UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-K

(Mark One)

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

                    For the fiscal year ended July 31, 2000

                                       OR

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

         For the transition period from                      to
                                       ------------------    ------------------

                          Commission file number 0-6673

                        PACIFIC SECURITY FINANCIAL, INC.
                        --------------------------------
             (Exact name of registrant as specified in its charter)

             Washington                                   91-0669906
   -------------------------------           ----------------------------------
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation of organization)

          N. 10 Post Street
         325 Peyton Building
         Spokane, Washington                                 99201
   -------------------------------           ----------------------------------
        (Address of principal                             (Zip code)
         executive offices)

Registrant's telephone number, including area code:            (509) 444-7700
                                                              ------------------

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

                                                          Name of each
                                                        exchange on which
     Title of each class                                   registered
------------------------------                   ------------------------------
            None                                              None

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

                        Common stock, no par value shares
                        ---------------------------------
                                (Title of class)


<PAGE>


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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
                                      ---     ---

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

State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. There is no regular, established market
for trading in the Company's common stock. Therefore, the aggregate market value
of the voting stock held by nonaffiliates of the registrant is not determinable.

On July 31, 2000, the registrant had outstanding 1,138,795 shares of common
stock, no par value ($3 stated value) and 3,000 shares of Class A preferred
stock, $100 par value.

Documents incorporated by reference:  none.


<PAGE>



                        PACIFIC SECURITY FINANCIAL, INC.
                             FORM 10-K ANNUAL REPORT

                                Table of Contents
<TABLE>
<CAPTION>



                                                                                                                 Page
                                                                                                                 ----

PART I

<S>               <C>                                                                                            <C>
Item 1.           Business                                                                                          1
Item 2.           Properties                                                                                        2
Item 3.           Legal Proceedings                                                                                 4
Item 4.           Submission of Matters to a Vote of Security Holders                                               4


PART II

Item 5.           Market for the Registrant's Common Equity and
                      Related Stockholder Matters                                                                   5
Item 6.           Selected Financial Data                                                                           6
Item 7.           Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                                           6
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk                                        9
Item 8.           Financial Statements and Supplementary Data                                                      11
Item 9.           Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure                                                          11


PART III

Item 10.          Directors and Executive Officers of the Registrant                                               37
Item 11.          Executive Compensation                                                                           38
Item 12.          Security Ownership of Certain Beneficial Owners
                      and Management                                                                               39
Item 13.          Certain Relationships and Related Transactions                                                   39


PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                      Reports on Form 8-K                                                                          40
</TABLE>


<PAGE>

PART I

Item 1.   Business

(a)      Pacific Security Companies was merged into Security Savesco, Inc. as of
         May 31, 1985. The name of Security Savesco, Inc., the surviving
         corporation, was changed to Pacific Security Companies (the "Company")
         as of the date of the merger. Pacific Security Companies changed its
         name to Pacific Security Financial, Inc, in 1999.

         Prior to the merger, both corporations were engaged principally in real
         estate contract financing and owning, leasing and selling real
         properties. The merged corporation has continued these activities.
         Total assets of the Company at July 31, 2000 and 1999 were $40,416,395
         and $35,946,222, respectively, and real estate contracts and loans
         represent approximately 49% and 50% of the respective asset totals. The
         Company presently primarily originates commercial loans. The Company
         also originates contracts to facilitate the sale of real estate held
         for sale or development. Some of the contracts have fixed contractual
         interest rates while commercial (interim and construction) loans
         generally have variable rates. Most contracts have been purchased by
         the Company at a discount from the contract balance which increases the
         effective yield. The total amount invested in real estate contracts and
         loans of $19,713,117 as of July 31, 2000 is $1,789,788 more than at the
         end of the prior year. The percentage of contracts which were
         delinquent over 90 days was 7.0% as of July 31, 2000 and 1.9% as of
         July 31, 1999. Management continues to emphasize enforcement of the
         Company's credit and collection policies.

         In fiscal 1998, the Company's newly-formed subsidiary, Cornerstone
         Realty Advisors, Inc., began making short-term (generally one to two
         years including extensions) construction and interim loans. Bank lines
         of credit were increased to provide additional funds for this purpose.
         The permanent financing for these short-term loans is obtained from the
         secondary market and includes such sources as banks, savings and loan
         institutions, life insurance companies, credit unions and conduits.

         The Company has continued to emphasize the development of its rental
         properties and commenced new projects primarily to improve the
         occupancy of its commercial buildings. Correspondingly, the acquisition
         of additional real estate contracts has been minimal, other than for
         Company financed sales of its real estate. The Company developed
         certain land for residential development. The project, known as
         Tanglewood Ranch Park Estates (The Crest) offered approximately 21
         ten-acre parcels suitable for home construction. The Company began
         marketing these parcels in fiscal 1998 and has approximately 9 ten-acre
         parcels remaining for sale at July 31, 2000.

         In fiscal 1996, the Company completed construction of Birdies Golf
         Center (Birdies) and discontinued this operation in fiscal 1999. See
         further information on this discontinued business segment in Note 4 to
         the consolidated financial statements.

         Investments in rental properties totaled $17,783,847 and $14,807,679 as
         of July 31, 2000 and 1999, respectively. The increase is primarily the
         net result of the acquisition of two commercial buildings in Boise,
         Idaho, construction of a new building for lease in the Cornerstone
         Office Park and additional capitalized costs that more than offset
         depreciation expense and the cost of real estate that was sold. Other
         real property held for sale and development totaled $1,796,607 and
         $2,031,448 as of July 31, 2000 and 1999, respectively. These properties
         will be liquidated and/or developed at such time as market conditions
         warrant, and in the judgment of management, when the Company can
         maximize its return. The Company will continue to invest in and hold
         real property on a long-term basis. These properties may ultimately be
         sold or exchanged for tax purposes in order to minimize and defer
         related income taxes and to conserve funds for additional investment
         purposes. These plans may be modified as the result of future changes
         to the Internal Revenue Code.

         With the Company's sale of certain commercial real estate and
         multi-family housing, rental income has only increased from $2,220,979
         in fiscal 1998 to $2,285,947 in fiscal 2000. During the same period,
         interest income, including the amortization of discounts on real estate
         contracts, has increased from
                                       1
<PAGE>


         27% of total income in fiscal 1998 to 47% of total income in fiscal
         2000. The Company expects to continue its emphasis on originating
         construction and interim commercial real estate loans and the
         development, leasing and sale of commercial real estate in fiscal 2001,
         and marketing of the Tanglewood (The Crest) parcels. There are no
         contractual commitments other than the remaining remodeling costs
         associated with improvements for commercial buildings and the
         construction of a new building at the Cornerstone Office Park. The
         Company's fiscal 2001 capital expenditures may increase if demand for
         the rental of Company properties continues or if the Company decides to
         further develop any of its properties held for sale. A description of
         the Company's significant properties is included in Item 2 "
         Properties.

         The Company's business is concentrated in financing real estate
         contracts, originating loans collateralized by real estate, developing
         real estate for sale or lease and the operation of rental properties.
         The Company is in competition with financial institutions who originate
         or invest in real estate collateralized contracts and commercial
         property owners located primarily in or near Spokane, Washington.

         As of July 31, 2000, the Company employed approximately 21 people on a
         full-time equivalent basis, 18 of whom are in its office at N. 10 Post
         Street in Spokane, Washington.

Item 2.     Properties

As of July 31, 2000, the Company owns the following properties. Some of the
properties are subject to real estate contracts or mortgages that are
collateralized by the property.

Properties Located in Spokane County, Washington  (unless otherwise noted):
<TABLE>
<CAPTION>

                                                                                       July 31, 2000
                                                                        ------------------------------------------
                                                                            Rental/          Net         Mortgage
   Date                                                                   Development     Carrying      or Contract
 Acquired                     Description of Property                       Status          Value       Obligation
 --------    -------------------------------------------------------    --------------   ----------    ------------

Commercial:
<S>                                                                   <C>              <C>           <C>
   1979      The Peyton Building at N. 10 Post Street contains          Substantially   $4,496,233    $  2,422,444
             approximately 85,000 square feet of rentable space.        leased
             Substantial improvements have been made to the
             building since its acquisition. Remodeling of this
             office building continues as new occupancy warrants.
             The Company's offices are located in this building.

   1979      The Hutton Building at S. 10 Washington contains           Substantially   $3,422,006    $  2,482,500
             approximately 56,000 square feet of rentable space.        leased
             Substantial improvements have been made to the
             building since its acquisition.  The Company also
             acquired 25,000 square feet for parking near this
             building.

   1992      The Pier One Building is a commercial building.            Leased          $3,055,814    $  1,294,456
             The building has two major tenants, who occupy
             over 60% of the space, and several other smaller
             tenants for the remaining space.

                                       2
</TABLE>

<PAGE>


Properties Located in Spokane County, Washington (unless otherwise noted),
Continued: <TABLE>
<CAPTION>

                                                                                       July 31, 2000
                                                                        -------------------------------------------
                                                                            Rental/          Net         Mortgage
   Date                                                                   Development     Carrying      or Contract
 Acquired                     Description of Property                       Status          Value       Obligation
 --------    -------------------------------------------------------    --------------   ----------    ------------

Commercial, Continued:
<S>                                                                   <C>              <C>           <C>
   1992      The AT&T Wireless Building is a commercial                 Leased          $   696,061    $   796,016
             building constructed by the Company on the north
             river bank in Spokane.

   1995      Cornerstone Office Building is the remodeled Birdies
             Golf Center, constructed on 2 acres of the Cornerstone     Leased          $ 1,552,701    $   690,644
             Office Park property.  It has approximately 8,300 square
             feet of rental space occupied by two tenants.

   2000      Apex Physical Therapy is a commercial building
             constructed by the Company in the Cornerstone              Leased          $   553,270    $   529,028
             Office Park.

   2000      Boise, Idaho: Calderwood- Overland Building-
             Commercial Building with approximately 10,896              Leased          $ 1,597,389                (1)
             square feet of rentable space.

   2000      Boise, Idaho: Calderwood- Ardene Building-
             Commercial Building with approximately 8,292               Leased          $ 1,197,959                (1)
             square feet of rentable space.

Multi-Family Housing:

   1969      The Broadmoor Apartments, formerly the Aqua View           Occupied        $ 1,212,413    $ 2,074,435
             Apartments, is a 128-unit apartment complex.

Land:

   1990      Cornerstone Office Park and property consists of
             approximately 10 remaining acres of raw land in a          Under           $   812,971    $       ---
             location where there has been substantial commercial       development
             and residential development.

   1991      Tanglewood Ranch Park Estates (The Crest) in south         Being           $   686,250    $       ---
             Spokane County was acquired through a judicial fore-       marketed
             closure.  The area consisted of approximately 300 acres
             of undeveloped land. In fiscal 2000, three lots were sold,
             leaving approximately 9 lots available for sale.

   1993      Approximately six acres in Auburn, Washington              Being           $   172,386    $       ---
             zoned for single-family housing were acquired              marketed
             through a foreclosure.

   2000      Calderwood lots (2), Boise Idaho                           Under           $   125,000                (1)
                                                                        development

(1)      Total obligation of $1,742,250 is secured by two commercial buildings and land as noted above.
</TABLE>

                                       3
<PAGE>

Item 3.     Legal Proceedings

As of July 31, 2000, it is the opinion of management that there is no pending
litigation that would have a material adverse effect on the financial condition
or operations of the registrant.

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

No matters were submitted to a vote of the stockholders during the fourth
quarter of fiscal 2000.


                                       4
<PAGE>


PART II

Item 5.     Market for the Registrant's Common Equity and Related Stockholder
            Matters

(a)      Principal Market.

         There is no established market for trading in the Company's common
         stock. Periodically, the Company will purchase and retire its common
         stock, but does not solicit such transactions.

(b)      Stock Price and Dividend Information.

         There is no market information relative to the common stock price of
         the Company's stock as it is not actively traded. No dividends have
         been declared since 1990.

(c)      Approximate Number of Holders of Common Stock.

         Common no par value -- 1,111 record holders.

(d)      There is only one class of common stock outstanding. Any dividend which
         may be declared would be payable at the same rate on each share of
         common stock. At July 31, 2000, the Company also has issued 3,000
         shares of Class A preferred stock owned by two holders. These shares
         receive cumulative dividends of 6% when declared by the Board of
         Directors. During the fiscal years ended July 31, 2000 and 1999,
         dividends totaling $18,000 and $18,000 were declared and accrued on
         these shares, respectively. During the fiscal years ended July 31, 1998
         and 1997, dividends totaling $42,000 and $62,400, respectively, were
         declared and accrued on these shares. The dividends were paid on August
         3, 2000, August 3, 1999, August 3, 1998, and August 1, 1997,
         respectively.



                                       5
<PAGE>


Item 6.     Selected Financial Data

The following selected financial data have been derived from the Company's
audited consolidated financial statements, and should be read in conjunction
with the consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>

                                                                      Years Ended July 31,
                                                ------------------------------------------------------------------
                                                 2000          1999           1998          1997          1996
                                                ---------   -----------   -----------   ------------  ------------
<S>                                          <C>           <C>           <C>              <C>        <C>
Statement of Operations Data:

Rental income                                $  2,285,947  $  2,268,810  $  2,220,979     $2,398,369 $   2,714,563
Interest income, including loan fees            2,885,338     2,183,276       963,297      1,032,847     1,138,935
Gains on sales of real estate                   1,038,694     1,128,628       514,141      1,611,195       486,469
Interest expense, net                           2,364,846     2,208,858     1,580,820      1,548,173     1,650,559
Income (loss) from continuing operations,
   before income taxes                            845,791       853,559      (720,371)       879,238       182,114
Net income (loss)                                 561,491       285,342      (596,936)       472,000        39,266
Income (loss) applicable to common
   stockholders                                   543,491        57,342      (757,936)       357,600       (75,134)
Income (loss) per common share - basic
   and diluted                                        .48           .05          (.48)           .19          (.04)
                                                =========     ==========    ==========    ==========     =========
Income (loss) from continuing operations
   per common share - basic and diluted               .48           .27          (.42)           .26          (.03)
                                                =========     ==========    ==========    ==========     =========

Cash dividends per common share                        --            --            --             --            --
Weighted-average number of common
   shares outstanding                           1,139,232     1,161,677     1,591,484      1,895,105     1,938,076

Balance Sheet Data (at year end):

Contracts, mortgages, finance notes and
   loans receivable, net                     $ 19,713,117  $ 17,923,329  $ 11,149,009  $  10,971,700 $  10,492,944
Total assets                                   40,416,395    35,946,222    30,940,293     32,294,907    32,840,107
Notes and contracts payable                    21,234,496    17,421,385    12,255,178     10,028,531    11,055,919
Debentures                                      9,867,649     9,643,548     9,839,936      9,898,351     9,718,260
Stockholders' equity                            7,500,785     6,980,693     6,647,479      9,689,896     9,397,005
</TABLE>


Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations

General

This discussion contains some forward-looking statements. A forward-looking
statement may contain words such as "will continue to be," "will be," "continue
to," "expect to," "anticipates that," "to be," or "can impact." Management
cautions that forward-looking statements are subject to risks and uncertainties
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements.

                                       6
<PAGE>


The Company engages in financing real estate collateralized contracts and loans,
originating construction and interim loans, acquiring real estate that is either
held for sale or developed and leased or sold and operating rental properties as
its primary activities. In fiscal 1999, the Company expanded its lending
activities associated with interim construction loans. During the past two
years, the Company has also focused on the development and lease of its rental
properties as demand for the available space in these projects has increased.
Much of the Company's development of the commercial office building projects has
involved extensive remodeling efforts in connection with preparation of
previously unoccupied space for a new tenant and structural changes as required
by current building codes. The Company also constructed a new building in the
Cornerstone Office Park. This building is fully leased to a tenant who has a two
year option to buy the building.

The Company invests in real estate collateralized contracts and real property
primarily within the state of Washington, with a concentration in Spokane
County. The Company has concentrated its efforts on the development and sale of
existing real estate projects to maximize the return from those investments. The
Company has curtailed its contract acquisitions and now primarily originates
real estate contracts to facilitate the sale of its property held for sale or
development and, in fiscal 1998, began originating loans secured by real estate,
including construction and interim loans through its subsidiary, Cornerstone
Realty Advisors, Inc. These loans have involved properties located in the
western United States.

The Company finances its investments in real estate and loans primarily through
collateralized line-of-credit arrangements with local banks, real estate notes
or mortgages, and the sale of fixed rate debentures with terms ranging from one
to ten years. The Company intends to continue using these funding sources in the
future.

Results of Operations

For the years ended July 31, 2000, 1999 and 1998, the Company's net income
(loss) was approximately $561,000, $285,000, and $(597,000), respectively. Due
to dividends and the accretion of the discount on the issuance of preferred
stock, the income (loss) applicable to common stockholders was approximately
$543,000, $57,000, and $(758,000) in fiscal 2000, 1999, and 1998, respectively.

Rental real estate revenues have remained relatively flat due to sales of rental
properties offsetting rent increases in existing properties and rent from
newly-constructed or acquired properties. Total rental income has increased from
$2,221,000 in fiscal 1998 to $2,286,000 in fiscal 2000. Rental income is
expected to increase as vacancies are reduced.

The total interest income, including loan fees and amortization of discounts on
acquired real estate contracts and loans, has increased from approximately
$2,211,000 and $1,005,000 in fiscal 1999 and 1998, respectively, to
approximately $2,958,000 in fiscal 2000. This increase corresponds directly with
the increase in the Company's origination of construction and interim commercial
loans. In the last half of fiscal 1998, the Company began originating new
commercial real property construction and interim loans through its subsidiary,
Cornerstone Realty Advisors, Inc. Loan fees of $600,000 and net interest income
of $539,000 have significantly increased as the loan portfolio has grown in
fiscal 2000.

Gains on the sale of real estate were approximately $1,039,000, $1,129,000, and
$514,000 in fiscal 2000, 1999 and 1998, respectively. The Company anticipates
that it will continue to recognize gains both on the sale of real estate
acquired through foreclosure and real estate acquired for resale.

The expenses associated with rental operations have decreased to approximately
$1,996,000 in fiscal 2000 from approximately $2,036,000 in fiscal 1998. The
rental activities of the Company are expected to continue to contribute to its
profitability, but sales of rental properties may offset rental increases from
newly-acquired or newly-constructed properties.

                                       7
<PAGE>


Interest expense, exclusive of interest on rental properties, net of amounts
capitalized, was approximately $2,011,000, $1,842,000 and $1,212,000 in fiscal
2000, 1999 and 1998, respectively. In the last half of fiscal 1998 and through
fiscal 2000, outstanding borrowings increased significantly due to advances
drawn under the Company's lines of credit to fund the origination of
construction and interim loans. These increased borrowings resulted in the
increase in interest expense in fiscal 2000.

Salaries and commissions have increased in absolute dollar amounts for each of
the last three fiscal years. In fiscal 2000, salaries and commissions increased
$154,600. Additional staffing for Cornerstone Realty Advisors, Inc. resulted in
increased salaries and commissions were higher due to increased loan activity.

General and administrative expenses in fiscal 2000 were higher by approximately
$83,000 than in fiscal 1999 due to the growth of the company.

The Company's effective income tax rate as a percentage of income (loss) from
continuing operations before income taxes was 34% in fiscal 2000, compared to a
provision of 37% and a benefit of 29% in fiscal 1999 and 1998, respectively.

Liquidity and Capital Resources

At July 31, 2000, the Company had total stockholders' equity of approximately
$7,501,000 and a total liabilities to equity ratio of 4.39 to 1, which increased
from 4.15 to 1 the year before. The increase in this ratio was primarily due to
the increase in bank borrowings to fund new interim and construction loans in
fiscal 2000. In fiscal 2000, the Company's primary sources of funds were
approximately $2.0 million from the sale of real estate, $17.5 million in real
estate contract collections, $.7 million from operating activities and $4.9
million from net line-of-credit and note borrowings. The primary uses of funds
were approximately $4.6 million used for the acquisition and improvements of
real estate projects, $19.4 million used to originate new loans and acquire new
contracts, $.7 in repayment of maturing debentures, and approximately $1.0
million in repayment of outstanding long-term debt. As a holder of monetary
assets and liabilities, the Company's performance may be significantly affected
by changes in interest rates. These changes are somewhat mitigated or delayed to
the extent that much of the Company's investment in real estate contracts and
established real estate leases have fixed returns, as do the Company's
debentures. The interim and construction loans originated by the Company have
variable interest rates and are primarily funded by variable interest rate loans
so that the spread between the loans receivable interest rate and debt interest
rate is maintained regardless of whether rates are increasing or decreasing. The
Company will be affected by changes in the real estate market in Washington and
other western states where it originates loans.

The Company anticipates that sales of debentures and the availability of funds
under its $23,432,500 line-of-credit and loan arrangements, of which
approximately $15,715,057 was outstanding at July 31, 2000, will be sufficient
to fund its short- and intermediate-term needs to retire maturing debentures and
mortgage obligations, to continue development of its real estate projects as
demand warrants, and to originate commercial real estate loans. The Company does
not anticipate any significant capital expenditures during fiscal 2001, other
than the completion of the remodeling of rental properties and the construction
of a building and other improvements to the Cornerstone Office Park.

                                       8
<PAGE>


Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises principally from interest rate risk in its
lending and borrowing activities. Management actively monitors and manages its
interest rate risk exposure. Although the Company manages other risks, as in
credit quality and liquidity risk, in the normal course of business, management
considers interest rate risk to be a significant market risk and could
potentially have a material effect on the Company's financial condition and
results of operations. Other types of market risks, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activity.

The Company's profitability can be affected by fluctuations in interest rates.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings. A sudden and substantial increase in
interest rates may adversely impact the Company's earnings to the extent that
the interest rates on interest-earning assets and interest-bearing liabilities
do not change at the same speed, to the same extent or on the same basis. In
addition, real estate lending may slow in a rising interest rate environment.

The Company mitigates interest rate risk on the interim and construction loans
it originates by having variable interest rates on these loans tied to the
variable interest rates on its borrowings to fund the loans. These loans are
short-term loans (generally one to two years, including extensions). Permanent
financing for these loans is obtained from the secondary market and includes
such sources as banks, savings and loan institutions, life insurance companies,
credit unions and conduits.

                                       9
<PAGE>



The following table shows the Company's financial instruments that are sensitive
to changes in interest rates, categorized by expected maturity, and the
instruments' estimated fair values at July 31, 2000.
<TABLE>
<CAPTION>
                                              2001         2002           2003         2004         2005
                                          -----------   -----------   -----------  -----------   ---------
<S>                                       <C>           <C>           <C>           <C>            <C>
Interest-sensitive assets:
  Contracts, mortgages, finance notes
    and loans receivable                  $16,107,903   $   208,405   $   230,228   $   254,335   $   279,966

Interest-sensitive liabilities:
  Notes payable to banks                   11,158,122     4,556,935
  Installment contracts, mortgage notes
    and notes payable                         210,045     1,961,627       207,946       190,224       201,044
  Debenture bonds                           1,194,800     1,031,553     1,130,738     2,031,557     1,925,564

Off-balance sheet items:
  Undisbursed loans receivable              9,431,626
</TABLE>

[RESTUBBED]
<TABLE>
<CAPTION>
                                          Thereafter     Balance     Fair Value
                                          -----------  -----------   ----------
<S>                                       <C>         <C>             <C>
Interest-sensitive assets:
  Contracts, mortgages, finance notes
    and loans receivable                  $ 3,154,586 $  20,235,423   $20,235,423

Interest-sensitive liabilities:
  Notes payable to banks                                 15,715,057    15,715,057
  Installment contracts, mortgage notes
    and notes payable                       2,748,553     5,519,439     5,519,439
  Debenture bonds                           2,553,437     9,867,649     9,867,649

Off-balance sheet items:
  Undisbursed loans receivable                            9,431,626     9,431,626
</TABLE>



Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, projected repayments and prepayment of principal.

                                       10
<PAGE>

Item 8.     Financial Statements and Supplementary Data                    Page
                                                                           ----

Report of independent accountants                                            12

Financial statements:

   Consolidated balance sheets                                               13

   Consolidated statements of operations                                     15

   Consolidated statements of comprehensive income (loss)                    16

   Consolidated statements of stockholders' equity                           17

   Consolidated statements of cash flows                                     18

   Notes to consolidated financial statements                                20



Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure

None

                                       11
<PAGE>

Report of Independent Accountants

Board of Directors and Stockholders
Pacific Security Financial, Inc. and Subsidiaries
Spokane, Washington

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Pacific Security Financial, Inc. (formerly Pacific
Security Companies) and its subsidiaries (the Company) at July 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

                                             /s/ PricewaterhouseCoopers LLP
                                             -------------------------------


September 19, 2000
Spokane, Washington

                                       12
<PAGE>

Pacific Security Financial, Inc. and Subsidiaries
Consolidated Balance Sheets
July 31, 2000 and 1999
<TABLE>
<CAPTION>


                                                            2000          1999
<S>                                                     <C>           <C>
Assets:
     Cash and cash equivalents:
        Unrestricted                                    $   442,208   $   512,472
        Restricted                                           19,825        16,321
                                                        -----------   -----------
                                                            462,033       528,793
                                                        -----------   -----------
     Receivables:
        Contracts, mortgages, finance notes and loans
           receivable, net:
              Related parties                               202,028       214,795
              Unrelated                                  19,511,089    17,708,534
                                                        -----------   -----------
                                                         19,713,117    17,923,329
        Accrued interest                                    250,025        98,319
        Other                                                60,549        33,484
                                                        -----------   -----------
                                                         20,023,691    18,055,132
                                                        -----------   -----------

     Investment in rental properties, net                17,783,847    14,807,679

     Other investments:
        Property held for sale and development            1,796,607     2,031,448
        Marketable securities                                41,724       242,168
                                                        -----------   -----------
                                                          1,838,331     2,273,616
                                                        -----------   -----------

     Other assets:
        Vehicles and equipment, net                          63,340        33,590
        Prepaid and other, net                              245,153       247,412
                                                        -----------   -----------
                                                            308,493       281,002
                                                        -----------   -----------

                 Total assets                           $40,416,395   $35,946,222
                                                        ===========   ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       13

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Balance Sheets, Continued
July 31, 2000 and 1999
<TABLE>
<CAPTION>

                                                                         2000          1999
<S>                                                                   <C>           <C>
Liabilities:
     Notes payable to banks                                            15,715,057   $13,925,405
     Installment contracts, mortgage notes and notes payable:
        Related parties                                                   152,286       337,695
        Unrelated                                                       5,367,153     3,158,285
                                                                      -----------   -----------
                                                                        5,519,439     3,495,980
                                                                      -----------   -----------

     Debenture bonds                                                    9,867,649     9,643,548
     Accrued expenses and other liabilities:
        Related parties                                                   106,097       254,590
        Unrelated                                                         819,287       874,602
                                                                      -----------   -----------
                                                                          925,384     1,129,192
                                                                      -----------   -----------
     Income taxes                                                         241,511        59,131
     Deferred income taxes                                                646,570       712,273
                                                                      -----------   -----------
              Total liabilities                                        32,915,610    28,965,529
                                                                      -----------   -----------

     Commitments and contingencies

Stockholders' equity:
     Preferred stock:
        Class A preferred stock, $100 par value; authorized
           20,000 shares; issued and outstanding, 3,000 shares            300,000       300,000
        Preferred stock, authorized 10,000,000 no par value shares;
           no shares issued and outstanding                                    --            --
     Common stock:
        Original class, authorized 2,500,000 no par value
           shares, $3 stated value; issued and outstanding,
           1,138,795 and 1,152,532 shares                               3,416,386     3,457,597
        Class B, authorized 30,000 no par value shares;
           no shares issued and outstanding                                    --            --
     Additional paid-in capital                                         1,822,203     1,804,009
     Retained earnings                                                  1,962,196     1,418,705
     Accumulated comprehensive income, net                                     --           382
                                                                      -----------   -----------
              Total stockholders' equity                                7,500,785     6,980,693
                                                                      -----------   -----------

              Total liabilities and stockholders' equity              $40,416,395   $35,946,222
                                                                      ===========   ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       14

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Statements of Operations
for the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
                                                                         2000            1999              1998
<S>                                                                   <C>             <C>              <C>
Income:
     Rental                                                           $ 2,285,947     $ 2,268,810      $ 2,220,979
     Interest, including loan fees of $599,878,
        $450,285 and $59,979                                            2,885,338       2,183,276          963,297
     Amortization of discounts on real estate contracts                    72,777          27,633           41,992
     Gain on sales of real estate                                       1,038,694       1,128,628          514,141
     Gain on sale of marketable securities                                  1,834         279,082               --
     Other, net                                                            69,619          45,897           49,412
                                                                      -----------      -----------      -----------
                                                                        6,354,209        5,933,326        3,789,821
                                                                      -----------      -----------      -----------
Expense:
     Rental operations:
        Depreciation and amortization                                     698,769         663,272          628,149
        Interest                                                          353,852         366,817          369,276
        Other                                                             943,149       1,064,448        1,038,890
                                                                      -----------      -----------      -----------
                                                                        1,995,770        2,094,537        2,036,315
     Interest, net of amount capitalized                                2,010,994       1,842,041        1,211,544
     Salaries and commissions                                             889,720         735,120          710,660
     General and administrative                                           451,941         368,848          523,443
     Depreciation and amortization                                         39,968          39,014           26,031
     Provision for loan loss                                              120,025             207            2,199
                                                                      -----------      -----------      -----------
                                                                        5,508,418        5,079,767        4,510,192
                                                                      -----------      -----------      -----------

Income (loss) from continuing operations before
     income taxes                                                         845,791         853,559         (720,371)
Income tax provision (benefit)                                            284,300         312,565         (206,429)
                                                                      -----------      -----------      -----------
Income (loss) from continuing operations                                  561,491         540,994         (513,942)
                                                                      -----------      -----------      -----------

Discontinued operations:
     Loss from discontinued operations of golf center
        (less federal income tax benefit of $0,
           $147,584 and $33,407)                                               --        (255,652)         (82,994)
                                                                      -----------      -----------      -----------
Net income (loss)                                                         561,491         285,342         (596,936)

Less:      Preferred stock dividends                                      (18,000)         (18,000)         (42,000)
           Accretion of discount on preferred stock                            --         (210,000)        (119,000)
                                                                      -----------      -----------      -----------

Income (loss) applicable to common stockholders                       $   543,491     $    57,342      $  (757,936)
                                                                      ===========      ===========      ===========

Income (loss) from continuing operations applicable
     to common stockholders                                           $   543,491     $   312,994      $  (674,942)
                                                                      ===========      ===========      ===========

Income (loss) per common share - basic and diluted                    $      0.48      $      0.05      $      (.48)
                                                                      ===========      ===========      ===========

Income (loss) from continuing operations per
     common share - basic and diluted                                 $      0.48      $      0.27      $      (.42)
                                                                      ===========      ===========      ===========

Loss from discontinued operations per common
     share - basic and diluted                                        $        --      $     (0.22)     $      (.05)
                                                                      ===========      ===========      ===========

Weighted average common shares per outstanding
     basic and diluted                                                  1,139,232       1,161,677        1,591,484
                                                                      ===========      ===========      ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       15

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
for the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>

                                                                                      2000                1999               1998
<S>                                                                                <C>                 <C>                <C>
Net income (loss)                                                                  $ 561,491           $ 285,342          $(596,936)

Other comprehensive income (loss) before income taxes:
     Changes in unrealized gains/losses on marketable
        securities                                                                      (579)             13,152              1,058
                                                                                   ---------           ---------          ---------

Other comprehensive income (loss) before income taxes                                560,912             298,494           (595,878)
Less deferred income tax provision (benefit)                                            (197)              4,471                361
                                                                                   ---------           ---------          ---------

Comprehensive income (loss)                                                        $ 561,109           $ 294,023          $(596,239)
                                                                                   =========           =========          =========
</TABLE>




The accompanying notes are an integral part of the consolidated financial
statements.



                                       16

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>

                                                                Additional                    Accumulated
                                    Preferred       Common        Paid-in       Retained     Comprehensive
                                      Stock         Stock         Capital       Earnings     Income (Loss)       Total
                                    ----------   -------------  ------------  -------------  ---------------  -------------

<S>                                 <C>        <C>            <C>            <C>            <C>              <C>
Balances, July 31, 1997                         $  5,616,375   $ 1,906,642    $ 2,175,875   $    (8,996)     $ 9,689,896
     Net loss                                                                    (596,936)                      (596,936)
     Unrealized gain on marketable
        securities                                                                                  697              697
     Purchase and retirement of
        common stock
        (699,637 shares)                          (2,098,911)      (94,691)       (56,576)                    (2,250,178)
     Cash dividend declared on
        preferred stock                                                           (42,000)                       (42,000)
     Accretion of discount on
        preferred stock, including
        redemption of 2,400 shares                                 (35,000)      (119,000)                      (154,000)
                                   ------------   ------------   -----------    -----------   -----------    -----------

Balances, July 31, 1998                            3,517,464     1,776,951      1,361,363        (8,299)       6,647,479
     Net income                                                                   285,342                        285,342
     Unrealized gain on marketable
        securities                                                                                8,681            8,681
     Purchase and retirement of
        common stock
        (19,956 shares)                              (59,867)       27,058                                      (32,809)
     Cash dividend declared on
        preferred stock                                                           (18,000)                      (18,000)
     Accretion of discount on
        preferred stock, including
        redemption of 4,000 shares
        and conversion of 3,000
        shares                                                                   (210,000)                     (210,000)
     Conversion of redeemable
        preferred stock                300,000                                                                  300,000
                                  ------------   ------------   -----------    -----------   -----------    -----------

Balances, July 31, 1999                300,000      3,457,597     1,804,009      1,418,705           382      6,980,693
     Net income                                                                    561,491                      561,491
     Unrealized gain on marketable
        securities                                                                                  (382)          (382)
     Purchase and retirement of
        common stock
        (13,737 shares)                               (41,211)       18,194                                     (23,017)
     Cash dividend declared on
        preferred stock                                                            (18,000)                     (18,000)
                                  ------------   ------------   -----------    -----------   -----------    -----------

Balances, July 31, 2000              300,000    $  3,416,386   $  1,822,203    $ 1,962,196   $         0    $ 7,500,785
                                ============    ============   ===========     ===========   ===========    ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       17

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>


                                                                                 2000           1999            1998
<S>                                                                         <C>             <C>             <C>
Cash flows from operating activities:
     Cash received from rentals and other                                   $  2,275,926    $  2,836,790    $  2,690,419
     Interest received                                                         2,733,632       1,775,529         879,135
     Cash paid to suppliers and employees                                     (2,366,855)     (2,297,644)     (2,590,272)
     Interest paid, net of amounts capitalized                                (1,759,175)     (1,610,269)     (1,040,047)
     Income taxes refunded (paid)                                               (167,820)        170,330              --
                                                                            ------------    ------------    ------------
           Net cash from operating activities                                    715,708         874,736         (60,765)
                                                                            ------------    ------------    ------------

Cash flows from investing activities:
     Proceeds from sales of real estate                                        1,999,051       1,140,122         566,628
     Proceeds from sales and maturities of marketable
        securities                                                               252,093         337,796              --
     Purchase of marketable securities                                           (50,000)       (200,062)             --
     Collections on contracts, mortgages, finance
        notes and loans receivable                                            17,546,549      13,461,784       7,208,934
     Origination of loans receivable and investment in
        contracts, mortgages and finance notes                               (19,415,924)    (18,521,619)     (6,471,596)
     Additions to rental properties, property held for
        sale, property under development, golf center,
        vehicles and equipment                                                (4,574,922)       (847,658)     (1,673,150)
     Change in restricted investments                                             (3,504)         (5,032)        351,549
                                                                            ------------    ------------    ------------
           Net cash from investing activities                                 (4,246,657)     (4,634,669)        (17,635)
                                                                            ------------    ------------    ------------

Cash flows from financing activities:
     Net borrowings under line-of-credit agreements                            1,789,652       7,281,579       1,238,827
     Proceeds from installment contracts, mortgage
        notes and notes payable                                                3,072,710         283,333         434,688
     Payments on installment contracts, mortgage
        notes and notes payable                                               (1,049,251)     (2,598,705)       (300,868)
     Proceeds from sales of debenture bonds                                      361,266          76,912         340,657
     Redemption of debenture bonds                                              (672,675)       (813,931)       (954,296)
     Redemption of preferred stock                                                    --        (200,000)       (240,000)
     Payment of dividends on preferred stock                                     (18,000)        (42,000)        (62,400)
     Purchase and retirement of common stock                                     (23,017)        (32,809)       (385,240)
                                                                            ------------    ------------    ------------
           Net cash from financing activities                                  3,460,685       3,954,379          71,368
                                                                            ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents                             (70,264)        194,446          (7,032)
Cash and cash equivalents, beginning of year                                     512,472         318,026         325,058
                                                                            ------------    ------------    ------------

Cash and cash equivalents, end of year                                      $    442,208    $    512,472    $    318,026
                                                                            ============    ============    ============
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       18

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>


                                                                    2000          1999           1998
<S>                                                           <C>            <C>            <C>
Reconciliation of net income (loss) to net cash from
     operating activities:
        Net income (loss)                                     $   561,491    $   285,342    $  (596,936)
        Adjustments to reconcile net income (loss) to
           net cash from operating activities:
              Depreciation and amortization                       738,737        743,802        750,370
              Deferred income tax provision (benefit)             (65,900)       121,324       (534,967)
              Deferred financing income realized                  (72,777)       (27,633)       (41,992)
              Interest accrued on debenture bonds                 535,510        540,631        555,224
              Gain on sales of marketable securities               (1,834)      (279,082)            --
              Gain on sales of real estate                     (1,038,694)    (1,128,628)      (514,141)
              Uncollectible accounts                              120,025             --          2,199
              Change in assets and liabilities:
                 Accrued interest receivable                     (151,706)        42,537       (299,157)
                 Income taxes                                     182,380        213,988        299,764
                 Prepaid expenses                                 (22,741)        49,178         35,252
                 Golf center inventories                               --         58,331         (2,830)
                 Accrued expenses and other liabilities          (203,808)       282,584        258,323
                 Other, net                                       135,025        (27,638)        28,126
                                                              -----------    -----------    -----------

                    Net cash from operating activities        $   715,708    $   874,736    $   (60,765)
                                                              ===========    ===========    ===========

Supplemental schedule of noncash investing and
     financing activities:
        Company financed sale of property                     $   129,750    $ 1,775,358    $   486,300
        Accretion of discount on preferred stock                       --        150,000        119,000
        Stock dividend declared and unpaid                         18,000         18,000         42,000
        Transfer of investment in golf center to investment
           in rental properties                                        --      1,366,683             --
        Transfer of investments in golf center to property
           held for sale or development                                --        460,182             --
        Note payable issued for purchase and redemption
           of preferred shares                                         --        200,000             --
        Deferred gain recognized on sale of property                   --             --         41,516
        Related party note issued in exchange for non-
           competition agreement                                       --             --        125,000
        Exchange of real estate for purchase and redemption
           of common stock                                             --             --      1,143,500
        Notes payable issued for purchase and redemption
           of common shares                                            --             --        729,000
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       19

<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
for the years ended July 31, 2000, 1999 and 1998


   1. Organization and Summary of Significant Accounting Policies:

      Pacific Security Financial, Inc. (formerly Pacific Security Companies) and
      subsidiaries (the Company) is incorporated under the laws of the state of
      Washington. The Company is engaged in the business of owning, selling and
      leasing real properties and in financing contracts and loans,
      collateralized by real estate. Most of the Company's real estate
      activities are concentrated within the state of Washington. The Company
      also originates commercial real estate loans on properties located in the
      western United States.

      A summary of the significant accounting policies followed by the Company
      is presented below:

         Consolidation

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries, Pacific Realty Management
         and Cornerstone Realty Advisors, Inc. which was formed in fiscal years
         2000 and 1998, respectively. All significant intercompany accounts and
         transactions have been eliminated.

         Cash and Cash Equivalents

         The Company deposits all cash and cash equivalents with high quality
         financial institutions. At times, the deposits may exceed the federal
         insured limit.

         The Company considers highly liquid debt instruments, if any, purchased
         with a remaining maturity of three months or less to be cash
         equivalents.

         Contracts, Mortgages, Finance Notes and Loans Receivable

         Contracts, mortgages, finance notes and loans receivable are stated at
         unpaid principal balance, plus accrued interest, less acquisition
         discounts, unearned loan fees and an allowance for estimated
         uncollectible amounts, as necessary. Management evaluates receivables
         which may not be fully collectible to determine if a provision for loss
         is necessary based on the present value of expected future cash flows
         from the receivables in the ordinary course of business or from amounts
         recoverable through foreclosures and the subsequent resale of the
         collateral.

         Interest continues to be accrued on non-performing receivables until
         such amount is not expected to be recovered.

         Discounts on Contracts

         The Company amortizes discounts on purchased contracts using the
         level-yield method over the expected term of the contracts.

         Loan Origination Fees

         Loan origination fees, net of direct origination costs, are deferred
         and recognized as interest income using the level interest yield method
         over the contractual term of each loan.

                                       20
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   1. Organization and Summary of Significant Accounting Policies, Continued:

         Investment in Rental Properties

         Rental properties, including land, buildings and improvements and
         furniture and equipment, are recorded at cost. Expenditures for
         maintenance and repairs are charged to operations as incurred. Renewals
         and betterments are capitalized.

         Depreciation is provided on the straight-line method over estimated
         useful lives as summarized below:

                                                                Years

             Buildings and improvements                         15-40
             Furniture and equipment                             5-10


         Upon sale or retirement of depreciable properties, the related cost and
         accumulated depreciation are removed from the accounts and any
         resultant gain or loss is reflected in operations.

         Interest Capitalization

         All costs associated with self-constructed assets, including interest,
         incurred during the construction period, are capitalized. Interest
         costs of approximately $55,000 were capitalized during the year ended
         July 31, 2000.

         Property Held for Sale or Development

         The Company acquires real estate through direct acquisition and
         foreclosures and records these assets at the lower of fair value, less
         estimated costs to sell, or cost. Losses on properties held for sale or
         development are recognized if the anticipated cash flows from
         disposition, less estimated selling costs, are estimated to be less
         than the carrying value of the related asset.

         The Company evaluates its real estate assets for impairment in value
         whenever events or circumstances indicate that the carrying value of an
         asset may not be recoverable. In performing the review, if expected
         future undiscounted cash flows from the use of the asset or the fair
         value, less selling costs, from the disposition of the asset is less
         than its carrying value, an impairment loss is recognized.

                                       21
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   1. Organization and Summary of Significant Accounting Policies, Continued:

         Marketable Securities

         The Company's investments, consisting of debt and equity securities,
         are classified as "available for sale" and, therefore, are carried at
         market value. Realized gains and losses on the sale of these marketable
         securities are recognized on a specific identification basis in the
         consolidated statement of operations in the period the securities are
         sold. Unrealized gains and losses are excluded from operations and
         reported as a separate component of accumulated comprehensive income
         (loss), net of related income taxes.

         Intangible Assets

         The amount paid under a covenant not-to-compete is being amortized on a
         straight-line basis over the five-year term of the related agreement.
         Accumulated amortization associated with this agreement was $61,441 and
         $36,441 at July 31, 2000 and 1999, respectively.

         Vehicles and Equipment

         Vehicles and equipment are stated at cost and are depreciated using the
         straight-line method over their estimated useful lives of 4 to 5 and 5
         to 10 years, respectively. Accumulated depreciation associated with
         vehicles and equipment was $227,332 and $213,850 at July 31, 2000 and
         1999, respectively. Upon sale or retirement, the cost and related
         accumulated depreciation are removed from the accounts and any
         resultant gain or loss is reflected in operations.

         Sales of Real Estate

         Profit on sale of real estate is recognized when the buyers' initial
         and continuing investment is adequate to demonstrate (1) a commitment
         to fulfill the terms of the transaction, (2) that collectibility of the
         remaining sales price due is reasonably assured, and (3) the Company
         maintains no continuing involvement or obligation in relation to the
         property sold and has transferred all the risk and rewards of ownership
         to the buyer.

         Receipts on sales of real estate investments are accounted for as
         customer deposits until the principal payments received on the sales
         contracts exceed the minimum guidelines for gain recognition. Losses
         arising from sales of real estate are recognized immediately upon sale.

         Recognition of Rental Income

         Rental income on cancelable operating leases is recognized as it
         becomes receivable in accordance with the provisions of the lease.
         Rental income on noncancelable operating leases which contain fixed
         escalation clauses is recognized on the straight-line method over the
         term of the lease. The difference between income earned and lease
         payments received from the tenants is included in the other assets on
         the consolidated balance sheet.

                                       22
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

   1. Organization and Summary of Significant Accounting Policies, Continued:

         Income Taxes

         The Company recognizes deferred tax assets and liabilities for the
         expected future income tax consequences of events that have been
         recognized in the financial statements. Under this method, deferred tax
         liabilities and assets are determined based on the temporary
         differences between the financial statement carrying amounts and tax
         bases of assets and liabilities using enacted tax rates in effect in
         the years in which the temporary differences are expected to reverse.

         The Company allocates income taxes between continuing and discontinued
         operations in proportion to their individual effects on the
         consolidated income tax provision (benefit) at the Company's effective
         tax rate for the respective period.

         Income or Loss Per Share

         Income (loss) per share - basic is computed by dividing income (loss)
         applicable to common stockholders by the weighted-average number of
         common shares outstanding during the period. Income (loss) per share -
         diluted is computed by dividing income (loss) applicable to common
         stockholders by the weighted-average number of common shares
         outstanding increased by the additional common shares that would have
         been outstanding if the dilutive potential common shares had been
         issued. The Company did not have any potentially dilutive common shares
         outstanding during the years ended July 31, 2000, 1999 and 1998;
         therefore, diluted earnings per share amounts are identical to basic
         earnings per share. The Company also presents income (loss) per share
         for continuing and discontinued operations.

         Interest Rate Risk

         The results of operations of the Company may be materially and
         adversely affected by changes in prevailing economic conditions,
         including rapid changes in interest rates. The Company's financial
         assets (primarily contracts, mortgages, finance notes and loans
         receivable) and liabilities (primarily notes payable to banks,
         installment contracts, mortgage notes, notes payable and debenture
         bonds) are subject to interest rate risk. Management is aware of the
         sources of interest rate risk and endeavors to actively monitor and
         manage its interest rate risk, although there can be no assurance
         regarding the management of interest rate risk in future periods.

         Off-Balance-Sheet Instruments

         The Company has outstanding commitments to extend credit to commercial
         borrowers. Such financial instruments are recorded in the financial
         statements when they are funded or related fees are incurred or
         received.

         The Company has also entered into participation agreements with other
         lenders to reduce its credit risk on certain commercial loans. The use
         of participations enables the Company to diversify its portfolio among
         its borrowers and lenders and mitigate significant geographical and
         credit concentration.

                                       23
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

   1. Organization and Summary of Significant Accounting Policies, Continued:

         Comprehensive Income

         During the year ended July 31, 1999, the Company adopted Statement of
         Financial Accounting Standards No. 130 (SFAS 130), "Reporting
         Comprehensive Income". SFAS 130 establishes standards for reporting and
         display of comprehensive income and its components (revenues, expenses,
         gains and losses) in a full set of general-purpose financial
         statements. This Statement required the Company to classify items of
         other comprehensive income by their nature in a financial statement and
         display the accumulated balance of other comprehensive income
         separately from retained earnings and additional paid-in capital in the
         equity section of the consolidated balance sheet. Prior periods'
         financial statements have been presented and reclassified to conform to
         this Statement.

         Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosures of contingent assets and liabilities at the
         dates of the financial statements and the reported amounts of revenues
         and expenses during the reporting periods. Actual results could differ
         from those estimates.

         Reclassifications

         Certain amounts in the 1999 and 1998 consolidated financial statements
         have been reclassified to conform with the current year's presentation.
         These reclassifications had no effect on net income (loss) or retained
         earnings as previously reported.

   2. Contracts, Mortgages, Finance Notes and Loans Receivable:

      The components of contracts, mortgages, finance notes and loans receivable
      at July 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                 2000               1999
<S>                                                                      <C>                <C>
     Contracts, mortgages and finance notes receivable                   $     4,315,025    $      6,607,188
     Originated loans receivable                                              25,352,024          16,457,191
     Undisbursed portion of loans receivable                                  (9,431,626)         (4,828,082)
                                                                         ---------------    ----------------
                                                                              20,235,423          18,236,297
     Unamortized discounts, net                                                  (40,703)           (113,479)
     Unearned loan fees, net                                                    (362,143)           (194,581)
     Allowance for loan losses                                                  (119,460)             (4,908)
                                                                         ---------------    ----------------

     Contracts, mortgages, finance notes and loans
        receivable, net                                                  $    19,713,117    $     17,923,329
                                                                         ===============    ================
</TABLE>

                                       24
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   2. Contracts, Mortgages, Finance Notes and Loans Receivable, Continued:

      At July 31, 2000 and 1999, three individual receivable balances
      represented approximately 15%, 9% and 8% and 13%, 9% and 8% of the gross
      outstanding receivable, respectively. Additionally, aggregate amounts
      receivable from two separate borrowers represented approximately 12% and
      9% of the gross outstanding receivable at July 31, 2000 and 14% and 13% of
      the gross outstanding receivable at July 31, 1999.

      At July 31, 2000 and 1999, the aging of the gross amounts due on
      contracts, mortgages, finance notes and loans receivable was as follows:

                                              2000                1999

     Current                            $    18,403,247    $     17,890,976
     31 to 60 days                              415,462               6,785
     61 to 90 days                                4,618                  --
     Over 90 days                             1,412,096             338,536
                                        ---------------    ----------------

                                        $    20,235,423    $     18,236,297
                                        ===============    ================


      Management of the Company provides an allowance for losses based upon
      estimates of the cash flows to be collected on the receivable or the fair
      value of the underlying collateral, net of selling costs. At July 31, 2000
      and 1999, an allowance of $119,460 and $4,908, respectively, was provided.
      The receivables are collateralized primarily by residential and commercial
      real estate located in the western United States. These estimates can be
      affected by changes in the economic environment in the western United
      States and the resultant effect on real estate values. As a result of
      changing economic conditions, the amount of the allowance for loan losses
      could change in the near term.

   3. Investments in Rental Properties:

      Following is a summary of investments in rental properties at July 31,
      2000 and 1999:

                                              2000                  1999

     Land                              $     3,012,129    $      2,389,128
     Buildings and improvements             20,463,126          17,842,108
     Furniture and equipment                 1,370,021           1,267,220
                                       ----------------   -----------------
                                            24,845,276          21,498,456
     Less accumulated depreciation          (7,061,429)         (6,690,777)
                                       ----------------   -----------------

                                       $    17,783,847    $     14,807,679
                                       ================   =================



                                       25
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   3. Investments in Rental Properties, Continued:

      The Company leases office space in certain of the above buildings under
      operating leases. Most of the lease agreements contain renewal options and
      escalation provisions associated with inflation over the term of the
      lease. The following is a schedule by years of minimum future rentals on
      noncancelable operating leases as of July 31, 2000:

                 Year Ending
                  July 31,
                --------------

                      2001                         $    1,473,932
                      2002                                953,293
                      2003                                748,869
                      2004                                323,872
                      2005                                 69,328
                                                   --------------

                                                   $    3,569,294
                                                   ==============

      These properties are primarily located in the greater Spokane, Washington
      geographical area. Losses on investments in rental properties are
      recognized if the anticipated undiscounted cash flows from operations or
      the sale of the rental property, net of selling costs, are estimated to be
      less than the carrying value of the related asset. These estimates can be
      affected by changes in the economic environment of the Spokane, Washington
      area and the resultant effect on the real estate rental and property
      values. As a result of changing economic conditions, these estimates could
      change in the near term.

      Historically, the sales of certain rental property and land were subject
      to sales contracts, but had not met the criterion to be recorded as a
      sale. Therefore, the deposit method of accounting for these sales was
      applied, resulting in the classification of approximately $159,000 as
      investments in rental properties and deferred gains of approximately
      $41,000 at July 31, 1997. These gains were recognized during the year
      ended July 31, 1998 when the criterion for a sale was met.

   4. Discontinued Operation:

      In September 1995, the Company completed construction of and began
      operating Birdies Golf Center (Birdies). The facility consisted of a
      driving range, lighted fairways with five target greens, a pro shop, a
      putting green and teaching studios.

      On December 1, 1998, the Company decided to close Birdies and commenced a
      liquidation of assets. The Company has leased the Birdies building and
      plans to sell the driving range land. The consolidated financial
      statements of the Company for the years ended July 31, 1999 and 1998
      present the operations of Birdies Golf Center as a discontinued operation.

                                       26
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

   4. Discontinued Operation, Continued:

      Information about the discontinued operations of the Birdie's business
      segment is as follows:
                                                          Years Ended July 31,
                                                      -------------------------
                                                         1999             1998
                                                      -----------   -----------

     Operating revenues                               $  103,848    $   332,815
     Loss from discontinued operations before
        federal income tax benefit                      (403,236)      (116,401)
     Loss from discontinued operations, net of
        federal income tax benefit                      (255,652)       (82,994)

      Total assets associated with the discontinued operation were $2,211,911 at
      July 31, 1998. Proceeds from the sale of these assets during the year
      ended July 31, 1999 were $188,592. At July 31, 2000 and 1999, the Birdies
      building has been included in investment in rental properties, and the
      excess land associated with Birdies has been included in property held for
      sale and development.

   5. Business Segment Reporting:

      Information about the Company's separate continuing business segments and
      in total as of and for the years ended July 31, 2000, 1999 and 1998 is as
      follows:
<TABLE>
<CAPTION>
                                                                            Real Estate
                                                        Commercial          Rental and
                                                          Lending           Receivable
                                                        Operations          Operations            Total
                                                      ----------------   -----------------   ----------------
<S>                                                   <C>                <C>                 <C>
     2000:
        Revenue                                       $     2,391,600    $      3,962,609    $     6,354,209
        Income from continuing operations                     703,362             142,429            845,791
        Identifiable assets, net                           16,006,450          24,409,945         40,416,395
        Depreciation and amortization                           1,485             737,252            738,737
        Capital expenditures                                      539           4,574,383          4,574,922

     1999:
        Revenue                                       $     1,524,139    $      4,409,187    $     5,933,326
        Income from continuing operations                     476,088             377,471            853,559
        Identifiable assets, net                           11,683,670          24,262,552         35,946,222
        Depreciation and amortization                           1,075             742,727            743,802
        Capital expenditures                                    3,440             844,218            847,658

     1998:
        Revenue                                       $       183,272    $      3,606,549    $     3,789,821
        Income (loss) from continuing                           3,245            (723,616)          (720,371)
           operations
        Identifiable assets, net                            4,473,573          26,466,720         30,940,293
        Depreciation and amortization                             277             750,093            750,370
        Capital expenditures                                    4,524           1,668,626          1,673,150
</TABLE>

                                       27
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   5. Business Segment Reporting, Continued:

      The Company has determined that its reportable business segments are those
      that are based on its method of disaggregated internal reporting. The
      Company's reportable business segments are its commercial loan origination
      business and its rental and receivable operations. Its commercial loan
      origination business, operated as Cornerstone Realty Advisors, Inc.,
      originates commercial construction loans throughout the western United
      States. The rental and receivable operations represent the selling and
      leasing of real properties and the financing of contracts and loans
      collateralized by real estate.

   6. Marketable Securities:

      A summary of investments in marketable securities at July 31, 2000 and
      1999 is as follows:
<TABLE>
<CAPTION>

                                          2000                                        1999
                       -------------------------------------------   -----------------------------------------
                                                       Market/                                     Market/
                                       Unrealized      Carrying                    Unrealized      Carrying
                           Cost           Gain          Value           Cost          Gain          Value
                       -------------   ------------  -------------   ------------  ------------  -------------
<S>                    <C>             <C>           <C>            <C>            <C>           <C>
    Equity securities  $         --    $        --   $        --     $   199,865   $       579   $    200,444
    Debt securities          41,724             --         41,724         41,724            --         41,724
                       ------------    -----------   ------------    -----------   -----------   ------------

                       $     41,724    $        --   $     41,724    $   241,589   $       579   $    242,168
                       ============    ===========   ============    ===========   ===========   ============
</TABLE>

      The debt securities matured during the year ended July 31, 1998. Proceeds
      from the partial redemption of these securities of $17,676 were received
      during the year ended July 31, 1999. In connection with the reorganization
      of the issuer, the outstanding balance of these securities is expected to
      be paid in the year ending July 31, 2001 at the full principal amount.

      Proceeds from the sale of marketable securities during the years ended
      July 31, 2000, and 1999 were $252,093 and $320,120, respectively,
      resulting in gross realized gains of $1,834 and $279,082. Included in the
      1999 sales were securities which had no carrying value as they had been
      previously written down in connection with the issuer's bankruptcy
      proceedings.

                                       28
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


   7. Notes Payable to Banks (Lines-of-Credit):

      Notes payable to banks consisted of the following at July 31, 2000 and
      1999:
<TABLE>
<CAPTION>

                                                                                       2000               1999
<S>                                                                                <C>                 <C>
     U.S. Bank of Washington, short-term line of credit, $8,000,000
        commitment, interest at the prime rate plus 0.25%,
        expires December 15, 2000, guaranteed by Wayne Guthrie:
           Collateralized by contracts,  mortgages and finance
              notes receivable                                               $            --    $      3,075,149
           Collateralized by loans receivable                                      4,117,541           5,116,210

     Western Bank, line of credit, $8,000,000 commitment, interest
        at the prime rate plus 0.25%, expires December 1, 2000,
        collateralized by contracts and loans receivable and
        guaranteed by Wayne and David Guthrie (stockholders of
        the Company)                                                               4,618,137           3,311,602

     Sterling Savings Bank, line of credit, $2,482,500 commitment,
        interest at the Bank of America Reference Rate (BARR)
        plus 0.25%, expires October 15, 2001, collateralized by
        real property and assignment of rents, guaranteed by Wayne
        and David Guthrie                                                          2,482,500                  --

     Sterling Savings Bank, line of credit, $2,137,500 commitment,
        interest at the Bank of America Reference Rate (BARR)
        plus 0.25%, expires October 15, 2001, collateralized by
        real property and assignment of rents, guaranteed by Wayne
        and David Guthrie                                                          2,074,435                  --


     Sterling Savings Bank, line of credit, $2,812,500 commitment,
        interest at the Bank of America Reference Rate (BARR)
        plus 0.25%, expires June 1, 2001, guaranteed by Wayne
        and David Guthrie                                                          2,422,444           2,422,444
                                                                             ---------------    ----------------

                                                                             $    15,715,057    $     13,925,405
                                                                             ===============    ================
</TABLE>

      The prime rate and the BARR referenced on the above notes were 9.50% on
      July 31, 2000 and 8.00% at July 31, 1999.

      The above line-of-credit agreements contain restrictive covenants
      requiring the maintenance of minimum tangible net worth, and certain debt
      service coverage, debt to worth and fixed charge ratios. At July 31, 2000,
      the Company was in compliance with the financial covenants in these
      agreements.

                                       29
<PAGE>

Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

   7. Notes Payable to Banks (Lines-of-Credit), Continued:

      The following assets were pledged as collateral on these notes payable at
      July 31, 2000 and 1999:

                                                  2000               1999

     Contracts receivable                 $     1,583,985    $      3,359,806
     Loans receivable                           8,034,040           5,116,209
     Rental properties                          8,547,730           7,231,398
                                          ---------------    ----------------

                                          $    18,165,755    $     15,707,413
                                          ===============    ================

   8. Installment Contracts, Mortgage Notes and Notes Payable:

      Installment contracts, mortgage notes and notes payable consist of the
      following at July 31, 2000 and 1999:
<TABLE>
<CAPTION>
                                                                                    2000            1999
<S>                                                                          <C>               <C>
     Installment contracts and mortgage notes payable, interest at
        7.0% to 10.75%, aggregate monthly payments of $44,264,
        mature 2000 through 2021, collateralized  by
        various properties                                                   $    5,519,439    $    3,439,096
     Other notes payable                                                                 --            56,884
                                                                               ------------    --------------
                                                                             $    5,519,439    $    3,495,980
                                                                             ==============    ==============
</TABLE>
      Scheduled future maturities of contracts, mortgage notes and notes payable
      are as follows:

               Year Ending
                July 31,
             --------------

                    2001                                    $      210,045
                    2002                                         1,961,627
                    2003                                           207,946
                    2004                                           190,224
                    2005                                           201,044
                 Thereafter                                      2,748,553
                                                            ---------------
                                                            $    5,519,439
                                                            ===============

   9. Debenture Bonds:

      The Company has issued unsecured investment bonds to residents of the
      state of Washington under the Securities Act of Washington. The proceeds
      have been primarily used in making funds available for contracts and loans
      and the development, improvement and acquisition of commercial real
      property.

      The outstanding bonds have original maturities ranging from one to ten
      years and the interest rates vary depending upon the maturity.

                                       30
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

   9. Debenture Bonds, Continued:

      Outstanding bonds by interest rate categories were as follows at July 31,
      2000 and 1999:

      Bond Interest
          Rate                                     2000              1999
      ------------

         6.00 %                                       --            98,735
         6.25                                      8,159            45,467
         6.50                                    295,523           436,280
         7.00                                    197,816           175,707
         7.25                                    131,521           149,250
         7.50                                    926,167         1,501,550
         7.68                                     15,927                --
         7.75                                  1,214,100           842,234
         8.00                                    589,256           568,753
         8.25                                  1,123,400         1,013,729
         8.50                                  1,887,328         1,502,661
         8.75                                    355,123           343,056
         9.00                                  1,901,010         1,809,218
         9.25                                    370,956           341,394
         9.50                                    811,934           779,933
        10.00                                     17,709            16,039
        10.50                                     14,033            12,648
        11.00                                      7,687             6,894
                                          ---------------   ---------------
                                          $    9,867,649    $    9,643,548
                                          ===============   ===============

      The weighted-average annual interest rate on outstanding debentures at
      July 31, 2000 and 1999 was 8.37% and 8.26%, respectively.

      Estimated future contractual maturities of outstanding debenture bonds are
      as follows:

       Year Ending
          July 31,
        -----------
            2001                                    $    1,194,800
            2002                                         1,031,553
            2003                                         1,130,738
            2004                                         2,031,557
            2005                                         1,925,564
         Thereafter                                      2,553,437
                                                    --------------
                                                    $    9,867,649
                                                    ==============

      The Securities Act of Washington contains specific statutory and
      regulatory requirements concerning companies selling debentures in the
      state of Washington. These regulations require maintenance of minimum net
      worth and liquidity levels, define debenture terms and maturity
      limitations, describe financial reporting requirements and prohibit
      certain activities by controlling persons of the issuer of debentures.
      Failure to comply with these requirements may jeopardize a company's
      ability to issue debentures.

                                       31
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


    10. Income Taxes:

        The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>

                                                                     2000            1999            1998
<S>                                                           <C>              <C>              <C>
     Federal:
        Current                                               $     350,200    $     43,657     $    295,131
        Deferred                                                    (65,900)        121,324         (534,967)
                                                              -------------    ------------     ------------
                                                                    284,300         164,981         (239,836)
     Benefit allocated to discontinued operations                        --         147,584           33,407
                                                              -------------    ------------     ------------
                                                              $     284,300    $    312,565     $   (206,429)
                                                              =============    ============     ============
</TABLE>
        The components of the net deferred tax liability at July 31, 2000 and
        1999 are as follows:
<TABLE>
<CAPTION>

                                                                   Assets        Liabilities         Total
                                                              --------------   -------------    -------------
<S>                                                           <C>              <C>              <C>
     2000:
        Depreciation                                                           $   (551,620)    $   (551,620)
        Installment gains                                                          (234,018)        (234,018)
        Provision for loan loss                               $      38,948                           38,948
        Accrued expenses                                             82,544                           82,544
        Other, net                                                   17,576                           17,576
                                                              -------------    ------------     ------------
                                                              $     139,068    $   (785,638)    $   (646,570)
                                                              =============    ============     ============
     1999:
        Depreciation                                                           $   (483,555)    $   (483,555)
        Installment gains                                                          (299,457)        (299,457)
        Unrealized gains on marketable securities                                      (197)            (197)
        Accrued expenses                                      $      52,967                           52,967
        Other, net                                                   17,969                           17,969
                                                              -------------    ------------     ------------
                                                              $      70,936    $   (783,209)    $   (712,273)
                                                              =============    ============     ============
</TABLE>

        The annual tax provision (benefit) from continuing operations is
        different from the amount which would be provided by applying the
        statutory federal income tax rate to the Company's income (loss) from
        continuing operations. The reasons for the differences are:
<TABLE>
<CAPTION>
                                   2000             %           1999          %            1998           %
                               -----------    -----------   ------------   ---------   ------------   ----------
<S>                            <C>               <C>        <C>             <C>        <C>              <C>
     Computed statutory pro-
        vision (benefit)       $  287,569        34.0  %    $   290,210     34.0  %    $  (244,926)     (34.0) %
     Meals and entertainment        4,113         0.5             1,729      0.2               801       0.1
     Nondeductible stockholder
        legal expenses                                                                      51,000       7.1
     Effect of graduated tax rate                                                            5,941       0.8
     Other                         (7,382)       (0.9)           20,626      2.4           (19,245)     (2.7)
                               ----------     -------       -----------    -----       -----------    ------

                               $  284,300        33.6  %    $   312,565     36.6  %    $  (206,429)    (28.7) %
                               ==========     =======       ===========    =====       ===========    ======
</TABLE>

                                       32
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


    11. Employee Benefit Plan:

        In August 1998, the Company established a Retirement Savings Plan (the
        Plan), authorized under Section 401(k) of the Tax Reform Act of 1986, as
        amended. Under the terms of the Plan, the Company may contribute 25% of
        pre-tax contributions of compensation up to a maximum of $500. Employees
        are eligible to contribute up to 18% of their compensation, subject to
        annual limitations, to the Plan. In August 1999, the Plan was revised to
        provide for Company contributions of 3% of gross salary for all eligible
        employees. Contributions are made directly to a qualified individual
        retirement account or annuity in the employee's name. The Company is
        required to make nondiscriminatory contributions for each employee who
        (1) has reached the age of 21; (2) has performed services for the
        Company during the last year of service in which he or she has completed
        1,000 hours of service; (3) is not covered by a collective bargaining
        agreement; and (4) is not a nonresident alien. The Company's
        contribution to the Plan was approximately $28,000 and $4,400 during the
        years ended July 31, 2000 and 1999, respectively.

    12. Redeemable Preferred Stock/Preferred Stock:

        In fiscal 1995, the Company issued 10,400 shares of $100 par value
        redeemable Class A preferred stock. The Company had the right to redeem
        any shares after three years from the date of issuance. During the years
        ended July 31, 1999 and 1998, the Company redeemed 4,000 and 2,400
        shares, respectively, of the preferred stock at par. However, all shares
        were required to be redeemed by the Company ten years after issuance at
        the par value plus accrued dividends to date of redemption. Due to the
        mandatory ten-year redemption, the discount on the issuance of the
        preferred stock was being accreted using the interest method over the
        redemption period. This accretion is recorded as an increase in the
        carrying value of the preferred stock and as a charge against retained
        earnings. The accretion of this discount, which included accretion on
        shares redeemed during the year, was $210,000 and $119,000 in the years
        ended July 31, 1999 and 1998, respectively.

        On February 18, 1999, at the Annual Meeting of the Stockholders, a
        motion was passed to amend the Company's articles of incorporation to
        eliminate the mandatory redemption provisions of the Class A Preferred
        stock. Accordingly, the remaining 3,000 outstanding shares of preferred
        stock, with a face amount of $300,000, were reclassified to
        stockholders' equity. In addition, 10 million no par value shares of
        preferred stock were authorized, but none were issued.

        Each share of Class A preferred stock is entitled to one vote on each
        matter voted on at a stockholders' meeting. The preferred stockholders
        have liquidation rights equal to the par value plus accumulated and
        unpaid dividends. The liquidation preference of the Class A preferred
        stock was $318,000 at July 31, 2000 and July 31, 1999. The liquidation
        preference of the redeemable Class A preferred stock was $742,000 at
        July 31, 1998.

        The 6% annual dividends on the Class A preferred stock are cumulative.
        Dividends of $18,000, $18,000 and $42,000 were declared on the preferred
        stock during the years ended July 31, 2000, 1999 and 1998, respectively,
        and were paid subsequent to each respective year end.

    13. Common Stock:

        The Company has authorized a second class of common stock, Class B. This
        class has authorized 30,000, no par value shares and entitles the holder
        to 50 votes on each matter in all proceedings in which actions are taken
        by the stockholders, including the election of directors. Otherwise, the
        common stock is identical to the original class in all respects and for
        all purposes.

                                       33
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998

    14. Related-Party Transactions:

            Litigation Settlement

            On January 5, 1998, in connection with pending litigation between
            the Company and all of the Company's officers and directors and
            certain minority stockholders of the Company ("the Minority
            Stockholders"), who are children of Wayne E. Guthrie, the Company's
            Chief Executive Officer and largest individual Company common
            stockholder, the Company agreed to settle all claims of the Minority
            Stockholders and redeem all Company common shares held by the
            Minority Stockholders by paying approximately $317,000 in cash,
            distributing Company real property with an estimated fair value of
            $643,500 and the issuance of notes payable, bearing interest at 7%
            per annum, aggregating approximately $729,000. The Company acquired
            408,419 of its common shares pursuant to this agreement, which were
            retired. In addition, the Company obtained a covenant not-to-compete
            for five years from one of the Minority Stockholders in return for
            the issuance of a $125,000 note payable bearing interest at 7% per
            annum. Concurrently, certain Company officers and directors issued
            notes payable aggregating approximately $236,000 to one of the
            Minority Stockholders. In connection with the settlement, the
            Company also agreed to reimburse the Minority Stockholders for legal
            costs aggregating $150,000. Total expenses incurred by the Company
            during the year ended July 31, 1998 related to this settlement were
            approximately $300,000.

            Yellowfront Building

            On July 31, 1998, the Company transferred its ownership of the
            Yellowfront Building, a commercial property located in Coeur
            d'Alene, Idaho, to a family trust formed by Wayne E. Guthrie in
            exchange for 200,000 shares of Class A common stock. The transfer
            was recorded at the fair value of the property and resulted in a net
            gain to the Company of approximately $420,000 during the year ended
            July 31, 1998.

            Note Receivable

            A certain former stockholder is indebted to the Company by a note
            secured by real estate bearing interest at 12.5% (prime plus 4%
            adjusted annually) in the outstanding amounts (including interest)
            of $203,550 and $217,002 at July 31, 2000 and 1999, respectively.

            Installment Contracts, Mortgage Notes and Notes Payable

            At July 31, 2000 and 1999, the following related-party notes payable
            were outstanding:
<TABLE>
<CAPTION>
                                                                            Interest        Monthly
                                          2000             1999               Rate          Payment
                                                                           ---------       ---------
<S>                                       <C>              <C>                <C>        <C>
     Wayne E. Guthrie                     $     135,457    $    181,675       7.00  %    $       4,789
     Wayne/Constance Guthrie                     16,829         156,020       6.75  %            2,000
                                          --------------   -------------
                                          $     152,286    $    337,695
                                          ==============   =============
</TABLE>

                                       34
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


    14. Related-Party Transactions, Continued:

            Installment Contracts, Mortgage Notes and Notes Payable, Continued:

            The scheduled future maturities of these notes are as follows:

             Year Ending
              July 31,
             ----------
                 2001                            $       64,420
                 2002                                    60,110
                 2003                                    27,756
                                                 --------------
                                                 $      152,286
                                                 ==============

            Debenture Bonds

            Included in debenture bonds at July 31, 2000 and 1999 is
            approximately $163,000 and $193,000, respectively, that is payable
            to related parties. These bonds bear interest at the prevailing
            market rate on the date of issuance.

            Accrued Expenses and Other Liabilities

            At July 31, 2000 and 1999, the following demand notes were payable
            to related parties:

<TABLE>
<CAPTION>
                                                          2000                           1999
                                               ----------------------------   ---------------------------
                                                                 Interest                      Interest
                                                  Amount           Rate          Amount          Rate
                                               --------------   -----------   -------------    ----------
<S>                                            <C>                 <C>        <C>                <C>
     Wayne E. Guthrie                          $      73,579       8.50  %    $    115,746       6.75  %
     Constance Guthrie                                    --         --             91,692       6.75
     Other stockholders                               32,518       8.50             47,152       6.75
                                               -------------                  ------------
                                               $     106,097                  $    254,590
                                               =============                  ============
</TABLE>

            Interest Income and Expense

            The approximate amount of related-party interest income and expense
            included in the accompanying consolidated statements of operations
            during the years ended July 31, 2000, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>

                                                       2000           1999             1998
<S>                                               <C>            <C>             <C>
                    Interest income               $    27,000    $    36,000     $    53,000
                    Interest expense                   32,000         53,000          64,000
</TABLE>

            Participations

            The President of Cornerstone Realty Advisors, Inc., a subsidiary of
            the Company, has directly invested in certain loans through
            participation agreements. The total amount of such participation was
            $100,000 at July 31, 2000.

                                       35
<PAGE>
Pacific Security Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
for the years ended July 31, 2000, 1999 and 1998


    15. Fair Value of Financial Instruments:

        The following methods and assumptions were used to estimate the value of
        each class of financial instrument for which it is practicable to
        estimate that value. Potential income tax ramifications related to the
        realization of unrealized gains and losses that would be incurred in an
        actual sale and/or settlement have not been taken into consideration.

            Cash and Cash Equivalents - Due to the nature of these financial
            instruments, carrying value approximates fair value.

            Debenture Bonds, Contracts Receivable and Installment Contracts
            Payable - Fair values are determined using future cash flows
            discounted at a rate of interest currently offered for debt or
            receivables with similar remaining maturities and credit risks. At
            July 31, 2000 and 1999, the carrying values of these financial
            instruments approximated their fair values.

            Notes Payable to Banks - Fair value approximates the carrying value
            because the notes bear variable interest rates.

            Marketable Securities - Fair value approximates the carrying value
            based on quoted market prices.

            Off-Balance-Sheet Instruments - Fair value approximates the notional
            amount of commitments to extend credit because advances bear
            variable interest rates and are made contingent to the borrower's
            compliance with the existing loan agreement.

            Limitations - The fair value estimates are made at a discrete point
            in time based on relevant market information and information about
            the financial instruments. Because no market exists for many of
            these financial instruments, fair value estimates are based on
            judgments regarding current economic conditions and other factors.
            These estimates are subjective in nature and involve uncertainties
            and matters of significant judgment and, therefore, cannot be
            determined with precision. Changes in assumptions could
            significantly affect the estimates. Accordingly, the estimates
            presented herein are not necessarily indicative of what the Company
            could realize in a current market exchange.

                                       36
<PAGE>

PART III

Item 10.  Directors and Executive Officers of the Registrant

Identification of Directors and Executive Officers

The following information as of July 31, 2000 is provided with respect to each
director and executive officer of the Company:
<TABLE>
<CAPTION>

                                  Year First      Term as
                                  Elected as      Director
       Name              Age      Director        Expires in           Position (date elected to position)
--------------------     ---    -------------     ----------     ----------------------------------------------
<S>                       <C>        <C>             <C>        <C>
Wayne E. Guthrie          80         1970            2003        Chairman of the Board  (January 17, 1970);
                                                                 Director

David L. Guthrie          36         1987            2001        President (February 18, 1999); Director

Kevin M. Guthrie          45         1980            2001        Vice President (May 2, 1985); Director

Donald J. Migliuri        53         1992            2002        Secretary/Treasurer (May 29, 1990); Director

Constance M. Guthrie      66         1981            2003        Director

Robert N. Codd            70         1994            2001        Director

Julian Guthrie            35         1998            2001        Director
</TABLE>


Family Relationships

Kevin M. Guthrie, David L. Guthrie and Julian Guthrie are the children of Wayne
E. Guthrie. Constance M. Guthrie is the wife of Wayne E. Guthrie.

Business Experience

Wayne E. Guthrie, Chairman of the Board of Pacific Security Financial, Inc.. Mr.
Guthrie is also Chairman of the Board of Cornerstone Properties and Development,
Inc., a Washington corporation and subsidiary of the registrant. Mr. Guthrie has
over 50 years of experience in areas of construction, financing of real estate
and personal property, and real estate investments.

David L. Guthrie, President of Pacific Security Financial, Inc. since 1999 and
Vice President since 1989. Mr. Guthrie was formerly a financial consultant with
Merrill Lynch in Spokane, Washington. Mr. Guthrie is also an officer and
director of Cornerstone Properties and Development, Inc. Mr. Guthrie is a NASD
licensed securities sales person (registered representative) and broker-dealer
(general securities principal). He is a licensed real estate broker in the state
of Washington and has obtained the CCIM designation (certified commercial
investment member) awarded by the commercial real estate investment institute.

Kevin M. Guthrie, Vice President of Pacific Security Financial, Inc. since 1985.
Mr. Guthrie has served as property manager for the Company since 1976. Mr.
Guthrie is also an officer and director of Pacific Realty Management.

                                       37
<PAGE>


Business Experience, Continued:

Donald J. Migliuri, Treasurer of Pacific Security Financial, Inc. since 1990 and
Secretary since 1991. Mr. Migliuri is a Certified Public Accountant and has
served as an accounting officer with various diversified financial services
companies for over 19 years. He also is a certified management accountant (CMA)
and has a Masters degree in Business Administration.

Constance M. Guthrie. Mrs. Guthrie is a housewife and has not been employed
outside the home during the past ten years.

Robert N. Codd. Mr. Codd is employed by Pacific Security Financial, Inc. in its
leasing and real estate activities. He was employed by the Company from 1970 to
1979 and was rehired in November 1992. Prior to being rehired, he was a
commercial realtor and property manager.

Julian Guthrie. Ms. Guthrie is a reporter for the San Francisco Examiner. She
covered general news for the paper for two years and in 1998 was named education
reporter, responsible for covering all education issues in the Bay Area. Before
that, she was senior editor of a lifestyle magazine in San Francisco and also
worked as a freelance writer for the Examiner, covering breaking business,
political and lifestyle stories. She currently lives in San Francisco.

Item 11.        Executive Compensation

Remuneration of Directors and Officers

The following table lists, on an accrual basis, for each of the three years
ended July 31, 2000, the remuneration paid by the Company to any officers or
directors in excess of $100,000 and to all officers and directors as a group who
were officers or directors of the Company at any time during the year ended July
31, 2000:
<TABLE>
<CAPTION>

         Name of
       Individual                           Capacities                                                   Annual
      or Number of                           in Which                     Fiscal                      Compensation
    Persons in Group                          Served                       Year           Salary         Bonus
--------------------------    -------------------------------------      -------         --------    ------------
<S>                                                                        <C>         <C>            <C>
David L. Guthrie              President and Director                       2000        $   105,086    $    50,500
                              Vice President and Director                  1999            101,045          7,500
                              Vice President and Director                  1998             98,580         10,000


Kevin M. Guthrie              Vice President and Director                  2000        $   105,515    $    50,500
                              Vice President and Director                  1999            101,396          7,500
                              Vice President and Director                  1998             98,862         10,000

Officers and Directors                                                     2000        $   400,659    $   121,600
as a group (5)
</TABLE>

The Company has no qualified or nonqualified stock option plans as of July 31,
2000.

                                       38
<PAGE>


Item 12.    Security Ownership of Certain Beneficial Owners and Management

(a)    Security Ownership of Certain Beneficial Owners

       Set forth below is certain information concerning parties, excluding
       management, who are known by the Company to directly own more than 5% of
       any class of the Company's voting shares on July 31, 2000: none.

(b)    Security Ownership of Management

       The following table sets forth as of July 31, 2000 information concerning
       the direct ownership of each class of equity securities by all directors
       and all directors and officers of the Company as a group:
<TABLE>
<CAPTION>

                                                                                         Amount of
                                                                                        Shares and
                                                                                        Nature of
               Title                                                                    Beneficial         Percent
             of Class                 Name of Beneficial Owner                          Ownership          of Class
          ------------            -------------------------------------------           -----------        --------
<S>                               <C>                                                     <C>                <C>
          Common stock            Wayne E. Guthrie                                        142,541.5          12.52
          Common stock            Constance Guthrie                                       142,541.5          12.52
          Common stock            Kevin Guthrie                                           222,718**          19.56
          Common stock            David Guthrie                                           222,718**          19.56
          Common stock            Julian Guthrie                                          196,838.4          17.28
                                                                                      -------------     ----------

          Common stock            All directors and officers as a group                   927,357.4          81.44
                                                                                      =============     ==========

          Preferred stock         Wayne E. or Constance Guthrie                             2,000            66.70%
          Preferred stock         Constance Guthrie                                         1,000            33.30
                                                                                      -----------       ----------

          Preferred stock         All directors and officers as a group                     3,000           100.00%
                                                                                      ===========       ==========
</TABLE>

**  Kevin and David Guthrie each exercise voting rights over an additional
    18,706 (1.64%) shares of this class through the holdings of their minor
    children.

Item 13.    Certain Relationships and Related Transactions

Transactions with Company officers, directors and stockholders and other related
parties are summarized in Notes 12 and 14 to the consolidated financial
statements included herein.

                                       39
<PAGE>

PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>     <C>                                            <C>                                    <C>
(a)     1. Financial Statements - See index under Item 8                                      11

(a)     2. Financial Statement Schedules:

           Report of independent accountants                                                  41

           Schedule III - Real estate and accumulated depreciation                            42

           Schedule IV - Mortgage loans on real estate                                        44

           All other schedules are omitted because they are not applicable, or
           not required, or because the required information is included in the
           financial statements or notes thereto.

(a)     3. Exhibits:

           Exhibit 27 - Financial Data Schedule

(b)        Reports on Form 8-K during the last quarter:

           None
</TABLE>

                                       40
<PAGE>


Report of Independent Accountants on
Financial Statement Schedules

To the Board of Directors and Stockholders
Pacific Security Financial, Inc. and Subsidiaries
Spokane, Washington

Our audits of the consolidated financial statements referred to in our report
dated September 19, 2000, of Pacific Security Financial, Inc. (formerly Pacific
Security Companies) and its subsidiaries, which report and consolidated
financial statements are included herein in this Annual Report on Form 10-K,
also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.





                                             /s/PricewaterhouseCoopers LLP
                                             ------------------------------




September 19, 2000
Spokane, Washington

                                       41
<PAGE>

Pacific Security Financial, Inc. and Subsidiaries
Schedule III

Real Estate and Accumulated Depreciation
July 31, 2000

<TABLE>
<CAPTION>

                                                                                   Cost
                                                                                Capitalized          Amount at
                                                                                 Subsequent        Which Carried
       Description                            Encumbrance       Initial Cost   to Acquisition   at Close of Period
------------------------------------          -----------       ------------   --------------   ------------------
<S>        <C>                               <C>                <C>            <C>               <C>
Residential and commercial properties:
   Rental buildings and improvements:
     Spokane, Washington
        N. 10 Post Street (Peyton Bldg.)     $  2,422,444      $  2,209,343    $  4,045,608      $   6,254,951
        S. 10 Washington (Hutton Bldg.)         2,482,500         1,498,769       3,858,925          5,357,694
        Broadmoor Apartments                    2,074,435         1,385,074         598,923          1,983,997
        Pier One Building                       1,294,456         1,194,017       2,777,157          3,971,174
        AT&T Wireless Building                    796,016           950,373          (1,991)           948,382
        Cornerstone Office Building               690,644         1,558,552          38,911          1,597,463
        Apex Physical Therapy                     529,028           561,594              --            561,594
     Boise, Idaho
        Calderwood- Overland Building           1,742,250(1)      1,600,000              --          1,600,000
        Calderwood- Ardene Building                      (1)      1,200,000              --          1,200,000
     Furniture related to above                        --           540,237         829,784          1,370,021
                                             ------------      ------------    ------------      -------------

                                             $ 12,031,773      $ 12,697,959    $ 12,147,317      $  24,845,276
                                             ============      ============    ============      =============
</TABLE>

[RESTUBBED]

<TABLE>
<CAPTION>
                                                                          Life on Which
                                                                          Depreciation
                                                                         in Latest Income
                                              Accumulated       Date        Statement
       Description                            Depreciation    Acquired     is Computed
------------------------------------         --------------   --------     -------------------
<S>                                           <C>               <C>          <C>
Residential and commercial properties:
   Rental buildings and improvements:
     Spokane, Washington
        N. 10 Post Street (Peyton Bldg.)      $  1,918,722      1979         25-40 years
        S. 10 Washington (Hutton Bldg.)          2,047,807      1979         25-40 years
        Broadmoor Apartments                     1,082,383      1969         40 years
        Pier One Building                          930,798      1992         25-40 years
        AT&T Wireless Building                     252,321      1992         25 years
        Cornerstone Office Building                 52,285      1999         25-40 years
        Apex Physical Therapy                        8,324      1999         25-40 years
     Boise, Idaho

        Calderwood- Overland Building                2,611      2000         25-40 years
        Calderwood- Ardene Building                  2,041      2000         25-40 years
     Furniture related to above                    764,137      Various      Various
                                              ------------
                                              $  7,061,429
                                              ============

</TABLE>

(1) Total obligation of $1,742,250 is secured by two Calderwood properties as
noted above.


                                       42
<PAGE>

SCHEDULE III, Continued:

Real Estate and Accumulated Depreciation
July 31, 2000

Real estate:
   Balance at beginning of period                                  $ 21,498,496

  Additions during period:
      Purchases and capitalized costs, net                            4,065,205
  Deductions during period:
      Cost of real estate sold                                         (718,425)
                                                                   ------------

  Balance at close of period                                       $ 24,845,276
                                                                   ============


Accumulated depreciation:
  Balance at beginning of period                                   $  6,690,777
  Depreciation for the year                                             700,254
  Charges to accumulated depreciation related to
      real estate investments sold, net of other
      adjustments                                                      (329,602)
                                                                   ------------

Balance at close of period                                         $  7,061,429
                                                                   ============


                                       43
<PAGE>

PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES
SCHEDULE IV

Mortgage Loans on Real Estate
July 31, 2000
<TABLE>
<CAPTION>
                                        Interest     Maturity
             Description                  Rate        Date       Periodic Payment Terms       Prior Liens
---------------------------------    -------------   --------    ----------------------       -----------

<S>                                  <C>              <C>        <C>                          <C>
Loan (PP Two LLC)                    Prime + 3%         2000     Interest only monthly
Loan (Bauer)                         Prime + 3.25%      2000     Interest only monthly
Loan (Washington House)              Prime + 3.5%       2001     Interest only monthly
Loan (Toscana)                       Prime + 4.0%       2001     Interest only monthly
Loan (McArthur)                      Prime + 3.25%      2000     Interest only monthly
Loan (L.B. Industries #2002)         Prime + 3%         2001     Interest only monthly
Loan (Coulter #2027)                 Prime + 4.0%       2001     Interest only monthly
Loan (Parkview)                      Prime + 3%         2000     Interest only monthly
Loan (Clegg Investments)             Prime + 3.25%      2000     Interest only monthly
Real estate contract on apartment
   building (East Valley Terrace)    Prime + 2%         2006     $9,014 per month,
                                                                        including interest
Loan (Rock Ridge)                    Prime + 4.25%      2000     Interest only monthly
Loan (L.B. Industries #2010)         Prime + 3%         2000     Interest only monthly

Other mortgage contracts and notes
  receivable, none of which individually
  exceed 3% of the total carrying
  value of mortgages                 Various           Various   Various

</TABLE>

[RESTUBBED]

<TABLE>
<CAPTION>
                                                                                 Principal Amount
                                                                                 of Loans Subject
                                                                                  to Delinquent
                                             Face Amount      Carrying Amount      Principal
             Description                    of Mortgages       of Mortgages        or Interest
---------------------------------           -------------      --------------     ---------------

<S>                                        <C>                <C>                 <C>
Loan (PP Two LLC)                           $  2,953,369       $ 2,953,369
Loan (Bauer)                                   1,780,202         1,780,202
Loan (Washington House)                        1,646,420         1,646,420
Loan (Toscana)                                 1,400,000         1,400,000
Loan (McArthur)                                1,164,990         1,164,990
Loan (L.B. Industries #2002)                   1,150,000         1,150,000
Loan (Coulter #2027)                           1,055,000         1,055,000
Loan (Parkview)                                1,001,800         1,001,800
Loan (Clegg Investments)                         966,611           966,611
Real estate contract on apartment
   building (East Valley Terrace)                939,030           939,030
Loan (Rock Ridge)                                900,000           900,000
Loan (L.B. Industries #2010)                     700,000           700,000

Other mortgage contracts and notes
  receivable, none of which individually
  exceed 3% of the total carrying
  value of mortgages                           4,578,001         4,055,695
                                            ------------      ------------
                                           $  20,235,423      $ 19,713,117
                                           =============      ============

Balance at beginning of period                                $ 17,923,329
Additions during period:
   Mortgage loans originated and
    purchased                              $  19,415,924
   Contract discounts realized                    72,777
                                            ------------
                                                                19,488,701
Deductions during period:
   Collections of principal and contract
     payoffs                                 17,546,549
   Other                                         152,364        17,698,913
                                            ------------      ------------
Balance at end of period                                     $  19,713,117
                                                             =============
</TABLE>

                                       44
<PAGE>


SIGNATURES

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

                                              PACIFIC SECURITY FINANCIAL, INC.
                                              (Registrant)

Dated: October 26, 2000                        By: /s/ David L. Guthrie
       ------------------                         -------------------------
                                                  David L. Guthrie
                                                  Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer, and the Board of Directors, on
behalf of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

      Signature                             Capacity                                    Date
      ---------                             --------                                    ----

<S>                                 <C>                                          <C>
/s/ David L. Guthrie                 Chief Executive Officer and                   October 26, 2000
------------------------------       Director                                    ---------------------
David L. Guthrie


/s/ Donald J. Migliuri               Secretary-Treasurer                           October 26, 2000
------------------------------       Chief Financial Officer and Director        ----------------------
Donald J. Migliuri


/s/ Wayne E. Guthrie                 Chairman of the Board of                      October 26, 2000
------------------------------       Directors and Director                      ----------------------
Wayne E. Guthrie


/s/ Kevin M. Guthrie                 Vice-President and                            October 26, 2000
------------------------------       Director                                    ----------------------
Kevin M. Guthrie


/s/ Constance M. Guthrie             Director                                      October 29, 2000
------------------------------                                                   ----------------------
Constance M. Guthrie

/s/ Robert N. Codd                   Director                                      October 26, 2000
------------------------------                                                   ----------------------
Robert N. Codd

/s/ Julian Guthrie                   Director                                      October 29, 2000
------------------------------                                                   -----------------------
Julian Guthrie
</TABLE>



                                       45