice  during  specific  periods  of  time  and  the  amount  of
liabilities that reprice during the same corresponding  periods. This provides a
relative measure of the impact on net interest income from future changes in the
direction  of interest  rates.  Using gap  measurement,  if the Company has more
assets repricing or subject to change during a period of time than  liabilities,
it is asset sensitive. If more liabilities reprice or are subject to change than
assets,  it is  liability  sensitive.  As of December  31,  2003,  the  interest
sensitivity of WebBank for the following periods was as follows:

                                       13



                                                 Over Three
                                     Three         Through     Over One                      Non-
                                   Months or        Twelve    Year Through    Over Five     Interest
ASSETS                                Less          Months     Five Years       Years       Bearing       Total
------                                ----          ------     ----------       -----       -------       -----

Interest-bearing deposits in
other financial institutions         $ 1,603      $  --         $  --         $  --        $    10       $ 1,613

Securities available for sale              9           27            30             8         --              74

Securities held to maturity             --           --              40             8         --              48

Federal funds sold                       965         --            --            --           --             965

Loans, net                             5,542        2,499         2,261         2,928         --          13,230
Non-interest earning assets, net        --           --            --            --          3,224         3,224
                                     -------      -------       -------       -------      -------       -------
 Total Assets                        $ 8,119      $ 2,526       $ 2,331       $ 2,944      $ 3,234       $19,154
                                     =======      =======       =======       =======      =======       =======


LIABILITIES AND SHAREHOLDERS
  EQUITY

Noninterest-bearing deposits         $  --        $  --         $  --         $  --        $   206       $   206

Interest-bearing deposits              2,548        5,201         3,962          --           --          11,711

Other liabilities                       --           --            --            --            324           324

Shareholders' equity                    --           --            --            --          6,913         6,913

                                     -------      -------       -------       -------      -------       -------
Total liabilities and
shareholders equity                  $ 2,548      $ 5,201       $ 3,962       $  --        $ 7,443       $19,154
                                     =======      =======       =======       =======      =======       =======

Interest rate sensitivity gap        $ 5,571      $(2,675)      $(1,631)      $ 2,944      $(4,209)      $  --

Cumulative interest rate
sensitivity gap                      $ 5,571      $ 2,896       $ 1,265       $ 4,209      $  --         $  --

Cumulative % of rate sensitive
assets in repricing  period            42.39%       55.58%        67.75%        83.12%      100.00%          N/A

Repricing gap % for repricing
period                                318.64%       48.57%        58.83%          N/A        43.45%          N/A

Cumulative repricing gap %            318.64%      137.37%       110.80%       135.94%      100.00%          N/A


                                       14






            The Cumulative Repricing GAP %'s above, which are greater than 100%,
indicate that WebBank is asset  sensitive for all cumulative  repricing  periods
presented.  The Company's focus has been to remain asset sensitive in periods of
historically  low interest rates.  This has been  accomplished by lending almost
exclusively  on a  variable  rate  basis and  extending  the  maturities  of the
Company's  brokered  certificates of deposit as necessary to create the level of
interest  sensitivity  the Company  desires.  As rates rise, the Company's loans
will  reprice more quickly on average  than the deposit  base,  creating  larger
interest  margins and higher interest  income.  If interest rates decrease,  the
opposite  effect will occur,  however to a lesser degree.  Downside  protections
include the fact that  interest  rates are at  historic  low levels and the fact
that 72% of the  loans in the  commercial  loan  portfolio  have  interest  rate
floors.

MARKET RISK

            The Company  invests in securities from time to time which expose it
to a risk of loss arising from  adverse  changes in prices of those  securities.
Some  investments  are of a fixed income variety such as U.S.  Treasuries,  U.S.
Agencies, and municipal securities.  Other investments are of the equity variety
such as securities of public companies that are publicly traded.  In both cases,
the  securities  are accounted for under the guidelines of FASB 115. The Company
classifies its securities as either  "available for sale," which are recorded at
the lower of cost or fair value or "held to  maturity,"  which are  recorded  at
cost.   The  Company  has  never   engaged  in  practices   that  would  require
classification  of its securities as "trading." The Company  recognized gains on
sales of available-for-sale  securities of $891,000 and $0 in the years 2003 and
2002,  respectively.  The  Company  also  recorded a loss on the  impairment  of
available-for-sale  securities  of  $334,000  and $0 in the years 2003 and 2002,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

            Liquidity  risk is the  possibility  that the  Company's  cash flows
might not be adequate to fund its ongoing operations and meet its obligations in
a timely and cost effective manner. It monitors liquidity risk primarily through
GAP  methodology,  that is, the  measurement  of how quickly  its assets  mature
versus how quickly its liabilities mature. If more assets mature in a given time
period  than  liabilities,  the  Company  is asset  sensitive.  The  more  asset
sensitive  the Company is, the more  liquid it is because the  existing  funding
sources are  available to replace any assets that run off. A sample of WebBank's
liquidity  positions for the next six months and one year from December 31, 2003
are shown below:

                                                         Six Months         One Year
                                                         ----------         --------
      Cumulative Total Assets Maturing ($000)               8,869             9,287
      Cumulative Total Liabilities Maturing ($000)          4,269             7,289
      Cumulative Maturity GAP ($000)                        4,600             1,998
      Cumulative Maturity GAP (%)                           207.8             127.4

            The Cumulative  Maturity GAP %'s for the next six and twelve months,
which are greater than 100%,  indicate that WebBank is asset sensitive for those
periods.  The  Company has tried to be matched or slightly  asset  sensitive  in
order to moderate  liability risk. This has been  accomplished by focusing asset
growth on purchased receivable lending, which has short maturities, and matching
or extending the maturities of the Company's brokered certificates of deposit as
necessary to create the level of liquidity it desires, taking into consideration
the levels of other risks such as interest rate risk.

            At December 31, 2003 and December 31, 2002,  the Company's  cash and
cash  equivalents  totaled  $7,245,000 and  $6,546,000,  respectively.  The cash
balances at December 31, 2003 and December 31, 2002  included  liquidity to fund
expected growth in purchased receivables.  However,  notices of termination have
been given with respect to two agreements included in the factoring program and,
based  on the  terms of the  factoring  agreements,  the  other  parties  to the
factoring  agreements have the right to purchase the Company's current portfolio
of purchased  receivables.  One party  purchased  approximately  $500,000 of the
factoring  portfolio in February  2004.  The Company used the proceeds to reduce
outstanding  certificates  of deposit.  If the remainder of the  receivables  is
purchased,  the  Company  also  intends  to use those  proceeds  to  reduce  the
outstanding  certificates  of deposit as they  mature.  Funding  for  WebBank is
obtained  primarily from  certificates of deposit  obtained  through brokers and
from a  $500,000  unsecured  line of  credit  with a local  correspondent  bank.

                                       15





Management  believes  that  the  Company's  current  cash  and  cash  equivalent
balances,  expected  operating cash inflows,  and WebBank  borrowing sources are
adequate  to meet the  Company's  liquidity  needs  through at least the next 12
months.



            The  Company  recently  filed  a  registration  statement  with  the
Securities  and Exchange  Commission in order to offer shares of common stock to
holders of subscription  rights who choose to exercise those rights. The purpose
of this offering is to raise up to $10,000,000 to be used for additional working
capital for the Company's business and general corporate purposes.

            The Company and Steel  Partners,  Ltd., an entity  controlled by the
Company's  Chairman,   devote  significant  time  to  exploration  of  potential
acquisition and other business opportunities. There can be no assurance that the
Company will be able to acquire an  additional  business,  or that such business
will be  profitable.  In order to finance an  acquisition,  the  Company  may be
required to incur or assume indebtedness or issue securities.

OFF-BALANCE SHEET ARRANGEMENTS


            The Company is a party to  financial  instruments  with  off-balance
sheet  risk.  In the normal  course of  business,  these  financial  instruments
include  commitments to extend credit in the form of loans or through letters of
credit.  Those instruments  involve, to varying degrees,  elements of credit and
interest rate risk in excess of the amount  recognized on the balance sheet. The
Company's  exposure to credit loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented  by the  contractual  amount of those  instruments.  Commitments  to
extend  credit  are  agreements  to lend to a  customer,  provided  there  is no
violation of any condition  established in the contract.  Commitments  generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since certain of the  commitments are expected to expire without being
drawn upon, the total  commitment  amounts do not necessarily  represent  future
cash requirements. The Company uses the same credit policy in making commitments
and conditional  obligations as they do for on-balance  sheet  instruments.  The
Company evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained,  if deemed necessary upon extension of credit, is
based on management's  credit  evaluation of the borrower.  At December 31, 2003
and 2002, the Company had no undisbursed commercial loan commitments or consumer
credit card loan commitments.  For the same periods,  the Company's  undisbursed
accounts receivable factoring commitments totaled  approximately  $8,138,000 and
$6,382,000,  respectively.  Notices of termination have been issued with respect
to certain accounts  receivable  factoring and service  arrangements.  See "Risk
Factors  - Our  business  could  be  harmed  if a  certain  accounts  receivable
factoring  and  servicing  arrangement  terminates"  and  "Note 20 -  Subsequent
Events" to the Company's Consolidated Financial Statements.


CRITICAL ACCOUNTING ISSUES

ALLOWANCE FOR CREDIT LOSSES


            Management utilizes a comprehensive loan grading system to determine
risk  potential  in  its  loan  portfolio.  Determination  of the  allowance  is
inherently  subjective  as it  requires  significant  estimates,  including  the
amounts and timing of expected  future cash flows on impaired  loans,  estimated
losses on pools of homogeneous  loans based on historical loss  experience,  and
consideration  of current  economic  trends,  all of which may be susceptible to
significant change. The amount of allowance for credit losses assigned to a loan
or group of loans is determined by the category of loan as described below:

            o    The  allowance for credit  losses for  non-impaired  commercial
                 loans  is  calculated  on a loan by loan  basis.  Each  loan is
                 assigned a grade ranging from 1 (excellent) to 7 (substandard).
                 A two  dimensional  matrix is used to  determine  the amount of
                 allowance assigned.

                 One axis of the matrix consists of six risk factors which could
                 contribute to a potential  loss for that loan. The risk factors

                                       16





                 cover both a) elements related specifically to the loan such as
                 financial condition of the borrower and value of collateral and
                 b) elements  related to external  matters such as the condition
                 of the  local  economy  or  industry  trends.  Each of the risk
                 factors is assigned a  percentage  weight  which  reflects  the
                 potential  risk of loss  relative  to  each of the  other  five
                 factors.

                 The  second  axis of the  matrix  consists  of up to five  risk
                 levels.  Each of the risk levels is represented by a percentage
                 figure that equals the portion of the outstanding  loan balance
                 that is expected to be a loss. The risk level  percentage falls
                 within a range of  percentages  assigned to that grade based on
                 historical loss experience

                 The  allowance  for  credit  losses  for a  particular  loan is
                 calculated  by matching  one of the five risk levels to each of
                 the six risk factors.  The product of the risk level percentage
                 and the risk factor weight is  calculated  for each risk factor
                 and all six are summed to produce the allowance for credit loss
                 percentage used for that loan.

                 The matrix  approach  allows  the  Company  to  quantify,  in a
                 logical  fashion  based  on  both  historical   experience  and
                 currently available information, whether or not a future credit
                 loss is probable and, if so,  approximately  how much that loss
                 will be. This methodology,  in the Company's opinion,  complies
                 with the guidelines of the FASB's SFAS No. 5,  "Accounting  for
                 Contingencies"    and   related   accounting   and   regulatory
                 guidelines.

                 The above calculation is performed for non-impaired  commercial
                 loans   ranging   from   grade  1   (excellent)   to   grade  7
                 (substandard). For loans graded 8 (doubtful) or 9 (loss), which
                 are considered impaired,  the matrix is not used. The allowance
                 for credit losses for impaired  loans is  calculated  using the
                 guidelines  of SFAS No.  114,  "Accounting  for  Creditors  for
                 Impairment of a Loan." A loan is  considered  impaired if it is
                 probable  that the  Company  will not  collect  all amounts due
                 according  to  the  contractual  terms  of  the  original  loan
                 agreement. The preferred methodology for calculating impairment
                 under  SFAS  No.  114 is to  calculate  the  present  value  of
                 expected  cash flows from the loan and  subtract  that from the
                 current book value of the loan.  The  difference,  if positive,
                 requires additional allowance for credit losses. If the loan is
                 collateral dependent,  another methodology used is to determine
                 the market value of the collateral,  less selling expenses, and
                 subtract  that from the  current  book  value of the loan.  The
                 difference,  if positive,  requires  additional  allowance  for
                 credit losses.

            o    The  allowance  for credit  losses for  non-impaired  purchased
                 receivables  is  calculated  on a pooled  or group  basis.  The
                 allowance  amount  is  based  on a  percentage  of  outstanding
                 receivables  which takes into  consideration  a combination  of
                 historical  loss experience and industry loss  experience.  The
                 allowance for credit losses for impaired purchased  receivables
                 is calculated  on a loan by loan basis in  accordance  with the
                 guidelines of FASB 114 as described above.

            o    The  allowance  for  credit  losses  for  credit  card loans is
                 calculated on a pooled or group basis.  The allowance amount is
                 based on a percentage of  outstanding  receivables  which takes
                 into  consideration a combination of historical loss experience
                 and current trends.


EQUITY SECURITIES AVAILABLE FOR SALE

            The Company,  both directly and through its WebBank subsidiary,  has
investments in equity securities.  Available-for-sale securities are recorded at
fair value. Unrealized holding gains or losses on available-for-sale  securities
are excluded from earnings and reported,  until realized,  in accumulated  other
comprehensive  income (loss) as a separate component of stockholders'  equity. A
decline  in the  market  value  of any  available-for-sale  or  held-to-maturity
security  below cost that is deemed other than  temporary is charged to earnings
resulting  in  the   establishment  of  a  new  cost  basis  for  the  security.
Determination  of whether a decline in market value is other than  temporary may
be  subjective  because  it  requires  significant  estimates  of the  projected
financial condition of the issuer, of the industry in which the issuer operates,

                                       17





and of local, regional,  and national economies.  See Notes 1 and 2 of the Notes
to Consolidated  Financial  Statements for a description of the methodology used
by the  Company  to  determine  the  cost and fair  value of  equity  securities
available for sale.


DEFERRED INCOME TAXES

            The  Company  uses the  liability  method of  accounting  for income
taxes.  Under the  liability  method,  deferred  tax  assets  and  deferred  tax
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry  forwards.  Deferred tax assets and deferred tax  liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and deferred  tax  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

The net change in the total deferred tax valuation  allowance for the year ended
December 31, 2003 was a decrease of  $1,302,000.  The decrease  represented  the
amount of valuation allowance remaining at WebBank. Since its inception in 1998,
WebBank had experienced a history of  inconsistent  earnings which made it "more
likely than not" that some  portion or all of the  deferred tax assets would not
be recognized.  Therefore,  a valuation  allowance was established in accordance
with FASB 109,  paragraph 17e. As of December 31, 2003,  the Company  determined
that,  based on the two  previous  year's  earnings and the prospect for similar
performance in the foreseeable future, it was "more likely than not" that all of
WebBank's  deferred  tax assets would be  recognized.  See Notes 1 and 12 of the
Notes to  Consolidated  Financial  Statements  for a further  description of the
methodology  used  by the  Company  to  determine  the  deferred  tax  valuation
allowance.


IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

            In  April  2003,  the FASB  issued  SFAS No.  149,  "Accounting  for
Derivative  Instruments  and Hedging  Activities."  SFAS No. 149 amends SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
149 improves  financial  reporting by requiring that  contracts with  comparable
characteristics  be  accounted  for  similarly.  SFAS No. 149 is  effective  for
contracts  entered  into or  modified  after June 30, 2003 and should be applied
prospectively.  The Company  adopted SFAS No. 149 with no material impact on its
financial  condition or results of  operations  for the year ended  December 31,
2003.

            In May 2003, the FASB issued SFAS No. 150,  "Accounting  for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 improves financial reporting by establishing standards for how an issuer
classifies and measures certain financial  instruments with  characteristics  of
both liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified  after May 31, 2003,  and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
adopted  SFAS No. 150 with no  material  impact on its  financial  condition  or
results of operations for the year ended December 31, 2003.


            WebBank adopted Emerging Issues Task Force (EITF) 03-1, "The Meaning
of  Other   than   Temporary   Impairment   and  Its   Application   to  Certain
Investments,"as  of December 31, 2003.  EITF 03-1 includes  certain  disclosures
regarding  quantitative  and qualitative  disclosures for investment  securities
accounted for under FAS 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities,"  that  are  impaired  at the  balance  sheet  date,  but an
other-than-temporary impairment has not been recognized. The disclosure requires
a table of securities  which have  unrealized  losses as of the reporting  date,
distinguished between securities which have been in a continuous unrealized loss
position for 12 months or more and less than 12 months.  The table is to include
aggregate  unrealized  losses and fair value of securities  whose fair value are
below book value as of the reporting date. Additional information,  in narrative
form,  is required  that  provides  sufficient  information  to allow  financial
statement users to understand the  quantitative  disclosures and the information
that the investor considered in reaching the conclusion that the impairments are
not other than  temporary.  At December 31,  2003,  the Company did not have any
unrealized losses on investment securities.


                                       18





                           FORWARD-LOOKING STATEMENTS

THE FOLLOWING  IMPORTANT  FACTORS,  AMONG OTHERS,  COULD CAUSE ACTUAL RESULTS TO
DIFFER  MATERIALLY  FROM THOSE INDICATED BY  FORWARD-LOOKING  STATEMENTS MADE IN
THIS ANNUAL REPORT ON FORM 10-KSB AND  PRESENTED  ELSEWHERE BY  MANAGEMENT.  ALL
FORWARD-LOOKING  STATEMENTS  INCLUDED IN THIS DOCUMENT ARE BASED ON  INFORMATION
AVAILABLE  TO THE  COMPANY  ON THE  DATE  HEREOF,  AND THE  COMPANY  ASSUMES  NO
OBLIGATION  TO  UPDATE  ANY  SUCH  FORWARD-LOOKING   STATEMENTS.   A  NUMBER  OF
UNCERTAINTIES  EXIST THAT COULD AFFECT THE COMPANY'S FUTURE  OPERATING  RESULTS,
INCLUDING, WITHOUT LIMITATION,  GENERAL ECONOMIC CONDITIONS, CHANGES IN INTEREST
RATES, THE COMPANY'S ABILITY TO ATTRACT  DEPOSITS,  AND THE COMPANY'S ABILITY TO
CONTROL COSTS.  BECAUSE OF THESE AND OTHER FACTORS,  PAST FINANCIAL  PERFORMANCE
SHOULD NOT BE  CONSIDERED AN  INDICATION  OF FUTURE  PERFORMANCE.  THE COMPANY'S
FUTURE  OPERATING  RESULTS  MAY VARY  SIGNIFICANTLY.  INVESTORS  SHOULD  NOT USE
HISTORICAL  TRENDS TO  ANTICIPATE  FUTURE  RESULTS  AND SHOULD BE AWARE THAT THE
TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO WIDE  FLUCTUATIONS
IN RESPONSE TO  QUARTERLY  VARIATIONS  IN OPERATING  RESULTS AND OTHER  FACTORS,
INCLUDING THOSE DISCUSSED BELOW.

RISK FACTORS

            The following paragraphs discuss certain factors that may affect the
Company's  financial  condition  and  operations  and  should be  considered  in
evaluating us. For the purposes of the following paragraphs,  unless the context
otherwise  requires,  the  terms  "we,"  "us" and  "our"  refer to  WebFinancial
Corporation.


RELIANCE ON BROKERED CERTIFICATES OF DEPOSIT COULD HAVE A NEGATIVE EFFECT ON OUR
LIQUIDITY AND OPERATING RESULTS.

            Our funding depends  primarily on brokered  certificates of deposit.
Brokered  certificates  of deposit are time  deposits,  generally  in amounts of
$100,000 or less,  placed in a bank by a broker.  The broker receives a fee from
the  bank  and/or  the  depositor  for  providing  this  intermediary   service.
Depositors  that  invest in  brokered  certificates  of  deposit  are  generally
interest  rate  sensitive  and  well  informed  about  alternative  markets  and
investments. Consequently, funding with brokered certificates of deposit may not
provide the same stability to a bank's deposit base as traditional  local retail
deposit  relationships.  Because of our  dependence  on the market for  brokered
certificates  of deposit (98% of WebBank's total deposits at December 31, 2003),
our  liquidity  may be negatively  impacted if that funding  source  experiences
supply  difficulties  due to loss of investor  confidence  or a flight to higher
quality investments such as U.S. Treasury  securities.  In addition,  only banks
that are determined to be "well  capitalized" by their  regulatory  agencies are
permitted to issue brokered certificates of deposit without restriction.  In the
event  WebBank  were no longer  classified  as "well  capitalized,"  we might be
required to obtain permission from our regulators to issue brokered certificates
of deposit, which could be denied under certain circumstances.

            Our  operating  results  may be  negatively  impacted by a change in
interest  rates  required  to  obtain  brokered   certificates  of  deposit.  An
explanation of how this could negatively impact "rate differentials" is provided
in the following  risk factor  entitled  "Changes in interest rates could have a
negative  effect on our  operating  results." In general,  increases in interest
rates on brokered  certificates  of deposit  will reduce our  operating  income.
Increases in the rates we pay for brokered  certificates  of deposit could occur
because of various reasons  including shifts in the Treasury yield curve, a loss
of  confidence  in  the  market  for  brokered  certificates  of  deposit,  or a
deterioration of WebBank's financial condition.


CHANGES IN INTEREST RATES COULD HAVE A NEGATIVE EFFECT ON OUR OPERATING RESULTS.

            Our earnings depend substantially on "rate differentials," which are
the differences between the rates we earn on loans, securities and other earning
assets,  and the interest rates we pay on deposits and other  borrowings.  These
rates are  highly  sensitive  to many  factors  which are  beyond  our  control,
including general economic  conditions and the policies of various  governmental
and regulatory authorities. Changes in interest rates impact the level of loans,
deposits  and  investments,  the credit  profile of  existing  loans,  the rates
received on loans and securities and the rates paid on deposits and  borrowings.
Significant  fluctuations  in interest rates may adversely  affect our financial
condition and results of operations.

                                       19





SIGNIFICANT  NEW LAWS OR CHANGES IN EXISTING LAWS OR MONETARY  POLICY  AFFECTING
THE  BANKING  INDUSTRY  COULD HAVE A MATERIAL  ADVERSE  AFFECT ON OUR RESULTS OF
OPERATIONS.


            Our banking subsidiary,  WebBank, is subject to extensive government
regulation  and  supervision  under various  state and federal  laws,  rules and
regulations, primarily under the rules and regulations of the FDIC and the State
of Utah  Department of Financial  Institutions.  These laws and  regulations are
designed primarily to protect depositors, borrowers, and the Bank Insurance Fund
of the FDIC.  WebBank's  regulators  maintain  significant  authority  to impose
requirements  on  WebBank's  operations,  such as  limiting  its  activities  or
mandating  that it hold increased  capital.  For example,  WebBank's  regulators
recently required WebBank to obtain the prior non-objection of the FDIC and Utah
Department of Financial  Institutions before developing new lines of activity or
expanding  existing  lines of activity,  as well as before making changes to its
board of directors or senior executive  officers.  Objections to WebBank's lines
of business,  enactment of  significant  new laws,  changes in existing  laws or
repeals of existing laws may cause WebBank's  results to change  materially.  In
addition,  federal  monetary  policy,  particularly  as implemented  through the
Federal  Reserve  System,  such as  changes  in  interest  rates,  could  affect
WebBank's financial  condition.  Changes in interest rates can affect the number
of loans  WebBank  originates,  as well as the  value  of its  loans  and  other
interest-earning  assets and the  ability to realize  gains on the sale of those
assets and  liabilities.  Prevailing  interest  rates also  affect the extent to
which  borrowers  prepay loans owned by WebBank.  When interest rates  increase,
borrowers  are less likely to prepay  their loans,  and vice versa.  WebBank may
then be  required  to  invest  funds  generated  by  those  prepayments  at less
favorable interest rates.  Increases in interest rates could hurt the ability of
borrowers who have loans with floating  interest  rates to meet their  increased
payment  obligations.  If those  borrowers were not able to make their payments,
then  WebBank  could suffer  losses,  and its level of  performing  assets would
decline.



OUR BUSINESS  COULD BE HARMED IF A CERTAIN  ACCOUNTS  RECEIVABLE  FACTORING  AND
SERVICE ARRANGEMENT TERMINATES.

            At December  31, 2003,  accounts  receivable  factoring  constituted
WebBank's  principal  line of  business.  We have  announced  that a  notice  of
termination  has been  issued  with  respect  to a certain  accounts  receivable
factoring  arrangement,  with the  termination  to be effective in May 2004, and
that another accounts  receivable program was terminated in February 2004. Under
the accounts receivable factoring arrangement that is scheduled to be terminated
in May 2004,  the  factoring  company  has an option to  purchase  the  existing
portfolio  of  accounts  receivable  from  WebBank at book value.  The  accounts
receivable  factoring  arrangement  with that  factoring  company  accounted for
approximately  35% and 47% of our  consolidated  revenues  for the  years  ended
December 31, 2002 and 2003,  respectively,  and 85% and 66% of our  consolidated
operating  income for the years ended December 31, 2002 and 2003,  respectively.
Under the accounts  receivable  factoring  arrangement  that was  terminated  in
February  2004,  the  factoring  company  exercised  an option to  purchase  the
existing portfolio of accounts receivable from WebBank at book value on March 2,
2004. The accounts receivable factoring  arrangement with that factoring company
accounted for  approximately 5% of our consolidated  revenues for the year ended
December 31, 2003 and 8% of our consolidated operating income for the year ended
December 31, 2003.  This  arrangement  did not account for any revenues in 2002.
There can be no  assurance  that we will be able to  successfully  enter  into a
replacement arrangement or arrangements.  We believe that if the purchase option
for the existing  factoring  arrangement  becomes effective during 2004, WebBank
will (a) not generate any gain or loss as a result of the sale of the  portfolio
because the factoring  company has elected to purchase the portfolio of accounts
receivable  at  WebBank's  net book value,  and (b)  generate  approximately  $6
million of cash as a result of the sale of the portfolio. Nevertheless, in light
of the significant  revenue and operating income  attributable to this factoring
arrangement,  we believe an exercise of the purchase option  significantly prior
to December 31, 2004 could have a significant  adverse  effect on our net income
during 2004.


WE  FACE  SUBSTANTIAL  COMPETITION  IN OUR  INDUSTRY  SECTOR  FROM  BANKING  AND
FINANCIAL  INSTITUTIONS  THAT HAVE LARGER AND GREATER  FINANCIAL  AND  MARKETING
CAPABILITIES, WHICH MAY HINDER OUR ABILITY TO COMPETE SUCCESSFULLY.

            The  banking  and  financial  services  businesses  in our  lines of
business are highly competitive.  The increasingly  competitive environment is a
result of changes in  regulation,  changes in  technology  and product  delivery

                                       20





systems,  and the accelerating  pace of consolidation  among financial  services
providers.  We compete with many different  banking and financial  institutions,
including:

            o   commercial and savings banks and savings and loan associations;
            o   credit unions;
            o   finance companies;
            o   brokerage and investment banking firms; and
            o   asset-based non-bank lenders.


            All of these  entities are branches or  subsidiaries  of much larger
organizations affiliated with statewide, regional or national banking companies,
and as a result may have greater resources and lower cost of funds. There can be
no assurance that we will be able to compete effectively in the future.


WE COULD  SUSTAIN  LOSSES  IF WE  INCORRECTLY  ASSESS  THE  CREDITWORTHINESS  OF
BORROWERS, GUARANTORS OR RELATED PARTIES.

            Our earnings are  significantly  affected by our ability to properly
originate,  underwrite  and  service  loans.  We  could  sustain  losses  if our
borrowers,  guarantors or related parties fail to perform in accordance with the
terms of  their  loans.  We have  adopted  underwriting  and  credit  monitoring
procedures and credit policies,  including the  establishment  and review of the
allowance  for credit  losses,  that  management  believes  are  appropriate  to
minimize this risk by assessing the likelihood of nonperformance,  tracking loan
performance  and   diversifying  our  credit   portfolio.   These  policies  and
procedures,  however,  may not  prevent  unexpected  losses  that could hurt our
business and financial condition.

WE ARE  SUBJECT  TO  CREDIT  AND  INTEREST  RATE  RISK IN  EXCESS  OF AN  AMOUNT
RECOGNIZED ON OUR BALANCE SHEET.


            We are a party to financial instruments with off-balance sheet risk.
In  the  normal  course  of  business,   these  financial   instruments  include
commitments to extend credit in the form of loans or through  letters of credit.
Those instruments  involve, to varying degrees,  elements of credit and interest
rate risk in excess of the amount  recognized on the balance sheet. Our exposure
to  credit  loss in the  event  of  nonperformance  by the  other  party  to the
financial  instrument  for  commitments  to extend credit is  represented by the
contractual  amount  of those  instruments.  Commitments  to extend  credit  are
agreements  to  lend  to a  customer,  provided  there  is no  violation  of any
condition  established  in  the  contract.   Commitments  generally  have  fixed
expiration dates or other termination  clauses and may require payment of a fee.
Since  certain of the  commitments  are expected to expire  without  being drawn
upon, the total  commitment  amounts do not  necessarily  represent  future cash
requirements.   We  use  the  same  credit  policy  in  making  commitments  and
conditional  obligations as we do for on-balance sheet instruments.  We evaluate
each  customer's  credit  worthiness  on a  case-by-case  basis.  The  amount of
collateral  obtained,  if deemed necessary upon extension of credit, is based on
management's  credit evaluation of the borrower.  At December 31, 2003 and 2002,
we had no undisbursed  commercial loan  commitments or consumer credit card loan
commitments. For the same periods, our undisbursed accounts receivable factoring
commitments totaled approximately $8,138,000 and $6,382,000, respectively.


WE MAY EXPAND INTO NEW  NON-BANKING  ACTIVITIES,  WHICH WOULD EXPOSE US TO RISKS
ASSOCIATED WITH NEW BUSINESSES.


            We  continue   to  consider   new   business   opportunities,   both
bank-related and otherwise. We believe that an acquisition can help create value
for stockholders through increased growth, as well as the utilization of our net
operating losses. Accordingly, we may expand our operations into new non-banking
activities in the future.  Although we have experience in providing bank-related
services,  this  expertise  may not  assist  us in  expansion  into  non-banking
activities.  As a  result,  we may be  exposed  to  risks  associated  with  new
businesses,  such as (1) a lack of market and product  knowledge or awareness of
other  industry  related  matters  and (2) an  inability  to attract  and retain
qualified employees with experience in these non-banking activities.


                                       21





OUR BUSINESS COULD BE HARMED IF THERE IS A NON-FAVORABLE RESOLUTION TO THE LEGAL
PROCEEDING COMMENCED AGAINST US BY ANDREW WINOKUR.


            In January 2000, Mr. Winokur, a former executive  officer,  director
and stockholder of Praxis  Investment  Advisors,  Inc., one of our subsidiaries,
filed a lawsuit  in the  Superior  Court of the State of  California,  County of
Napa. The lawsuit alleges that Praxis breached its employment agreement with Mr.
Winokur.  The lawsuit also asserts  claims for  interference  with  contract and
unjust enrichment based upon his alleged wrongful termination. The lawsuit seeks
damages of an unspecified  amount and compliance by Praxis with the  termination
pay-out provisions in Mr. Winokur's employment agreement.


            On March 4, 2002, the lawsuit was submitted to binding  arbitration.
The panel found no breach of contract and no intentional  interference  with Mr.
Winokur's  contractual  rights.  However,  the panel found that Mr.  Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this  provision,  Mr. Winokur could  potentially be entitled to receive  certain
compensation based on (i) an investment bank valuation of WebBank,  if we accept
such  valuation,  or (ii) the  proceeds of a sale of WebBank,  if we reject such
valuation.  While Mr. Winokur would not be entitled to receive any  compensation
in the event that the sale does not exceed a predetermined amount as provided in
the  employment  agreement,  which  amount is  defined  as the amount of capital
invested by the  stockholders  of Praxis and WebBank in such  companies,  plus a
cumulative  annual rate of return of ten percent as of the date of sale,  we may
be forced to sell WebBank if the sale price exceeds such  predetermined  amount,
even if we do not  want to sell  WebBank.  In  addition,  if the  sale  price of
WebBank  exceeds the  predetermined  amount but is less than the investment bank
valuation of WebBank, we may be required to sell WebBank at less than its value.
We do not have any alternative financing plans to make this payment in the event
such payment is required.

            At the present time,  Mr.  Winokur has ceased to  participate in the
process of valuing  WebBank.  However,  since there may be no time limitation on
Mr. Winokur's  claim, the valuation  process may proceed in the future and if we
are required to make a payment, our business could be harmed.

ITEM 7.   FINANCIAL STATEMENTS

            See the Company's  Consolidated  Financial  Statements  beginning on
page F-1.


ITEM 8.   CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

            None.

                                       22





ITEM 8A.  CONTROLS AND PROCEDURES

            Disclosure  controls  are  procedures  that  are  designed  with the
objective of ensuring that information required to be disclosed in the Company's
reports under the Securities  Exchange Act of 1934, such as this Form 10-KSB, is
reported in accordance  with the  Securities  and Exchange  Commission's  rules.
Disclosure  controls are also  designed with the objective of ensuring that such
information is accumulated and  communicated to management,  including the Chief
Executive  Officer and Chief  Financial  Officer as  appropriate to allow timely
decisions regarding required disclosure.


            As of the end of the period covered by this Form 10-KSB, the Company
carried out an evaluation  under the supervision and with the  participation  of
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Securities Exchange Act
Rules 13a-15(e) and 15d-15(e).  Based upon that evaluation,  the Chief Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures are effective to insure that information  required to be
disclosed  in the reports  that the  Company  files  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
by the SEC's rules and  regulations.  There were no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
these controls subsequent to the date of their evaluation.


            Certifications  of the Chief  Executive  Officer and Chief Financial
Officer  regarding,  among other items,  disclosure  controls and procedures are
included as exhibits to this Form 10-KSB.

                                       23





PART III

ITEM 9.   DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS

            The following  sets forth the name,  present  principal  occupation,
employment and material occupations,  positions, offices and employments for the
past five years and ages as of March 29, 2004, for the directors of the Company.
Members  of the  Board of  Directors  are  elected  at the  annual  meetings  of
stockholders  and serve until their  respective  successors shall have been duly
elected and qualified.

NAME AND AGE                   OCCUPATION AND OTHER DIRECTORSHIPS
------------                   ----------------------------------


Warren G. Lichtenstein (38)    Mr.  Lichtenstein has served as a director of the
(term expires 2004)            Company  since  1996 and as  Chairman  and  Chief
                               Executive  Officer of the Company since  December
                               1997.  He also served as President of the Company
                               from December  1997 through  December  2003.  Mr.
                               Lichtenstein  has served as the  Chairman  of the
                               Board, Secretary and the Managing Member of Steel
                               Partners,  L.L.C.,  the general  partner of Steel
                               Partners  II,  L.P.  ("Steel")  since  January 1,
                               1996.  Prior to such time, Mr.  Lichtenstein  was
                               the  Chairman  and a director of Steel  Partners,
                               Ltd. ("Old Ltd."),  the general  partner of Steel
                               Partners Associates,  L.P., which was the general
                               partner  of  Steel,  from  1993  until  prior  to
                               January  1,  1996.  Mr.   Lichtenstein   was  the
                               acquisition/risk  arbitrage analyst at Ballantrae
                               Partners,  L.P., a private investment partnership
                               formed  to  invest  in  risk  arbitrage,  special
                               situations and undervalued  companies,  from 1988
                               to  1990.  Mr.   Lichtenstein  has  served  as  a
                               director  and  the  Chief  Executive  Officer  of
                               Gateway Industries,  Inc. ("Gateway"), a provider
                               of database  development  and Web site design and
                               development services,  since 1994 and as Chairman
                               of the  Board  since  1995.  He has  served  as a
                               director  of  SL  Industries,   Inc.   ("SL"),  a
                               designer  and  producer of  proprietary  advanced
                               systems  and  equipment  for the  power  and data
                               quality  industry,  from  1993 to 1997 and  since
                               January  2002.  He has served as the  Chairman of
                               the Board and Chief Executive Officer of SL since
                               February 2002. Mr.  Lichtenstein  has served as a
                               Director and the  President  and Chief  Executive
                               Officer of Steel Partners,  Ltd. ("New Ltd."),  a
                               management  and advisory  company  that  provides
                               management services to Steel and other affiliates
                               of Steel,  since  June 1999 and as its  Secretary
                               and Treasurer from May 2001 to December 2003. Mr.
                               Lichtenstein  served  as  President  of an entity
                               previously known as Steel Partners Services, Ltd.
                               ("SPS"), a management and advisory company,  from
                               October  1999  through  March 2002.  SPS provided
                               management services to Steel and other affiliates
                               of Steel until March 2002, when New Ltd. acquired
                               the rights to provide certain management services
                               from SPS.  He has also  served as Chairman of the
                               Board of Directors of Caribbean  Fertilizer Group
                               Ltd. ("Caribbean Fertilizer"),  a private company
                               engaged  in  the   production   of   agricultural
                               products in Puerto Rico and  Jamaica,  since June
                               2000. Mr.  Lichtenstein is also a director of the
                               following  other publicly held  companies:  Layne
                               Christensen  Company,  a provider of products and
                               services for the water, mineral, construction and
                               energy markets, and United Industrial Corporation
                               ("UIC"),  a designer  and  producer  of  defense,

                                       24





                               training,  transportation and energy systems.  He
                               also serves as Chairman of the Board of UIC.  Mr.
                               Lichtenstein  devotes such time to the  Company's
                               business  affairs  and  operations  as  he  deems
                               necessary  to perform his duties,  which  changes
                               from time to time.

Jack L. Howard (42)            Mr.  Howard  has  served  as a  director  of  the
(term expires 2004)            Company  since  1996  and  Vice  President  since
                               December  1997.  From  December 1997 to May 2000,
                               Mr.  Howard  served as  Secretary,  Treasurer and
                               Chief Financial Officer of the Company.  For more
                               than the past five years,  Mr.  Howard has been a
                               principal   of   Mutual   Securities,   Inc.,   a
                               registered  broker-dealer.   He  served  as  Vice
                               President of Gateway since December 2001 and as a
                               director since May 1994. Mr. Howard is a director
                               of  Pubco   Corporation,   a   manufacturer   and
                               distributor of printing supplies and construction
                               equipment.  Mr.  Howard  devotes such time to the
                               Company's  business  affairs and operations as he
                               deems  necessary  to perform  his  duties,  which
                               changes from time to time.


Joseph L. Mullen (57)          Mr.  Mullen  has  served  as a  director  of  the
(term expires 2004)            Company  since  1995.  Since  January  1994,  Mr.
                               Mullen has served as Managing Partner of Li Moran
                               International,  a management  consulting company,
                               and has functioned as a senior officer overseeing
                               the  merchandise  and marketing  departments  for
                               such companies as Leewards  Creative Crafts Inc.,
                               Office  Depot  of  Warsaw,  Poland,  and  Camelot
                               Music.

Mark E. Schwarz (43)           Mr.  Schwarz  has  served  as a  director  of the
(term expires 2004)            Company  since  July  2001.  He has served as the
                               general  partner,  directly  or through  entities
                               which he controls, of Newcastle Partners, L.P., a
                               private  investment firm, since 1993. Mr. Schwarz
                               was  Vice   President   and  Manager  of  Sandera
                               Capital,   L.L.C.,  a  private   investment  firm
                               affiliated with Hunt Financial  Group,  L.L.C., a
                               Dallas-based  investment firm associated with the
                               Lamar  Hunt   family   ("Hunt"),   from  1995  to
                               September  1999  and  a  securities  analyst  and
                               portfolio  Manager  for  SCM  Advisors,   L.L.C.,
                               formerly a Hunt-affiliated  registered investment
                               advisor,  from  May  1993 to  1996.  Mr.  Schwarz
                               currently  serves as a director of the  following
                               companies:  SL; Nashua  Corporation,  a specialty
                               paper, label, and printing supplies manufacturer;
                               Bell  Industries,  Inc.,  a provider  of computer
                               systems  and  services;  and Pizza Inn,  Inc.,  a
                               franchisor and operator of pizza restaurants. Mr.
                               Schwarz  has  served  as  a  director  and  Chief
                               Executive   Officer  and  President  of  Geoworks
                               Corporation,   an  entity  with  no   significant
                               business operations,  since May 2003. Mr. Schwarz
                               has  also  served  as  Chairman  of the  Board of
                               Directors of Hallmark Financial Services, Inc., a
                               property and casualty  insurance holding company,
                               since  October 2001,  and as its Chief  Executive
                               Officer  since  January  2003.  From October 1998
                               through  April  1999,  Mr.  Schwarz  served  as a
                               director  of  Aydin  Corporation   ("Aydin"),   a
                               defense electronics manufacturer.

Howard Mileaf (67)             Mr.  Mileaf  has  served  as a  director  of  the
(term expires 2004)            Company  since  December  2002.  He  has  been  a
                               director of Neuberger  Berman  Mutual Funds since
                               1985.  Mr. Mileaf has served as a director of WHX
                               Corporation   ("WHX"),   a  NYSE  listed  holding
                               company,  since  August  2002.  From  May 1993 to
                               December   2001,   Mr.   Mileaf  served  as  Vice
                               President and General Counsel of WHX.

                                       25





EXECUTIVE OFFICERS

            The following  sets forth the name,  present  principal  occupation,
employment and material occupations,  positions, offices and employments for the
past five years and ages as of March 29, 2004, for the executive officers of the
Company, who are not also directors of the Company.

NAME AND AGE                   OCCUPATION AND OTHER DIRECTORSHIPS
------------                   ----------------------------------


Glen M. Kassan (60)            Mr.  Kassan has served as Vice  President,  Chief
                               Financial  Officer and  Secretary  of the Company
                               since June 2000. He has served as Executive  Vice
                               President  of New  Ltd.  since  March  2002.  Mr.
                               Kassan served as Executive  Vice President of SPS
                               from  June  2001  through  March  2002  and  Vice
                               President  from October 1999 through May 2001. He
                               has also served as Vice  Chairman of the Board of
                               Directors  of  Caribbean  Fertilizer  since  June
                               2000.  Mr. Kassan is a director and has served as
                               President  of SL since  January 2002 and February
                               2002, respectively. From 1997 to 1998, Mr. Kassan
                               served as Chairman and Chief Executive Officer of
                               Long Term Care Services,  Inc., a privately owned
                               healthcare  services  company  which  Mr.  Kassan
                               co-founded in 1994 and  initially  served as Vice
                               Chairman and Chief Financial Officer.  Mr. Kassan
                               is  currently  a  director  of  UIC.  Mr.  Kassan
                               devotes  such  time  to  the  Company's  business
                               affairs and  operations as he deems  necessary to
                               perform his duties,  which  changes  from time to
                               time.

James R. Henderson (46)        Mr.  Henderson  has served as President and Chief
                               Operating  Officer of the Company since  December
                               2003, and was the Vice President of Operations of
                               the Company from September 2000 through  December
                               2003.  He has also  served as a  director  of the
                               WebBank   subsidiary   since  March  2002  and  a
                               director   and   Chief   Operating   Officer   of
                               WebFinancial  Holding  since  January  2000.  Mr.
                               Henderson  has served as a Vice  President of New
                               Ltd. since March 2002. Mr.  Henderson served as a
                               Vice  President  of SPS from August 1999  through
                               March 2002.  He has also served as  President  of
                               Gateway since December 2001. Mr. Henderson served
                               as a director and acting Chief Executive  Officer
                               of ECC  International  Corp., a manufacturer  and
                               marketer of computer  controlled  simulators  for
                               training  personnel  to perform  maintenance  and
                               operator  procedures  on military  weapons,  from
                               December 1999 and July 2002, respectively,  until
                               September 2003. He has served as a director of SL
                               since  January  2002.  He has  also  served  as a
                               director  of Del  Global  Technologies  Corp.,  a
                               designer and  manufacturer of medical imaging and
                               diagnostic  systems,  since November  2003.  From
                               January 2001 to August 2001, Mr. Henderson served
                               as President of MDM Technologies,  Inc., a direct
                               mail and marketing  company that was  principally
                               controlled  by  the  Company's   Chief  Executive
                               Officer and Chairman. From 1996 to July 1999, Mr.
                               Henderson was employed in various  positions with
                               Aydin,  which  included a tenure as President and
                               Chief Operating Officer from October 1998 to June
                               1999.  Prior to his  employment  with Aydin,  Mr.
                               Henderson  was  employed  as  an  executive  with
                               UNISYS  Corporation,   an  e-business   solutions
                               provider.  Mr. Henderson devotes such time to the
                               Company's  business affairs as he deems necessary
                               to perform his duties, which changes from time to
                               time.


AUDIT COMMITTEE FINANCIAL EXPERT

            The Board of Directors has an established audit committee  comprised
of  Howard  Mileaf,  Joseph  L.  Mullen,  and Mark E.  Schwarz.  The  Board  has
determined  that  Howard  Mileaf has the  requisite  education,  background  and

                                       26





experience to be considered an audit committee  "financial  expert" as that term
is defined by the Securities and Exchange Commission and is "independent" as the
term is used in Item 7(d) (3) (iv) of Schedule 14A under the Securities Exchange
Act of 1934, as amended.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section  16(a) of the  Securities  Exchange Act of 1934, as amended,
requires the Company's  directors and  executive  officers,  and persons who own
more than 10% of a registered class of the Company's equity securities,  to file
with the Securities  and Exchange  Commission  initial  reports of ownership and
reports of changes in ownership of Common Stock and other equity  securities  of
the Company. Officers,  directors and greater-than 10% stockholders are required
by SEC  regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely upon a review of copies of such forms received by it, or
written  representations  from certain reporting  persons,  the Company believes
that,  during the fiscal year ended December 31, 2003, there was compliance with
all Section 16(a) filing  requirements  applicable to officers,  directors,  and
greater-than 10% stockholders.

CODE OF CONDUCT AND ETHICS

            The Company has adopted a Code of Conduct and Ethics that applies to
the Company's  principal  executive officer,  principal  financial officer,  and
other persons performing  similar  functions.  A copy of the Code of Conduct and
Ethics has been filed as an exhibit to this Annual Report.

ITEM 10.   EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

            The  following   table  sets  forth   information   concerning   the
compensation  paid by the Company  during the fiscal  years ended  December  31,
2003, 2002 and 2001 to the Company's Chief Executive Officer. No other executive
officer of the Company received annual compensation in excess of $100,000 during
the fiscal year ended December 31, 2003.

                                                                                        LONG-TERM
                                                   ANNUAL COMPENSATION                 COMPENSATION
                                                                                        SECURITIES            ALL OTHER
                                         Fiscal                                         UNDERLYING          COMPENSATION
Name and Principal Position               Year           SALARY          BONUS($)       OPTIONS(#)             ($)(1)
---------------------------               ----           ------          --------       ----------             ------

Warren Lichtenstein, Chairman and          2003            --              --               --                310,000
Chief Executive Officer
                                           2002            --              --               --                310,000
                                           2001            --              --               --                310,000

----------
(1)   Represents  aggregate management fees earned by New Ltd. (for 2003 and for
      a portion of 2002) and SPS (for a portion of 2002), entities controlled by
      Warren  Lichtenstein,  from the Company.  For information  relating to the
      management   functions   performed   by  such   entities,   see   "Certain
      Relationships and Related Transactions."

STOCK OPTIONS

            None of the  Company's  executive  officers were granted any options
during the fiscal year ended  December 31, 2003, nor did Mr.  Lichtenstein  hold
any stock options as of December 31, 2003.

EMPLOYMENT AGREEMENTS

            The Company  currently  has no employment  agreements,  compensatory
plans, or arrangements with any executive officer.

                                       27




DIRECTOR COMPENSATION

            The Board of  Directors  has  authorized  the payment to each of the
Company's  non-employee  directors a retainer  fee of $3,000 per quarter in cash
for his  services  as a  director  during  2003 and  meeting  fees of $1,000 per
meeting of the Board and $500 per meeting of a  committee  of the Board ($375 to
the extent such  committee  meeting is held on the same day as a Board  meeting)
during  2003  pursuant to the terms of the Long Term Stock  Incentive  Plan (the
"Plan").  Pursuant to Plan, the three  non-employee  directors  entitled to such
fees  elected to  receive  their  fees in stock  options  in lieu of cash,  with
exercise  prices  based on the market  price of the Common  Stock on the date of
grant.  Officers,  who are  directors,  do not  receive  annual  or per  meeting
compensation.  Howard  Mileaf,  as  chairman  of the audit  committee,  receives
chairmanship fees of $2,500 per quarter. During 2003, the Company's non-employee
directors  were also paid  $10,000  each for  their  review of the  registration
statement  prepared by the Company in connection  with its  subscription  rights
offering.

ITEM 11.   SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

            The  following  table  sets  forth  information  as of March 9, 2004
regarding the  beneficial  ownership of the Common Stock by each person known by
the  Company  to own  beneficially  more than 5% of the  Common  Stock,  by each
director of the Company,  the Chief Executive Officer,  and by all directors and
executive officers as a group.

                                           Amount and
                                           Nature of
                                           Beneficial
Name and Address                          Ownership (1)      Percentage of Class
----------------                          -------------      -------------------

Warren G. Lichtenstein                    1,739,845  (2)            39.8%
c/o Steel Partners II, L.P.
590 Madison Avenue, 32nd Floor
New York, New York  10022

Steel Partners II, L.P.                   1,737,345                 39.8%
590 Madison Avenue, 32nd Floor
New York, New York  10022

Jack L. Howard                               42,617  (3)              *
c/o Mutual Securities, Inc.
590 Madison Avenue, 32nd Floor
New York, New York 10022

Joseph L. Mullen                             15,962  (4)              *
c/o LiMoran International, Inc.
611 Broadway, Suite 722
New York, New York  10012

Mark E. Schwarz                              10,344  (5)              *
c/o Newcastle Capital Management, L.P.
300 Crescent Court, Suite 1110
Dallas, Texas 75201

Howard Mileaf                                   955  (6)              *
64 Brookdale Court
Highland Park, New Jersey  08904

All directors and executive officers      1,859,723  (7)            41.9%
as a group (seven persons)

----------
*Less than 1%

                                       28




(1)        A person is deemed to be the  beneficial  owner of voting  securities
           that can be  acquired  by such  person  within 60 days after March 9,
           2004  upon  the   exercise  of  options,   warrants  or   convertible
           securities.   Each  beneficial   owner's   percentage   ownership  is
           determined  by  assuming  that  options,   warrants  or   convertible
           securities  that are held by such  person  (but not those held by any
           other  person) and that are  currently  exercisable  (i.e.,  that are
           exercisable  within 60 days after March 9, 2004) have been exercised.
           Unless  otherwise  noted, the Company believes that all persons named
           in the table have sole voting and  investment  power with  respect to
           all shares beneficially owned by them.

(2)        Consists of (i) 2,500  shares of common  stock owned  directly by Mr.
           Lichtenstein;  and (ii)  1,737,345  shares of common  stock  owned by
           Steel  Partners  II,  L.P.,  which is also  separately  listed in the
           security  ownership table. As the sole managing member of the general
           partner of Steel,  Mr.  Lichtenstein  has sole voting and  investment
           power over the  1,737,345  shares  owned by Steel.  Mr.  Lichtenstein
           disclaims beneficial ownership of the shares of common stock owned by
           Steel except to the extent of his pecuniary interest therein.

(3)        Consists of (i) 36,417  shares of common stock owned  directly by Mr.
           Howard;  (ii) 3,000  shares of common  stock  owned by Mr.  Howard in
           joint tenancy with his spouse; and (iii) 3,200 shares of common stock
           owned by JL Howard, Inc., a California  corporation controlled by Mr.
           Howard.  Mr. Howard and his spouse have shared voting and  investment
           power  over the 3,000  shares  owned in joint  tenancy  and the 3,200
           shares owned by JL Howard, Inc.

(4)        Consists of (i) 4,285 shares of common stock;  and (ii) 11,677 shares
           of common stock  issuable upon the exercise of options within 60 days
           of March 9, 2004 granted to Mr. Mullen.

(5)        Consists of 10,344 shares of common stock  issuable upon the exercise
           of options within 60 days of March 9, 2004 granted to Mr. Schwarz.

(6)        Consists of 955 shares of common stock  issuable upon the exercise of
           options within 60 days of March 9, 2004 granted to Mr. Mileaf.

(7)        Consists  of  the  shares  and  options  held  by the  directors  and
           executive  officers named in this security ownership table and 50,000
           shares of common stock  issuable upon the exercise of options  within
           60 days of March  9,  2004  held by  executive  officers  who are not
           specifically named in this security ownership table.

EQUITY COMPENSATION PLAN INFORMATION

                                                                                     Number of securities
                                                                                    remaining available for
                                                                                     future issuance under
                                                                                      equity compensation
                              Number of securities to       Weighted-average           plans (excluding
                              be issued upon exercise       exercise price of       securities reflected in
                              of outstanding options       outstanding options             column (a))
      Plan Category                     (a)                        (b)                        (c)
      -------------                     ---                        ---                        ---

Equity compensation plans             92,976                      $4.48                     902,774
approved by security
holders (1)

Equity compensation plans                0                        $0.00                        0
not approved by security
holders

Total                                 92,976                      $4.48                     902,774

(1)   Consists of the Plan.

                                       29




ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


            Pursuant to a management  agreement  (the  "Management  Agreement"),
approved by a majority of the  Company's  disinterested  directors,  between the
Company and SPS (and subsequently assigned to Steel Partners, Ltd. ("SPL")), SPL
provides the Company with office space and certain  management,  consulting  and
advisory  services.  The Management  Agreement is automatically  renewable on an
annual basis unless terminated by either party, for any reason, upon at least 60
days written notice prior to the end of the year and may be terminated by either
party upon 30 days  prior  written  notice to the other  party.  The  Management
Agreement  also  provides that the Company  shall  indemnify,  save and hold SPS
harmless from and against any obligation,  liability,  cost or damage  resulting
from SPS's actions under the terms of the  Management  Agreement,  except to the
extent  occasioned by gross negligence or willful  misconduct of SPS's officers,
directors or employees.

            Pursuant  to  an  employee   allocation   agreement  (the  "Employee
Allocation  Agreement")  between WebBank and SPS (and  subsequently  assigned to
SPL),  Jim Henderson,  an employee of SPL and executive  officer of the Company,
performs  services in the area of  management,  accounting and finances and such
other services as are reasonably  requested by WebBank.  The Employee Allocation
Agreement will continue in force until  terminated by either of the parties upon
30 days written notice.

            Prior to March  26,  2002,  the  original  counterparty  to both the
Management  Agreement and the Employee Allocation Agreement was SPS. As of March
26,  2002,  the  Management  Agreement  and the  Employee  Allocation  Agreement
described  above were  assigned  by SPS to SPL and the  employees  of SPS became
employees  of SPL.  Warren  Lichtenstein,  the  Company's  President  and  Chief
Executive  Officer,  is an  affiliate  of SPL  based  on his  ownership  of SPL,
directly  and  through  Steel,  and by  virtue  of his  positions  as  Chairman,
President and Chief Executive  Officer of New Ltd. Mr.  Lichtenstein is the sole
managing  member of the general  partner of Steel.  Mr.  Lichtenstein  disclaims
beneficial ownership of the shares of Common Stock of SPL owned by Steel (except
to the extent of his pecuniary interest in such shares of Common Stock).

            In  consideration  of the  services  rendered  under the  Management
Agreement,  SPL charges the Company a fixed  monthly fee  totaling  $310,000 per
annum,   adjustable   annually  upon  agreement  of  the  Company  and  SPL.  In
consideration of the services provided under the Employee Allocation  Agreement,
SPL charges WebBank $100,000 per annum. The fees payable by WebBank are included
in the fees payable by the Company under the Management  Agreement.  The Company
believes that the cost of obtaining the type and quality of services rendered by
SPL under the Management  Agreement and Employee Allocation Agreement is no less
favorable  than the cost at which the Company and  WebBank,  respectively  could
obtain from unaffiliated entities.

            During the fiscal year ended December 31, 2003, SPL billed fees with
respect to fiscal 2003 of $310,000 to the Company for  services  rendered  under
the  Management  Agreement.  Included in these fees was $100,000 paid by WebBank
for services rendered under the Employee Allocation Agreement. During the fiscal
year ended  December  31,  2002,  SPL and SPS billed fees with respect to fiscal
2002 of $232,000 and $77,500  respectively to the Company for services  rendered
under the  Management  Agreement.  Included in these fees were  $100,000 paid by
WebBank for services rendered under the Employee Allocation Agreement.


            Pursuant  to a  sourcing  and  servicing  agreement  (the  "Rockland
Agreement")  between  WebBank and  Rockland  Credit  Finance  LLC  ("Rockland"),
Rockland  performs both  sourcing and  servicing  functions on behalf of WebBank
related  to  WebBank's  accounts  receivable  factoring  program.  During  2003,
Rockland was paid  $255,000 in cash  management  fees and earned  $1,019,000  in
total  management fees under the terms of the Rockland  Agreement.  During 2002,
Rockland was paid $56,000 in cash  management  fees and earned $571,000 in total
management fees under the terms of the Rockland  Agreement.  Management fees are
paid quarterly and accrued monthly by WebBank.  A notice of termination has been
issued with respect to the Rockland  accounts  receivable  factoring and service
arrangement.  See  "Risk  Factors  - Our  business  could be harmed if a certain
accounts receivable factoring and servicing arrangement terminates" and "Note 20
- Subsequent Events" to the Company's Consolidated Financial Statements.

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)        EXHIBITS:

            See Exhibit Index immediately following the signature page.

                                       30



(b) REPORTS ON FORM 8-K FILED DURING THE FOURTH QUARTER OF THE PERIOD COVERED BY
THIS REPORT:

            None

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES:

            The  aggregate  fees billed for each of the last two fiscal years of
2003 and 2002 for professional  services  rendered by Grant Thornton LLP for the
audit of the annual  financial  statements  of the  Company  and its  subsidiary
WebBank and the review of the  financial  statements  included in the  Company's
Forms  10-QSB for such fiscal  years were  approximately  $140,000  and $66,000,
respectively.

AUDIT-RELATED FEES:

            The  aggregate  fees billed for each of the last two fiscal years of
2003 and 2002 for assurance and related services  rendered by Grant Thornton LLP
were  approximately $0 and $2,700,  respectively.  The services rendered in 2002
involved review of internal control procedures.

TAX FEES:

            The  aggregate  fees billed for each of the last two fiscal years of
2003 and 2002 for professional  services  rendered by Grant Thornton LLP for tax
compliance,  tax advice and tax  planning  for the  Company  and its  subsidiary
WebBank were approximately $9,000 and $7,400, respectively.

ALL OTHER FEES:

            No fees were  billed for each of the last two  fiscal  years of 2003
and 2002 for  products  and  services  of Grant  Thornton  LLP,  other  than the
services reported above.


            The  Audit  Committee  has  approved  in  advance  any and all audit
services,  including  audit  engagement fees and terms,  and non-audit  services
provided to the Company by its independent  auditors  (subject to the de minimus
exception  for  non-audit  services  contained  in Section  10A(i)(1)(B)  of the
Securities Exchange Act of 1934, as amended),  all as required by applicable law
or listing standards.  The independent auditors and the Company's management are
required to  periodically  report to the Audit  Committee the extent of services
provided  by the  independent  auditors  and  the  fees  associated  with  these
services.


                                       31





                                   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.



Date: July 1, 2004                        WEBFINANCIAL CORPORATION


                                          By: /s/ Warren G. Lichtenstein
                                              --------------------------------
                                              Warren G. Lichtenstein
                                              President, Chief Executive Officer



            In  accordance  with the Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities and on the date indicated.

Signature                                                               Date
---------                                                               ----


By: /s/ Warren G. Lichtenstein                                          July 1, 2004
------------------------------------                                    -------------
Warren G. Lichtenstein, President,                                      Date
Chief Executive Officer and Director
(Principal Executive Officer)


By: /s/ Glen M. Kassan                                                  July 1, 2004
------------------------                                                ------------
Glen M. Kassan                                                          Date
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


*                                                                       July 1, 2004
------------------------------------                                    -------------
Jack L. Howard, Director                                                Date


*                                                                       July 1, 2004
------------------------------------                                    -------------
Howard Mileaf, Director                                                 Date


*                                                                       July 1, 2004
------------------------------------                                    -------------
Joseph L. Mullen, Director                                              Date


*                                                                       July 1, 2004
------------------------------------                                    -------------
Mark E. Schwarz, Director                                               Date


* Signed by Warren G. Lichtenstein as attorney-in-fact







                                  EXHIBIT INDEX

  3.1       Amended and Restated Certificate of Incorporation, - Incorporated by
            reference to Exhibit 3.1 to Registration Statement on Form S-3 filed
            October 10, 2003.

  3.2       Certificate  of  Amendment  of  Certificate   of   Incorporation   -
            Incorporated by reference to Exhibit 3.2 to  Registration  Statement
            on Form S-3 filed October 10, 2003.

  3.3       By-laws - Incorporated  by reference to Exhibit I-5 to  Registration
            Statement on Form 8-A12G filed March 27, 1995.

 10.1       Stock  Purchase  Agreement,  dated  January 20, 1998, by and between
            Praxis Investment Advisors,  Inc. and Block Financial  Corporation -
            Incorporated  by reference to Exhibit 1 to Quarterly  Report on Form
            10-Q filed September 17, 1998.

 10.2       Form of Subscription  and Stockholders  Agreement,  dated August 31,
            1998,  by and among  Andrew  Winokur,  Rose's  International,  Inc.,
            WebBank  Corporation,  Praxis Investment  Advisors,  Inc. and Rose's
            Holdings, Inc. - Incorporated by reference to Exhibit 2 to Quarterly
            Report on Form 10-Q filed September 17, 1998.

 10.3       Form of Assignment,  Transfer and Delegation  Agreement,  dated July
            1998, by and among Praxis Investment  Advisors,  LLC, Andrew Winokur
            and  Rose's  International,  Inc. -  Incorporated  by  reference  to
            Exhibit 3 to Quarterly Report on Form 10-Q filed September 17, 1998.

**10.4      Form of Employment  Agreement,  dated July 1998, by and among Praxis
            Investment  Advisors,  Inc.  and Andrew  Winokur -  Incorporated  by
            reference  to  Exhibit 4 to  Quarterly  Report  on Form  10-Q  filed
            September 17, 1998.

**10.5      Form of  Management  Agreement,  dated  1998,  by and  among  Rose's
            International, Inc., Andrew Winokur, and Praxis Investment Advisors,
            Inc. - Incorporated by reference to Exhibit 5 to Quarterly Report on
            Form 10-Q filed September 17, 1998.

**10.6      Rose's  Holdings,  Inc. Long Term Incentive  Plan - Incorporated  by
            reference to Appendix of Definitive  Proxy Statement on Schedule 14A
            filed December 6, 1998.

**10.7      Management Agreement, dated as of January 2000, between WebFinancial
            Corporation  and Steel Partners  Services,  Ltd. -  Incorporated  by
            reference to Exhibit 10.7 to the Annual  Report on Form 10-KSB filed
            March 30, 2004.

  14.1      Code of Conduct and Ethics -  Incorporated  by  reference to Exhibit
            10.7 to the Annual Report on Form 10-KSB filed March 30, 2004.


  21.1      Subsidiaries  of  Registrant   (WebFinancial   Holding  Corporation;
            WebBank;  WebFinancial  Government Lending,  Inc.; Praxis Investment
            Advisors, Inc.; and Web Film Finance, Inc.)

 *23.1      Consent of Grant Thornton LLP.

 *31.1      Certification of Chief Executive  Officer pursuant to Section 302 of
            The Sarbanes-Oxley Act of 2002.

 *31.2      Certification of Chief Financial  Officer pursuant to Section 302 of
            The Sarbanes-Oxley Act of 2002.

 *32.1      Certification of Chief Executive  Officer pursuant to Section 906 of
            The Sarbanes-Oxley Act of 2002.

*32.2       Certification of Chief Financial  Officer pursuant to Section 906 of
            The Sarbanes-Oxley Act of 2002.


*  Filed herewith.
** Indicates compensatory plan or arrangement.









                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Management's Report on Consolidated Financial Statements.........            F-2


Report of Independent Registered Public Accounting Firm..........            F-3


Consolidated Statements of Financial Condition...................            F-4

Consolidated Statements of Earnings..............................            F-6

Consolidated Statement of Stockholders' Equity...................            F-8

Consolidated Statements of Cash Flows............................            F-9

Notes to Consolidated Financial Statements.......................           F-11

                                      F-1





            MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

The consolidated  financial statements on the following pages have been prepared
by management in  conformity  with  generally  accepted  accounting  principles.
Management  is  responsible  for the  reliability  and fairness of the financial
statements and other financial information included herein.

To meet its responsibilities with respect to financial  information,  management
maintains and enforces  internal  accounting  policies,  procedures and controls
which are designed to provide  reasonable  assurance that assets are safeguarded
and that  transactions  are properly  recorded and executed in  accordance  with
management's  authorization.  Management believes that the Company's  accounting
controls  provide  reasonable,  but  not  absolute,  assurance  that  errors  or
irregularities which could be material to the financial statements are prevented
or would be detected  within a timely period by Company  personnel in the normal
course of  performing  their  assigned  functions.  The  concept  of  reasonable
assurance  is based on the  recognition  that the cost of  controls  should  not
exceed the expected benefits.

The  responsibility  of our  independent  auditors,  Grant  Thornton  LLP, is to
conduct their audit in accordance with auditing standards  generally accepted in
the United States of America. In carrying out this responsibility,  they planned
and  performed  their audit to obtain  reasonable  assurance  about  whether the
financial statements are free of material misstatement,  whether caused by error
or fraud.

The Audit  Committee of the Board of Directors  met three times with  management
and Grant Thornton LLP to discuss  auditing and financial  matters and to assure
that each is carrying out its responsibilities.  Grant Thornton LLP has full and
free  access  to the  Audit  Committee  and met with it by  telephone,  with and
without  management  being  present,  to discuss  the results of their audit and
their opinions on the quality of financial reporting.


By: /s/ Warren G. Lichtenstein
    --------------------------
    Warren G. Lichtenstein
    President and Chief Executive Officer
    (Principal Executive Officer)

By: /s/ Glen M. Kassan
    ------------------
    Glen M. Kassan
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)

                                      F-2





                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors and
Shareholders of WebFinancial Corporation


We have audited the accompanying  consolidated statements of financial condition
of  WebFinancial  Corporation and  subsidiaries  (a Delaware  corporation) as of
December 31, 2003 and 2002, and the related consolidated statements of earnings,
stockholders'  equity,  and cash  flows for each of the two years in the  period
ended December 31, 2003. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  WebFinancial
Corporation  and  subsidiaries as of December 31, 2003 and 2002, and the results
of their  operations  and their  cash flows for the each of the two years in the
period  ended  December 31,  2003,  in  conformity  with  accounting  principles
generally accepted in the United States of America.



/s/ Grant Thornton LLP

Salt Lake City, Utah
March 16, 2004



                                      F-3


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    (Amounts in thousands except share data)

                                                              DECEMBER 31,  DECEMBER 31,
                                                                 2003           2002
                                                                 ----           ----
ASSETS
  Cash and due from banks                                      $     15      $    152
  Interest bearing deposits in other banks                        6,265         2,697
  Federal funds sold                                                965         3,697
                                                               --------      --------
     Total cash and cash equivalents                              7,245         6,546

  Investment securities (note 2)
     Held-to-maturity (estimated fair value of $49 and $20
         at December 31, 2003 and 2002)                              48            19
     Available-for-sale                                             324         1,722
                                                               --------      --------

         Total investment securities                                372         1,741


  Loans, net (note 3)                                             8,819        11,826
   Purchased receivables (note 3)
     Accounts receivable factoring                                7,352         4,622
     Other                                                          268           479
  Allowance for credit losses (note 4)                           (1,302)       (1,526)
                                                               --------      --------
         Total loans, net                                        15,137        15,401

  Foreclosed assets                                                 200            36
  Premises and equipment, net (note 8)                               15            41
  Accrued interest receivable                                       244           259
  Goodwill                                                        1,380         1,380
  Deferred tax asset (note 12)                                      757          --
  Other assets (note 16)                                          1,098           761
                                                               --------      --------

                                                               $ 26,448      $ 26,165
                                                               ========      ========

                                   (continued)

                                      F-4




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
                    (Amounts in thousands except share data)

LIABILITIES AND STOCKHOLDERS' EQUITY
   Deposits:
     Non interest-bearing demand                                       $    206     $    668
     NOW/MMA accounts                                                       347          680
     Certificates of deposit (note 6)                                    11,364       12,272
                                                                       --------     --------
   Total deposits                                                        11,917       13,620

   Other liabilities                                                        377          919
                                                                       --------     --------
   Total liabilities before minority interests                           12,294       14,539

   Minority interests                                                       463          356
   Commitments and contingencies (notes 7, 11 and 14)                        --           --

   Stockholders' Equity (notes 2, 10, and 15)
     Preferred stock, 10,000,000 shares authorized, none issued              --           --
     Common stock, 50,000,000 shares authorized;
        $.001 par value, 4,366,866 shares issued and outstanding at
        December 31, 2003 and at December 31, 2002                            4            4
     Paid-in capital                                                     36,606       36,606
     Accumulated deficit                                                (22,974)     (25,083)
     Accumulated other comprehensive income (loss)                           55         (257)
                                                                       --------     --------

   Total stockholders' equity                                            13,691       11,270
                                                                       --------     --------

                                                                       $ 26,448     $ 26,165
                                                                       ========     ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-5


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (Amounts in thousands except share data)

                                                             YEAR ENDED      YEAR ENDED
                                                            DECEMBER 31,    DECEMBER 31,
                                                                2003            2002
                                                                ----            ----
Interest income
   Loans, including fees                                      $   858         $ 1,078
   Purchased receivables
        Accounts receivable factoring                           3,200           1,429
        Other                                                      32              63
   Interest bearing deposits in other banks                        17              53
   Federal funds sold                                              42              28
   Investment securities                                           84              39
                                                              -------         -------
        Total interest income                                   4,233           2,690

Interest expense
   Deposits                                                       336             334
   Federal funds purchased                                         --               1
                                                              -------         -------
           Total interest expense                                 336             335

           Net interest income before provision
           (credit) for credit losses                           3,897           2,355

Provision (credit) for credit losses (note 4)                     394             (60)
                                                              -------         -------

           Net interest income after provision
           (credit) for credit losses                           3,503           2,415

Noninterest income
   Gain on sale of assets                                         811             318
   Fee income                                                     494             402
   Miscellaneous income (note 17)                                 275             441
                                                              -------         -------
        Total noninterest income                                1,580           1,161

Noninterest expenses (note 5)
   Salaries, wages, and benefits                                  996             949
   Professional and legal fees                                    441             504
   Accounts receivable factoring management
        and broker fees                                           867             599
   Other management fees - related party                          310             310
   Loss on impairment of securities available-for-sale            334              --
   Other general and administrative                               675             734
                                                              -------         -------
        Total noninterest expenses                              3,623           3,096
                                                              -------         -------

           Operating income                                     1,460             480

Income tax benefit (note 12)                                     (756)            (10)
                                                              -------         -------

Income before minority interest                                 2,216             490

(Income) attributable to minority interests                      (107)            (31)
                                                              -------         -------

        Net income                                            $ 2,109         $   459
                                                              =======         =======

                                   (continued)


                                      F-6


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF EARNINGS (continued)
                    (Amounts in thousands except share data)

                                                YEAR ENDED           YEAR ENDED
                                               DECEMBER 31,         DECEMBER 31,
                                                   2003                 2002
                                                   ----                 ----

Income per common share:
   Basic                                          $     .48            $     .11
   Diluted                                        $     .48            $     .11

Weighted average number of common shares:
   Basic                                          4,366,866            4,366,866
   Diluted                                        4,368,165            4,367,142

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-7


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

               Years Ended December 31, 2003 and December 31, 2002
                    (Amounts in thousands except share data)


                                                                                               ACCUMULATED
                                          COMMON STOCK                                            OTHER            TOTAL
                                          ------------            PAID-IN      ACCUMULATED    COMPREHENSIVE    STOCKHOLDERS'
                                     SHARES         AMOUNT        CAPITAL        DEFICIT      INCOME (LOSS)       EQUITY
                                     ------         ------        -------        -------      -------------       ------
Balance at January 1, 2002         4,366,866      $       4      $  36,606      $ (25,542)      $       2       $  11,070

Comprehensive income :
     Net income                           --             --             --            459              --             459
     Unrealized holding loss
     arising during period,
     net of tax                           --             --             --             --            (259)           (259)
                                   ---------      ---------      ---------      ---------       ---------       ---------
Total comprehensive income                --             --             --            459            (259)            200
                                   ---------      ---------      ---------      ---------       ---------       ---------

Balance at December 31, 2002       4,366,866              4         36,606        (25,083)           (257)         11,270

Comprehensive income :
    Net income                            --             --             --          2,109              --           2,109
    Unrealized holding gain
    arising during period,
    net of tax                            --             --             --             --             312             312
                                   ---------      ---------      ---------      ---------       ---------       ---------
Total comprehensive income                --             --             --          2,109             312           2,421
                                   ---------      ---------      ---------      ---------       ---------       ---------

Balance at December 31, 2003       4,366,866      $       4      $  36,606      $ (22,974)      $      55       $  13,691
                                   =========      =========      =========      =========       =========       =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-8


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                                                      YEAR ENDED      YEAR ENDED
                                                                     DECEMBER 31,    DECEMBER 31,
                                                                         2003            2002
                                                                         ----            ----
Cash flows from operating activities:
Net income from operations                                             $ 2,109         $   459
Adjustments to reconcile net loss to net cash
   provided by operating activities:
        Minority interest                                                  107              31
        Provision (credit) for credit losses                               394             (60)
        Depreciation                                                        21              37
        Abandonment of premises and equipment                                5              --
        Gain on sale of securities available-for-sale                     (891)             --
        Loss on impairment of securities available-for-sale                334              --
        Gain on sale of loans                                              (24)             --
        (Gain) loss on sale of foreclosed assets                           104             (90)
        Write down of foreclosed assets                                     20              29
        Accretion of deferred loan fees, net                              (123)           (118)
        Amortization of other assets                                         7              15
        Amortization of servicing assets                                    45              35
        Deferred tax asset                                                (757)             --
   Change in operating assets and liabilities:
        Accrued interest receivable                                         15            (205)
        Other assets                                                      (389)             88
        Other liabilities                                                 (542)            750
                                                                       -------         -------

           Net cash provided by
           operating activities                                            435             971
                                                                       -------         -------

Cash flows from investing activities:
   Purchase of securities held-to-maturity                                 (40)             --
   Principal payments received on securities held-to-maturity               11               6
   Purchase of securities available-for-sale                            (2,675)         (2,571)
   Sales of securities available-for-sale                                2,641             694
   Principal payments received on securities available-for-sale          2,302             158
   Sale of SBA loans                                                       558              --
   Loans originated and principal collections, net                       2,357             463
   Purchased accounts receivable factoring originated
        and principal collections, net                                  (3,330)         (4,622)
   Purchased other receivables originated and
        principal collections, net                                         211            (479)
   Purchase of premises and equipment                                       --              (3)
   Proceeds (settlement adjustments) from sale
        of foreclosed assets                                               (68)            528
                                                                       -------         -------

           Net cash provided by (used in)
           investing activities                                          1,967          (5,826)
                                                                       -------         -------

                                   (continued)


                                      F-9


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                                                            YEAR ENDED      YEAR ENDED
                                                           DECEMBER 31,    DECEMBER 31,
                                                               2003            2002
                                                               ----            ----

Cash flows from financing activities:
   Net increase (decrease) in demand deposits                   (462)            593
   Net increase (decrease) in NOW/MMA accounts                  (333)            661
   Net increase (decrease) in certificates of deposit           (908)          5,052

Net cash provided by (used in) financing activities           (1,703)          6,306
                                                             -------         -------

Net increase in cash and cash equivalents                        699           1,451

Cash and cash equivalents at beginning of year                 6,546           5,095
                                                             -------         -------

Cash and cash equivalents at end of year                     $ 7,245         $ 6,546
                                                             =======         =======

Supplemental disclosure of cash flow information:
   Cash paid for interest                                    $   402         $   273
   Cash paid for (refunded from) income taxes                      2             (10)

Supplemental disclosure of additional non-cash
   activities:

At December  31,  2003,  the Company  had a balance of net  unrealized  gains on
securities of $55,  which is shown in  accumulated  other  comprehensive  income
(loss) on the balance sheet. As a result, accumulated other comprehensive income
(loss) was increased by $312. At December 31, 2002, the Company had a balance of
net  unrealized  losses on securities of $(257),  which is shown in  accumulated
other comprehensive income (loss) on the balance sheet. As a result, accumulated
other comprehensive income (loss) was decreased by $(259).

During 2003, the Company wrote off premises and equipment with a cost of $18 and
accumulated  depreciation of $13, and during 2002, the Company wrote off $192 of
fully depreciated assets.

During 2003 and 2002, the Company  acquired  foreclosed  assets of $220 and $54,
respectively, in lieu of loan payments.


THE  ACCOMPANYING  NOTES  ARE AN  INTEGRAL  PART OF THE  CONSOLIDATED  FINANCIAL
STATEMENTS.

                                      F-10

                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002
           (All numbers except shares and per share data in thousands)

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION-- The  consolidated  financial  statements  include  the  financial
statements  of  WebFinancial  Corporation  and  its  subsidiaries:  WebFinancial
Holding  Corporation   ("Holding"),   WebBank  ("WebBank"),   Praxis  Investment
Advisers,  Inc. ("Praxis"),  WebFinancial  Government Lending, Inc. ("Lending"),
and Web Film Financial, Inc. ("Film"),  collectively referred to as the Company.
WebFinancial  Corporation  owns 93  percent  of  WebBank  and an  unconsolidated
individual  owns 7 percent of WebBank.  WebBank is a  Utah-chartered  industrial
loan corporation,  and is subject to comprehensive regulation,  examination, and
supervision by the Federal Deposit Insurance Corporation ("FDIC"), and the State
of Utah Department of Financial  Institutions.  WebBank provides  commercial and
consumer  specialty  finance  services.  Lending was  organized  to provide U.S.
Department of  Agriculture  loan  originations,  sales and  servicing.  Film was
organized to finance the production and  distribution of a motion picture.  Both
Film and Praxis are inactive.  All significant  intercompany  balances have been
eliminated in consolidation.


BASIS OF  PRESENTATION  AND USE OF  ESTIMATES-- The preparation of  consolidated
financial statements in conformity with accounting principles generally accepted
in the United  States of  America  requires  management  to make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the  reporting  period.  Actual  results  could differ from those  estimates.  A
material estimate that is particularly  susceptible to significant change in the
near-term  relates to the  determination  of the allowance for credit losses and
the valuation of real estate  acquired in  connection  with  foreclosures  or in
satisfaction of loans. In connection with the determination of the allowance for
credit losses and the valuation of real estate,  management obtains  independent
appraisals for significant properties.

CASH  AND  CASH   EQUIVALENTS-- Cash  and  cash  equivalents  include  cash  and
noninterest bearing deposits in depository  institutions,  plus interest-bearing
deposits  with banks and  investments  in cash  management  funds.  The  Company
considers all highly liquid debt  instruments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents are stated at cost,
which approximates market.

INCOME PER  SHARE-- Basic income per common share is  calculated by dividing net
income  by the  weighted-average  number of common  shares  outstanding  for the
period.  Diluted income per common share reflects the maximum dilutive effect of
common stock issuable upon exercise of stock options and stock warrants.

INVESTMENT   SECURITIES-- The  Company   classifies  its  securities  as  either
available-for-sale  or held-to-maturity.  Held-to-maturity  securities are those
debt  securities  that the  Company  has the  ability  and  intent to hold until
maturity.  All other securities not included in held-to-maturity  are classified
as available-for-sale.

Held-to-maturity  securities  are recorded at amortized  cost,  adjusted for the
amortization   or  accretion  of  premiums  or   discounts.   Available-for-sale
securities  are recorded at fair value.  Unrealized  holding  gains or losses on
available-for-sale  securities  are excluded from  earnings and reported,  until
realized,  in  accumulated  other  comprehensive  income  (loss)  as a  separate
component  of  stockholders'  equity.  A  decline  in the  market  value  of any
available-for-sale or held-to-maturity  security below cost that is deemed other
than temporary is charged to earnings  resulting in the  establishment  of a new
cost basis for the  security.  Premiums and  discounts are amortized or accreted
over the life of the related  security as an  adjustment  to the yield using the
effective-interest  method.  Dividend and  interest  income is  recognized  when
earned.    Realized   gains   and   losses   for   securities    classified   as
available-for-sale  or held-to-maturity are included in earnings and are derived
using the specific-identification method.

LOANS AND PURCHASED RECEIVABLES-- The Company, through WebBank, grants mortgage,
commercial and consumer loans to customers. Loans that management has the intent
and  ability to hold for the  foreseeable  future or until  maturity  or pay-off
generally are reported at their outstanding  unpaid principal  balances adjusted
for charge-offs,  the allowance for loan losses,  and any deferred fees or costs
on originated loans. Interest income is accrued on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on commercial loans is discontinued at the time the loan
is 90 days  delinquent  unless  the  credit is  well-secured  and in  process of
collection. Credit card loans and other personal loans are typically charged off
no later than 180 days past due. In all cases, loans are placed on nonaccrual or
charged-off  at an earlier  date if  collection  of  principal  or  interest  is
considered doubtful.

                                      F-11


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All interest  accrued but not  collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income.  The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual.  Loans are returned to accrual  status when all the principal
and interest amounts  contractually  due are brought current and future payments
are reasonably assured.

WebBank purchases  receivable  balances from customers at a discounted rate. The
receivables  to be  purchased  from any  given  customer  are  determined  using
WebBank's credit granting policies.  Receivable  purchases have full recourse to
the  customer  and are  accounted  for as a  purchase  under the  guidelines  of
Financial  Accounting  Standards Board (FASB) Statement of Financial  Accounting
Standards No. 140.

Purchased receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid  principal  balances  reduced by any  charge-off  or  specific  valuation
accounts  and  net of any  deferred  fees  or  costs  on  originated  loans,  or
unamortized premiums or discounts on purchased loans.

In February  2004,  various  agreements  regarding  purchased  receivables  were
canceled. See Note 20 for additional information.

The Company has originated  loans to customers under a United States  Department
of Agriculture  ("USDA") program that generally  provides for USDA guarantees of
70 percent to 90 percent of each loan. The Company sold the  guaranteed  portion
of each loan to a third party and retained the  unguaranteed  portion in its own
portfolio.  Loans  held-for-sale  are carried at the lower of cost or  estimated
market value in the aggregate.

The Company is  required  to retain a minimum of five  percent of each USDA loan
sold and to service the loan for the  investor.  Based on the specific loan sale
agreement that the Company enters into with the investor, the difference between
the yield on the loan and the  yield  paid to the  buyer is the  servicing  fee.
Loans serviced for others approximated  $28,194 and $36,263 at December 31, 2003
and  2002,  respectively.  These  loans  are not  included  in the  accompanying
statements of financial  condition.  Fees earned for servicing  loans for others
are  reported as income when the  related  loan  payments  are  collected,  less
amortization of the servicing asset. Loan servicing costs are charged to expense
as incurred.

CREDIT RELATED FINANCIAL INSTRUMENTS-- In  the ordinary course of business,  the
Company has entered into  commitments  to extend credit,  including  commitments
under accounts receivable factoring and credit card arrangements. Such financial
instruments are recorded when they are funded.

LOAN IMPAIRMENT-- A   loan  is  considered   impaired  when,  based  on  current
information  and events,  it is probable that the Bank will be unable to collect
the  scheduled  payments of  principal  and interest  when due  according to the
contractual  terms of the loan  agreement.  Factors  considered by management in
determining  impairment  include  payment  status,  collateral  value,  and  the
probability of collecting  scheduled  principal and interest  payments when due.
Loans  that  experience  insignificant  payment  delays and  payment  shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment  shortfalls on a case-by-case  basis,  taking into
consideration  all of the  circumstances  surrounding the loan and the borrower,
including  the length of the delay,  the reasons for the delay,  the  borrower's
prior  payment  record,  and the  amount of the  shortfall  in  relation  to the
principal and interest owed.  Impairment is measured on a loan by loan basis for
commercial  loans by either the  present  value of  expected  future  cash flows
discounted at the loan's effective  interest rate, the loan's  obtainable market
price, or the fair value of the collateral if the loan is secured by collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly,  the Company does not separately  identify  individual
consumer and finance receivables for impairment disclosures.

ALLOWANCE FOR CREDIT LOSSES-- The  allowance for credit losses is established as
losses are  estimated to have  occurred  through a provision  for credit  losses
charged to  earnings.  Credit  losses are  charged  against the  allowance  when
management  believes the  uncollectibility  of a loan or  receivable  balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.

The  allowance  for credit  losses is evaluated on a regular basis by management
and is based upon  management's  periodic  review of the  collectibility  of the
amounts due in light of historical experience, the nature and volume of the loan
portfolio,  adverse  situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This  evaluation is  inherently  subjective  as it requires  estimates  that are
susceptible to significant revision as more information becomes available.

                                      F-12



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  allowance  for  purchased  receivable  losses,  which is included  with the
allowance for credit losses,  is increased by charges to income and decreased by
charge offs (net recoveries).  Management's  periodic evaluation of the adequacy
of the  allowance is based on the  Company's  past  purchased  receivables  loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the debtor's  ability to repay, the estimated value of any underlying
collateral and current economic  conditions.  Purchased  receivables are charged
off when they are 90 days  contractually past due, at which time the Company may
enforce the  recourse  agreement  to collect  from the  customer  the  remaining
outstanding balances.

NONACCRUAL  LOANS--  Accrual of interest is discontinued on a loan when the loan
is 90 days past due or when management believes,  after considering economic and
business  conditions  and  collection  efforts,  that the  borrower's  financial
condition is such that  collection of interest is doubtful.  Interest  income on
nonaccrual loans is credited to income only to the extent interest  payments are
received. Loans are restored to accrual of interest when delinquent payments are
received in full.  Additionally,  the Company uses the cost recovery  accounting
method to recognize interest income on impaired loans.

PREMISES  AND EQUIPMENT-- Premises  and  equipment  are  stated at cost,  net of
accumulated   depreciation  and  amortization.   Depreciation  of  premises  and
equipment is computed by the  straight-line  method over estimated  useful lives
from one to five  years  for  book  purposes  and  accelerated  methods  for tax
purposes.  Leasehold  improvements  are amortized  over the terms of the related
leases or the estimated useful lives of the improvements,  whichever is shorter.
Useful lives of leasehold  improvements are between three and five years. Normal
recurring repair and maintenance costs are expensed as incurred.

INCOME TAXES-- The  Company uses the liability  method of accounting  for income
taxes.  Under the  liability  method,  deferred  tax  assets  and  deferred  tax
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and deferred  tax  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and deferred  tax  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

GOODWILL-- The Company evaluates their goodwill for impairment at least annually
at a  reporting  unit level.  The Company  completed  its annual  evaluation  of
impairment of goodwill and determined that no impairment  exists at December 31,
2003 or 2002.

FORECLOSED  ASSETS-- Assets acquired  through,  or in lieu of, loan foreclosures
are  held  for  sale  and  initially  recorded  at  fair  value  at the  date of
foreclosure,  establishing a new cost basis. Subsequent to foreclosure, periodic
valuations  are  performed and the asset is carried at the lower of the carrying
amount or fair value,  less cost to sell.  Revenue and expenses from  operations
and  changes in the  valuation  allowance  are  included  in net  expenses  from
foreclosed assets.

TRANSFERS OF FINANCIAL ASSETS-- Transfers  of financial assets are accounted for
as sales,  when  control  over the assets  has been  surrendered.  Control  over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from  the  Company  (2) the  transferee  obtains  the  right  (free of
conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the  transferred  assets  through an agreement to  repurchase  them
before their maturity.

ACCOUNTING  FOR  IMPAIRMENT OF  LONG-LIVED   ASSETS-- The  Company  reviews  its
long-lived  assets for impairment  whenever  events or changes in  circumstances
indicate  that  the  carrying  amount  of  an  asset  may  not  be  recoverable.
Recoverability  of  assets  held and used is  measured  by a  comparison  of the
carrying amount of the asset to future  undiscounted  net cash flows expected to
be generated by the asset.  If such assets are  considered  to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value less cost to
sell.

COMPREHENSIVE  INCOME  (Loss)-- Accounting  principles  generally  require  that
recognized  revenue,  expenses,  gains and  losses be  included  in net  income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on securities available for sale, are reported as a separate component of
the equity section of the balance sheet, such items,  along with net income, are
components of comprehensive income.

                                      F-13




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  components  of other  comprehensive  income and  related tax effects are as
follows:

                                                         Year ended December 31,
                                                            2003           2002
                                                           -----          -----
Unrealized holding gains (losses)  on
        available-for-sale securities                      $ 869          $(259)
Gain on sale of securities in net income                    (891)          --

Reclassification adjustment-loss included
        in net income                                        334           --
Net unrealized holding gains (losses)                        312           (259)
Tax effect                                                  --             --
                                                           -----          -----
Net-of-tax amount                                          $ 312          $(259)
                                                           =====          =====


STOCK-BASED  COMPENSATION--The  Company has applied the disclosure provisions of
Statement of Financial  Accounting  Standards  (SFAS) No. 148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - An Amendment of FASB
Statement No. 123" for the years ended 2003 and 2002.  Issued in December  2002,
SFAS No. 148 amends SFAS No. 123,  "Accounting for Stock Based  Compensation" to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of accounting for stock based  compensation.  As permitted by
SFAS No. 148,  the Company is allowed to continue to measure  compensation  cost
for those plans using the intrinsic value based method of accounting  prescribed
by Accounting  Principles  Board Opinion No. 25,  Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an  employee  must pay to acquire  the stock.  Stock  options  issued  under the
Company's stock option plan have no intrinsic value at the grant date, and under
Opinion No. 25 no  compensation  cost is  recognized  for them.  The Company has
elected to continue with the accounting  methodology in Opinion No. 25 and, as a
result,  has provided pro forma disclosures of net income and earnings per share
and other disclosures,  as if the fair value based method of accounting had been
applied.  The pro forma disclosures include the effects of all awards granted on
or after January 1, 1995. (See Note 10.)

The  following  table  illustrates  the effect on net  earnings and earnings per
share if the Company had applied the fair value  recognition  provisions of SFAS
No.123,  as amended  by SFAS No. 148 to stock  based  compensation  (amounts  in
thousands except per share amounts):

                                                           Year ended          Year ended
                                                          December 31,        December 31,
                                                             2003                 2002
                                                             ----                 ----
Net income                                As reported     $   2,109           $     459
Total stock-based employee
compensation expense
determined under fair value based
method for all awards net of
related tax effects

                                                                 --                 (30)
                                                          -----------------------------
                                          Pro forma       $   2,109           $     429
                                                          =========           =========
Basic and diluted
net income per share                      As reported     $     .48           $     .11
                                          Pro forma       $     .48           $     .10


There were no options  granted in 2003. For 2002, in  determining  the pro forma
amounts  shown in the preceding  table,  the fair value of each option grant was
estimated on the date of the grant using the Black-Scholes  option pricing model
with weighted  average  assumptions  for the year ended  December 31, 2002 which
include a risk-free  interest rate of 4.0 percent,  expected dividend yield of 0

                                      F-14




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

percent,  expected lives of 5 years, and expected  volatility of 69 percent.  No
options  were  granted  to  non-employees  for  services  during  the year ended
December 31, 2002.


RECLASSIFICATION--  Certain  immaterial  amounts  as of and for the  year  ended
December 31, 2001 and the year ended December 31, 2002 have been reclassified to
conform with the 2003 presentation.

NEW  ACCOUNTING  PRONOUNCEMENTS--  In April 2003,  the FASB issued SFAS No. 149,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 149
amends  SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."  SFAS No.  149  improves  financial  reporting  by  requiring  that
contracts with comparable  characteristics be accounted for similarly.  SFAS No.
149 is effective for contracts  entered into or modified after June 30, 2003 and
should be  applied  prospectively.  The  Company  adopted  SFAS No.  149 with no
material impact on its financial condition or results of operations for the year
ended December 31, 2003.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
improves  financial  reporting  by  establishing  standards  for  how an  issuer
classifies and measures certain financial  instruments with  characteristics  of
both liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified  after May 31, 2003,  and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
adopted  SFAS No. 150 with no  material  impact on its  financial  condition  or
results of operations for the year ended December 31, 2003.

The Bank adopted  Emerging  Issues Task Force (EITF) 03-1, "The Meaning of Other
than Temporary  Impairment and Its  Application to Certain  Investments,"  as of
December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative
and qualitative  disclosures for investment  securities  accounted for under FAS
115,  "Accounting for Certain  Investments in Debt and Equity  Securities," that
are impaired at the balance sheet date, but an  other-than-temporary  impairment
has not been  recognized.  The disclosure  requires a table of securities  which
have  unrealized  losses  as  of  the  reporting  date,   distinguished  between
securities  which have been in a  continuous  unrealized  loss  position  for 12
months  or more and less  than 12  months.  The  table is to  include  aggregate
unrealized  losses and fair value of securities  whose fair value are below book
value as of the reporting date.  Additional  information,  in narrative form, is
required that provides sufficient information to allow financial statement users
to understand the quantitative disclosures and the information that the investor
considered in reaching the conclusion  that the  impairments  are not other than
temporary.  At December 31, 2003, the Company did not have any unrealized losses
on investment securities.

2.  INVESTMENT SECURITIES

The amortized cost and fair value of securities, with gross unrealized gains and
losses are summarized as follows:


                                                                        December 31, 2003

                                                                        Held-to-maturity
                                                   ------------------------------------------------------------
                                                                    Gross           Gross          Estimated
                                                   Amortized      unrealized     unrealized           fair
                                                     cost           gains           losses            Value
                                                   ---------      ----------     ------------     ------------
 Collateralized mortgage backed securities         $       8      $        1     $          -     $          9
                                                          40               -                -               40
 State and municipal securities                    ---------      ----------     ------------     ------------
                                                   $      48      $        1     $          -     $         49
                                                   =========      ==========     ============     ============




                                                                        Available-for-sale
                                                   ------------------------------------------------------------
                                                                    Gross           Gross           Estimated
                                                     Amortized    unrealized      unrealized           fair
                                                       cost         gains           losses            Value
                                                   ---------      ----------     ------------     -------------
 Collateralized mortgage backed securities         $      66      $        -     $          -     $          66

                                      F-15



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 Equity securities                                       203              55     $          -               258
                                                   ---------      ----------     ------------     -------------
                                                   $     269      $       55                -               324
                                                   =========      ==========     ============     =============

                                                                         December 31, 2002

                                                                          Held-to-maturity
                                                   ------------------------------------------------------------
                                                                    Gross           Gross           Estimated
                                                     Amortized    unrealized      unrealized           fair
                                                       cost         gains           losses            Value
                                                   ---------      ----------     ------------     -------------
 Collateralized mortgage backed securities         $      19      $        1     $          -     $          20
                                                   =========      ==========     ============     =============

                                                                        Available-for-sale
                                                   ------------------------------------------------------------
                                                                    Gross           Gross           Estimated
                                                     Amortized    unrealized      unrealized           fair
                                                       cost         gains           losses            Value
                                                   ---------      ----------     ------------     -------------
 Collateralized mortgage backed securities         $     103      $        -     $          -     $         103
 Equity securities                                     1,878               -            (259)            1,619
                                                   ---------      ----------     ------------     -------------
                                                   $   1,981      $        -     $      (259)     $      1,722
                                                   =========      ==========     ============     =============

The  amortized  cost and  estimated  market value of  investment  securities  at
December 31, 2003, by contractual  maturity,  are shown below.  The  contractual
maturity  of   collateralized   mortgage   backed   securities  and  equity  are
indeterminable   or  not  applicable.   Expected   maturities  may  differ  from
contractual  maturities  because borrowers have the right to prepay  obligations
with or without penalties.


                                                         Held-to-maturity             Available-for-sale
                                                   ------------------------------------------------------------
                                                                   Estimated                         Estimated
                                                   Amortized         fair         Amortized            fair
                                                     cost            value           cost              value
      Due after one year through five years        $      40      $       40     $          -     $           -

      Mortgage-backed securities not due at a
        single maturity date, maturing through
        2024                                               8               8               66                66
                                                   ---------      ----------     ------------     -------------
                                                   $      48      $       48     $         66     $          66
                                                   =========      ==========     ============     =============

No individual  securities  were in an  unrealized  loss position at December 31,
2003.

Proceeds from maturities, calls, and principal payments of securities classified
as  available-for-sale  were $2,302 in 2003 and $158 in 2002. Proceeds from sale
of  securities  available-for-sale  were $2,641 in 2003 and $694 in 2002.  Gross
realized  gains on the sales were $891 in 2003 and $0 in 2002 and gross realized
losses  on the  sales  were $0 in 2003  and $0 in 2002  based  on the  "specific
identification method."

3. LOANS

Loans and purchased  receivables at December 31, 2003 and 2002 are summarized as
follows:

                                                          2003            2002
                                                          ----            ----

Commercial loans                                       $  8,823        $ 11,872
Installment loans                                            89             168
Deferred income                                             (93)           (214)
Purchased receivables
    Accounts receivable factoring                         7,352           4,622

                                      F-16




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    Other                                                   268             479
                                                       --------        --------
                                                       $ 16,439        $ 16,927
                                                       ========        ========

Loans to fifteen customers  comprise  approximately 55 percent of total loans at
December 31, 2003. At December 31, 2003,  $268 of the loans in the portfolio had
a fixed interest rate ($479 at December 31, 2002) and $89 of the Company's loans
were  unsecured  ($168 at December 31,  2002).  The ability of the  borrowers to
repay their  obligations  is dependent  upon  economic  conditions  within their
respective regions as well as the financial condition of the borrowers.

The Company had $1,251 and $1,171 of loans on which the accrual of interest  has
been  discontinued  or reduced at December 31, 2003 and 2002,  respectively.  If
income on those loans had been accrued, such income would have approximated $111
and $150 for 2003 and 2002, respectively.

The following is a summary of information pertaining to impaired loans:
                                                               2003        2002
                                                              ------      ------
Impaired loans without a valuation allowance                  $ --        $ --
Impaired loans with a valuation allowance                      1,251       1,171
                                                              ------      ------
Total impaired loans                                          $1,251      $1,171
                                                              ======      ======
Valuation allowance related to impaired loans                 $  622      $  483

The  valuation  allowance  for impaired  loans is included in the  allowance for
credit losses in Note 4.

                                                              2003         2002
                                                             ------       ------
Average investment in impaired loans                         $1,119       $1,453
Interest income accrued on impaired loans                    $ --         $ --
Interest income recognized on a cash basis
    on impaired loans                                        $   17       $   36

4. ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is summarized as follows:

                                                           2003           2002
                                                         -------        -------
Beginning balance                                        $ 1,526        $ 1,972
Additions:
    Provision (credit) for credit losses                     394            (60)
    Recoveries                                              --             --
Deduction-loan charge-offs                                  (618)          (386)
                                                         -------        -------
Ending balance                                           $ 1,302        $ 1,526
                                                         =======        =======



The Company  considers the allowance for credit losses  adequate to cover losses
inherent in loans,  loan  commitments and purchased  receivables at December 31,
2003.  However,  no  assurance  can be given that the  Company  will not, in any
particular  period,  sustain  credit  losses that are sizable in relation to the
amount reserved, or that subsequent evaluations of the loan portfolio,  in light
of the factors then prevailing,  including economic conditions and the Company's
ongoing  examination  process  and  that of its  regulators,  will  not  require
significant  increases  in the  allowance  for  credit  losses.


5.  RELATED PARTY TRANSACTIONS


     Pursuant to a management agreement (the "Management  Agreement"),  approved
by a majority of the Company's disinterested directors,  between the Company and
SPS (and subsequently  assigned to Steel Partners,  Ltd. ("SPL")),  SPL provides
the Company with office space and certain  management,  consulting  and advisory
services. The Management Agreement is automatically renewable on an annual basis
unless terminated by either party, for any reason, upon at least 60 days written
notice prior to the end of the year and may be  terminated  by either party upon
30 days prior written notice to the other party.  The Management  Agreement also
provides that the Company shall  indemnify,  save and hold SPS harmless from and
against any obligation,  liability,  cost or damage resulting from SPS's actions
under the terms of the Management Agreement,  except to the extent occasioned by

                                      F-17




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


gross  negligence  or  willful  misconduct  of  SPS's  officers,   directors  or
employees.

            Pursuant  to  an  employee   allocation   agreement  (the  "Employee
Allocation  Agreement")  between WebBank and SPS (and  subsequently  assigned to
SPL),  Jim Henderson,  an employee of SPL and executive  officer of the Company,
performs  services in the area of  management,  accounting and finances and such
other services as are reasonably  requested by WebBank.  The Employee Allocation
Agreement will continue in force until  terminated by either of the parties upon
30 days written notice.

            Prior to March  26,  2002,  the  original  counterparty  to both the
Management  Agreement and the Employee Allocation Agreement was SPS. As of March
26,  2002,  the  Management  Agreement  and the  Employee  Allocation  Agreement
described  above were  assigned  by SPS to SPL and the  employees  of SPS became
employees  of SPL.  Warren  Lichtenstein,  the  Company's  President  and  Chief
Executive  Officer,  is an  affiliate  of SPL  based  on his  ownership  of SPL,
directly  and  through  Steel,  and by  virtue  of his  positions  as  Chairman,
President and Chief Executive  Officer of New Ltd. Mr.  Lichtenstein is the sole
managing  member of the general  partner of Steel.  Mr.  Lichtenstein  disclaims
beneficial ownership of the shares of Common Stock of SPL owned by Steel (except
to the extent of his pecuniary interest in such shares of Common Stock).

            In  consideration  of the  services  rendered  under the  Management
Agreement,  SPL charges the Company a fixed  monthly fee  totaling  $310,000 per
annum,   adjustable   annually  upon  agreement  of  the  Company  and  SPL.  In
consideration of the services provided under the Employee Allocation  Agreement,
SPL charges WebBank $100,000 per annum. The fees payable by WebBank are included
in the fees payable by the Company under the Management  Agreement.  The Company
believes that the cost of obtaining the type and quality of services rendered by
SPL under the Management  Agreement and Employee Allocation Agreement is no less
favorable  than the cost at which the Company and  WebBank,  respectively  could
obtain from unaffiliated entities.

            During the fiscal year ended December 31, 2003, SPL billed fees with
respect to fiscal 2003 of $310,000 to the Company for  services  rendered  under
the  Management  Agreement.  Included in these fees was $100,000 paid by WebBank
for services rendered under the Employee Allocation Agreement. During the fiscal
year ended  December  31,  2002,  SPL and SPS billed fees with respect to fiscal
2002 of $232,000 and $77,500  respectively to the Company for services  rendered
under the  Management  Agreement.  Included in these fees were  $100,000 paid by
WebBank for services rendered under the Employee Allocation Agreement.

            Pursuant  to a  sourcing  and  servicing  agreement  (the  "Rockland
Agreement")  between  WebBank and  Rockland  Credit  Finance  LLC  ("Rockland"),
Rockland  performs both  sourcing and  servicing  functions on behalf of WebBank
related  to  WebBank's  accounts  receivable  factoring  program.  During  2003,
Rockland was paid  $255,000 in cash  management  fees and earned  $1,019,000  in
total  management fees under the terms of the Rockland  Agreement.  During 2002,
Rockland was paid $56,000 in cash  management  fees and earned $571,000 in total
management fees under the terms of the Rockland  Agreement.  Management fees are
paid quarterly and accrued monthly by WebBank.  A notice of termination has been
issued with respect to the Rockland  accounts  receivable  factoring and service
arrangement.  See  "Risk  Factors  - Our  business  could be harmed if a certain
accounts receivable factoring and servicing arrangement terminates" and "Note 20
- Subsequent Events" to the Company's Consolidated Financial Statements.


6.  CERTIFICATES OF DEPOSIT

         Certificates of deposit at December 31, 2003 and 2002 are summarized as
follows:

                                                     Weighted average                Weighted
                                                        average                       average
                                                          rate            2003         rate            2002
                                                     ----------------  -----------    --------     --------------
        Certificates of deposit greater than $100         1.96%        $    11,364     2.90%       $      12,272

        Other certificates of deposit                     -                      -         -                   1
                                                                       -----------                 -------------
                                                          1.96%        $    11,364     2.90%       $      12,272
                                                                       ===========                 =============

                                      F-18




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Maturities of certificates of deposit as of December 31, 2003 are as follows:


            Year ending December 31,
            ------------------------

                     2004                   $         6,265

                     2005                             5,099
                                            ---------------
                                            $        11,364
                                            ===============


7.  SHORT-TERM BORROWINGS

In April 2002,  WebBank obtained a secured federal funds line of credit for $500
with a commercial  bank. The interest rate  approximated the federal funds rate.
The  security  consisted of WebBank's  investment  portfolio of mortgage  backed
securities.  The secured  federal  funds line of credit was not used in 2002. In
March 2003,  the secured  line of credit was  replaced by an  unsecured  federal
funds line of credit for the same amount with the same bank. Neither the secured
or unsecured lines of credit were used in 2003.


8.  PREMISES AND EQUIPMENT

Premises and equipment at December 31, are summarized as follows:


                                                                 2003       2002
                                                                 ----       ----
Leasehold improvements                                           $ 39       $ 39
Furniture and equipment                                            69         87
                                                                 ----       ----
                                                                  108        126
Less accumulated depreciation and amortization                     93         85
                                                                 ----       ----
                                                                 $ 15       $ 41
                                                                 ====       ====

9.  INCOME PER SHARE

The following data was used in computing earnings per share:

                                                                  Year ended
                                                                2003         2002
                                                            ----------   ----------
Income available to common shareholders                     $    2,109   $      459
                                                            ----------   ----------

                                      Basic
                                      -----
Shares
       Common shares outstanding entire period               4,366,866    4,366,866
        Weighted average common shares:
              Issued during period                                --           --
              Canceled during period                              --           --
                                                            -----------------------

Weighted average common shares outstanding during period
             -basic                                          4,366,866    4,366,866
                                                            =======================

                                      F-19




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income per share  - basic                                   $      .48   $      .11
                                                            ==========   ==========


                                   Diluted
                                   -------
Shares
Weighted average common shares outstanding during period
     -basic                                                  4,366,866    4,366,866
Dilutive effect on in-the-money stock options                    1,299          276
                                                            -----------------------
Weighted average common share outstanding during period
     -diluted                                                4,368,165    4,367,142
                                                            =======================
Income per common share  - diluted                          $      .48   $      .11
                                                            =======================


10.  STOCK OPTIONS AND WARRANTS

The Board of  Directors  of the  Company,  at its meeting on  September 2, 1998,
approved the merger of all  previous  stock  incentive  plans into the new stock
option plan (the Merged Plan).  At the annual meeting held November 4, 1998, the
shareholders  approved  the merger and certain  amendments  to the Merged  Plan.
Approved  were the grants of certain  stock-based  incentives  and other  equity
interests  to  employees,  directors,  and  consultants.  A maximum of 1,000,000
shares may be issued under the Merged Plan. The options are vested  according to
varied schedules,  exercisable when vested,  and expire five years from the date
of issuance.  At December 31, 2003, there were 902,774 options  remaining in the
Merged Plan available for granting.

The following table summarizes stock option activity:

                              Year ended Year ended
                                 December 31, 2003                December 31, 2002


                                               Weighted-                         Weighted-
                              Number           average          Number            average
                             of shares         exercise        of shares         exercise
                             (1,000's)          price          (1,000's)           price
                             --------------------------------- ---------------------------
Options outstanding at
  beginning of year               468            $3.98          469               $4.02

Options granted                    --            $  --           15               $2.14

Options cancelled                (375)           $3.86          (16)              $3.41

Options exercised                  --               --           --                  --
                                                               ----               -----
                             --------                          ----
Options outstanding at
  end of year                      93            $4.48          468               $3.98
                             --------                          ----

Options exercisable at
  end of year                      93            $4.48          464               $3.99

Weighted-average fair
  value of options granted
  during the year (all at                        $  --         $1.27
  market)

                                      F-20




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes  information about stock options with fixed terms
outstanding at December 31, 2003:

                                  Options outstanding                      Options exercisable
                        Number          Weighted                           Number
                      outstanding       average         Weighted        exercisable    Weighted
   Range of           (000's) at       remaining         average         (000's) at     average
   Exercise          December 31,     contractual       exercise        December 31,   exercise
    Prices               2003        life in years      price ($)           2003       price ($)
    ------               ----        -------------      ---------           ----       ---------
$   1.500 to 2.549        13               3.6            1.97               13          1.97
$   2.550 to 3.440        35               1.8            3.25               35          3.25
$   3.441 to 5.130        20                .1            5.13               20          5.13
$   6.471 to 7.000        25                .8            7.00               25          7.00
                          --                                                 --
                          93                                                 93
                          ==                                                 ==

11.  EMPLOYEE BENEFIT PLAN AND INCENTIVE PROGRAM

WebBank has a 401(k) profit  sharing plan,  covering  employees who meet age and
service requirements.  Plan participants vest ratably and are fully vested after
five years of service. WebBank matches employee contributions up to five percent
of covered  compensation at two hundred percent of the employee's  contribution.
Contributions  to the plan amounted to  approximately  $22 and $37 for the years
ended December 31, 2003 and 2002, respectively.

12.  INCOME TAXES

Income taxes (benefit) expense consist of the following:

                 2003     2002
                -----    -----
     Current    $   1    $ (10)
     Deferred    (757)    --
                -----    -----
                $(756)   $ (10)
                =====    =====

A  reconciliation  of income  taxes  (benefit)  expense  computed at the federal
statutory rate of 34% is as follows:

                                       2003       2002
                                     -------    -------
     Federal income taxes            $   496    $   163
     State income taxes                   48         16
     Change in valuation allowance    (1,302)      (179)
     Other                                 2        (10)
                                     -------    -------
                                     $  (756)   $   (10)
                                     =======    =======


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and liabilities were as follows:

                                                         December 31,  December 31,
                                                            2003           2002
                                                           -------       -------
  Deferred tax assets:
     Net operating loss carry forward                      $14,559       $15,029
     Accrued vacation                                           17             8
     Allowance for loan losses                                 486           569
     Premises and equipment                                     33            34
                                                           -------       -------
        Total deferred tax assets                           15,095        15,640
        Less valuation allowance                            14,338        15,640
                                                           -------       -------
Net deferred tax asset                                     $   757       $  --
                                                           =======       =======

                                      F-21




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The net change in the total valuation  allowance for the year ended December 31,
2003 was a decrease of $1,302. The decrease  represented the amount of valuation
allowance  remaining  at  WebBank.  Since its  inception  in 1998,  WebBank  had
experienced a history of  inconsistent  earnings which made it "more likely than
not"  that  some  portion  or  all of  the  deferred  tax  assets  would  not be
recognized.  Therefore, a valuation allowance was established in accordance with
FASB 109,  paragraph 17e. As of December 31, 2003, the Company  determined that,
based  on the  two  previous  year's  earnings  and  the  prospect  for  similar
performance in the foreseeable future, it was "more likely than not" that all of
WebBank's  deferred  tax assets would be  recognized.  See Notes 1 and 12 of the
Notes to  Consolidated  Financial  Statements  for a further  description of the
methodology  used  by the  Company  to  determine  the  deferred  tax  valuation
allowance.


At December  31,  2003,  the Company had net  operating  loss carry  forwards of
approximately  $39,033 that are scheduled to expire from 2009 through 2021.  The
Company has treated such net operating  losses incurred prior to April 28, 1995,
when there was a material change in ownership of a 5% shareholder, in accordance
with Section  382(l)(5)  of the Internal  Revenue  Code.  As a result,  there is
approximately  $19,000 in net operating  losses incurred prior to April 28, 1995
as  well  as  $20,033  incurred  subsequent  to  April  28,  1995  available  as
carryovers.  All net operating  losses may be subject to certain  limitations on
utilization.

13.  DISCLOSURES ABOUT THE FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying value for short-term  financial  instruments that mature or reprice
frequently at market rates  approximates fair value. Such financial  instruments
include:  cash  and  cash  equivalents,   accrued  interest  receivable,  demand
deposits,  accounts payable and accrued  expenses,  time certificates of deposit
and short term borrowing.  The difference  between the fair market value and the
carrying value for loans and investment securities is not considered significant
to the financial statements.

14.  COMMITMENTS AND CONTINGENCIES


     Leases
     ------

The Company leased office space in one building in 2003 and 2002 under operating
lease agreements.  Rental expense for the years ended December 31, 2003 and 2002
were $107and $127,  respectively.  Future  minimum lease payments by year are as
follows:

                        Year ending December 31,
                        ------------------------
                                      2004        $ 107
                                      2005           27
                                   Thereafter       --
                                                   ----
                                                  $ 134
                                                   ====

CREDIT-RELATED FINANCIAL INSTRUMENTS
------------------------------------

The Company is a party to financial  instruments with off-balance sheet risk. In
the normal course of business,  these financial  instruments include commitments
to extend  credit  in the form of loans or  through  letters  of  credit.  Those
instruments  involve to varying  degrees,  elements of credit and interest  rate
risk in excess of the amount  recognized  on the  balance  sheet.  The  contract
amounts of those  instruments  reflect the extent of involvement the Company has
in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of those instruments. The Company the same
credit policy in making  commitments and conditional  obligations as it does for
on-balance sheet instruments.

At December  31,  2003  and 2002,  the  Company's  undisbursed  commercial  loan
commitments totaled $0. For the same periods, the Company's undisbursed consumer
credit card loan  commitments  totaled $0. For the same  periods,  the Company's
undisbursed  accounts receivable  factoring  commitments  totaled  approximately
$8,138 and $6,382, respectively.

                                      F-22




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments to extend credit are agreements to lend to a customer provided there
is no  violation  of any  condition  established  in the  contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since  certain of the  commitments  are  expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness on a case-by-case  basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on  management's  credit
evaluation of the borrower.

LITIGATION
----------

            In  January  2000,  Andrew  Winokur,  a  former  executive  officer,
director and stockholder of Praxis Investment Advisors, Inc. ("Praxis"),  one of
the Company's  subsidiaries,  filed a lawsuit in the Superior Court of the State
of  California,  County of Napa.  The lawsuit  alleges that Praxis  breached its
employment  agreement  with Mr.  Winokur.  The lawsuit also  asserts  claims for
interference with contract and unjust enrichment based upon his alleged wrongful
termination.  The lawsuit seeks damages of an unspecified  amount and compliance
by Praxis with the termination  pay-out  provisions in Mr. Winokur's  employment
agreement.

            On March 4, 2002, the lawsuit was submitted to binding  arbitration.
The panel found no breach of contract and no intentional  interference  with Mr.
Winokur's  contractual  rights.  However,  the panel found that Mr.  Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this  provision,  Mr. Winokur could  potentially be entitled to receive  certain
compensation  based on (i) an  investment  bank  valuation  of  WebBank,  if the
Company  accepts such valuation,  or (ii) the proceeds of a sale of WebBank,  if
the Company rejects such  valuation.  While Mr. Winokur would not be entitled to
receive  any  compensation  in the  event  that  the  sale  does  not  exceed  a
predetermined  amount as provided in the employment  agreement,  which amount is
defined as the  amount of capital  invested  by the  stockholders  of Praxis and
WebBank  in such  companies,  plus a  cumulative  annual  rate of  return of ten
percent as of the date of sale, the Company may be forced to sell WebBank if the
sale price exceeds such predetermined  amount, even if the Company does not want
to sell  WebBank.  In  addition,  if the  sale  price  of  WebBank  exceeds  the
predetermined  amount but is less than the investment bank valuation of WebBank,
the Company may be required to sell WebBank at less than its value.  The Company
does not have any alternative  financing plans to make this payment in the event
such payment is required.

            At the present time,  Mr.  Winokur has ceased to  participate in the
process of valuing  WebBank.  However,  since there may be no time limitation on
Mr. Winokur's claim, the valuation  process may proceed in the future and if the
Company is required to make a payment, its business could be harmed.

15. REGULATORY REQUIREMENTS

WebBank is subject to various  regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain actions by regulators that, if undertaken,  could have a direct
material  effect on the Bank's  financial  statements.  Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities,  and certain  off-balance sheet items as calculated
under  regulatory   accounting   practices.   The  Bank's  capital  amounts  and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of Total and Tier I
capital (as defined in the  regulations) to  risk-weighted  assets (as defined),
and of Tier I capital (as  defined) to average  quarterly  assets (as  defined).
Management  believes,  as of  December  31, 2003 that the Bank meets all capital
adequacy requirements to which it is subject.

As of December 31, 2003, based on the applicable  capital adequacy  regulations,
the Bank is categorized as "well capitalized" under the regulatory framework for
prompt corrective  action. To be categorized as "well capitalized" the Bank must
maintain minimum total risk based, Tier I risk based, and Tier I leverage ratios
as set forth in the  following  tables.  There are no  conditions or events that
management believes have changed the Bank's category.


Capital amounts and ratios are summarized as follows (in thousands):

                                      F-23




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     WELL CAPITALIZED            MINIMUM CAPITAL
                                                ACTUAL                 REQUIREMENT                 REQUIREMENT
                                       -----------------------   ------------------------    ------------------------
                                         AMOUNT        RATIO         AMOUNT       RATIO         AMOUNT       RATIO
                                       ----------   ----------   ------------   ---------    ----------    ----------
      As of
      December 31, 2003:

      Total Capital (Tier 1 + Tier
      2) to risk weighted assets      $    5,774      30.9%     $      1,867    >=10.0%     $     1,494     >=8.0%

      Tier I Capital to risk
      weighted assets                 $    5,529      29.6%     $      1,120     >=6.0%     $       747     >=4.0%

      Tier I Capital to average
      assets (Leverage Ratio)         $    5,529      31.9%     $        867     >=5.0%     $       694     >=4.0%


                                                                     WELL CAPITALIZED            MINIMUM CAPITAL
                                                ACTUAL                 REQUIREMENT                 REQUIREMENT
                                       -----------------------   ------------------------    ------------------------
                                         AMOUNT        RATIO         AMOUNT       RATIO         AMOUNT       RATIO
                                       ----------   ----------   ------------   ---------    ----------    ----------
      As of
      December 31, 2002:

      Total Capital (Tier 1 + Tier
      2) to risk weighted assets      $    4,227      30.1%     $      1,404    >=10.0%     $     1,123     >=8.0%

      Tier I Capital to risk
      weighted assets                 $    4,036      28.8%     $        843     >=6.0%     $       562     >=4.0%

      Tier I Capital to average
      assets (Leverage Ratio)         $    4,036      21.8%     $        928     >=5.0%     $       742     >=4.0%

16.  SERVICING ASSETS AND LIABILITIES

In connection with certain  businesses in which the Company sells  originated or
purchased  loans with servicing  retained,  servicing  assets or liabilities are
recorded  based on the relative fair value of the  servicing  rights on the date
the loans are sold. Servicing assets and liabilities are amortized in proportion
to and over the  period of  estimated  net  servicing  income  and  expense.  At
December 31, 2003 and 2002,  net servicing  assets,  which are included in other
assets,  were $31 and  $99,  respectively.  Servicing  assets  are  periodically
evaluated for  impairment  based on the fair value of those assets.  During 2003
and 2002, the Company recorded no additional  servicing assets, and recorded $45
and $35 of amortization, respectively.

17. MISCELLANEOUS INCOME

Miscellaneous income for the year ended December 31, is summarized as follows:

                                                            2003        2002
                                                            ----        ----

      Loan servicing fees                                 $    221    $    215
      Gain in sale of foreclosed assets                         --          90
      Recovery of prior year security write-off                 --         112
      Other                                                     54          24
                                                          --------    --------
                                                          $    275    $    441
                                                          ========    ========

                                      F-24




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.  OPERATING SEGMENT INFORMATION

Operating  segments  represent  components of an enterprise about which separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker in deciding how to allocate resources and in assessing
performance.

The Company evaluates segment performance  internally based on lines of business
and the  operating  segments  are so defined.  The Company  has  identified  two
operating  segments.  The first is the  accounts  receivable  factoring  program
operated by WebBank.  The second  operating  segment,  termed "other,"  includes
commercial  lending,  fee  for  services,  and  investment  activities.   Income
generated from  investments in factoring  receivables by Company  entities other
than WebBank is included in the "other" operating  segment.  For the years ended
December  31, 2003 and 2002,  factoring  income  earned by  entities  other than
WebBank was $216 and $84,  respectively.  Subsequent  to year end 2003,  several
events  occurred  to modify  the  nature of the  accounts  receivable  factoring
program (see "Note 20 - Subsequent Events").

The following is a summary of selected  operating  segment  information  for the
years  ended  December  31,  2003 and 2002.  Prior to 2002,  the Company did not
evaluate its financial  performance based on distinct  operating  segments.  The
information  represents  operating results as if the segments were operated on a
stand alone  basis.  However,  the results do not reflect a full  allocation  of
costs based on the current structure of the entities, and thus the results might
not be comparable to like information from other companies.

                                                          Accounts
                                                         Receivable                          Consolidated
                                                          Factoring          Other              Company
                                                          ---------          -----              -------
                        2003
                        ----
Income Statement Information (Annual):
Net interest income after provision for credit              $2,178           $1,325             $3,503
losses
Noninterest income                                              20            1,560              1,580
Noninterest expense                                          1,110            2,513              3,623
                                                            ------          -------            -------
Operating income                                             1,088              372              1,460
Income taxes (benefit)                                          --            (756)              (756)
Income attributable to minority interest                        --            (107)              (107)
                                                            ------          -------            -------
Net income                                                  $1,088           $1,021             $2,109
                                                            ======          =======            =======
Balance Sheet Information (As of December 31):
Total assets                                                $8,076          $18,372            $26,448
Net loans and leases                                        $7,028           $8,109            $15,137
Deposits                                                    $6,697           $5,220            $11,917


                                                          Accounts
                                                         Receivable                          Consolidated
                                                          Factoring          Other             Company
                                                          ---------          -----             -------
                        2002
                        ----
Income Statement Information (Annual):
Net interest income after provision for credit              $1,155           $1,260             $2,415
losses
Noninterest income                                              --            1,161              1,161
Noninterest expense                                            748            2,348              3,096
                                                            ------          -------            -------
Operating income                                               407               73                480
Income taxes (benefit)                                          --             (10)               (10)
Income attributable to minority interest                        --              (31)              (31)
                                                            ------          -------            -------
Net income                                                    $407             $ 52               $459
                                                            ======          =======            =======

Balance Sheet Information (As of December 31):
Total assets                                                $7,415          $18,750            $26,165
Net loans and leases                                        $5,081          $10,320            $15,401
Deposits                                                    $7,195           $6,425            $13,620

                                      F-25




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.  QUARTERLY FINANCIAL DATA (Unaudited)

                                                                      Quarter Ended
                                                                      -------------
                                        March 31, 2003       June 30, 2003     September 30, 2003      December 31, 2003
                                        --------------       -------------     ------------------      -----------------
$(000) except per share

Net interest income after
provisions for credit losses               $   876              $ 1,070              $ 1,133               $   424
Noninterest income                             235                  399                  128                   818
Noninterest expenses                           879                  887                1,320                   537
Net income (loss)                              214                  564                  (79)                1,410
Net income (loss) per share -
basic and diluted                              .05                  .13                 (.02)                  .32
Common stock prices:
   High                                       2.70                 2.63                 2.75                  2.70
   Low                                        1.73                 1.70                 2.10                  2.10

                                                                      Quarter Ended
                                                                      -------------
                                        March 31, 2002       June 30, 2002       September 30, 2002    December 31, 2002
                                        --------------       -------------       ------------------    -----------------
$(000) except per share

Net interest income after
provisions for credit losses               $   322              $   672              $   675               $   746
Noninterest income                             199                  161                  166                   635
Noninterest expenses                           805                  846                  688                   757
Net income (loss)                             (276)                   8                  116                   611
Net income (loss) per share -
basic and diluted                             (.06)                 .00                  .03                   .14
Common stock prices:
   High                                       2.59                 2.37                 2.28                  2.71
   Low                                        2.05                 1.34                 1.43                  1.56

20.  SUBSEQUENT EVENTS

On February  20,  2004,  WebBank  gave notice of  termination  of a Sourcing and
Servicing  Agreement  and an  Employment  Agreement to one of the two  factoring
companies providing accounts receivable  factoring services to WebBank. On March
1, 2004, that factoring company  acknowledged  receipt of the termination notice
and,  under the terms of the Sourcing and  Servicing  Agreement,  gave notice to
WebBank that the  factoring  company  would  exercise its option to purchase the
existing portfolio of accounts  receivable from WebBank at book value on May 12,
2004. The accounts receivable factoring arrangement generated revenue and income
in fiscal 2002 and 2003 which accounted for (a) substantially all of the revenue
and income generated by the Company's accounts  receivable  factoring  operating
segment for those years, and (b) a significant part of the income and revenue of
the Company for those years.  It is possible that this  termination may not take
effect as provided in the  termination  notice and the arrangement may continue.
However, in the event of termination, there can be no assurance that the Company
will  be  able  to  successfully   enter  into  a  replacement   arrangement  or
arrangements. WebBank expects that if the May 2004 termination becomes effective
during the second  quarter of 2004,  WebBank  will (a) not  generate any gain or
loss on such  termination  as the sourcing and servicing  company has elected to
purchase the portfolio of accounts  receivable at WebBank's net book value,  and
(b) generate  approximately  $5.9 million of cash as a result of the sale of the
portfolio.  WebBank  also  anticipates  that the cash  generated by the May 2004
termination will be used to retire Certificates of Deposit as they mature.

Under a Termination Agreement dated February 27, 2004, WebBank and the second of
two  companies  providing  accounts  receivable  factoring  services to WebBank,
agreed  to  the  termination  of a  Sourcing  and  Servicing  Agreement  and  an
Employment  Agreement  between the parties.  Under the terms of that Termination
Agreement,  the  accounts  receivable  factoring  services  company  purchased a
portfolio  of accounts  receivable  from WebBank at book value on March 2, 2004.
Note 18 of the Notes to Consolidated  Financial  Statements shows the income and
expenses  attributable to the Company's Accounts Receivable  Factoring operating
segment,  all of which were generated by the two accounts  receivable  factoring
arrangements described above. Neither of these arrangements was in effect during
2001. The Company  believes that the termination of the two accounts  receivable
factoring  arrangements will have a significant adverse affect on its net income
during 2004.

                                      F-26




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 23, 2004, the third party sourcing company engaged to source private
label  student  loans on behalf of WebBank  gave notice to WebBank that it would
not renew the Loan Sale  Agreement  and Loan Program  Agreement  between the two
parties.  Consequently,  those  agreements  will  terminate at the conclusion of
their  current  term  on May  31,  2004.  The  pretax  income  generated  by the
terminated private label student loan program generated revenue of $150 for each
of the years 2003 and 2002.

                                      F-27`