<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10-KSB

         [X]      Annual Report Under Section 13 or 15(d) of the Securities
                  Exchange Act of 1934

For the fiscal year ended December 31, 2002

                       SECURITY ASSET CAPITAL CORPORATION
                 (Name of small business issuer in its charter)

     000-20039                                            95-4729666
(Commission File Number)                    (I.R.S. Employer Identification No.)

                                     NEVADA
         (State or other jurisdiction of incorporation or organization)

              701 B STREET, SUITE 1775, SAN DIEGO, CALIFORNIA 92101
               (Address of principal executive offices) (Zip Code)

                 Issuer's telephone number, including area code:
                      Voice 619-232-9950, Fax 619-232-9954

          (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)

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

Title of Each Class
Common Stock, $0.001 par value                 NASDAQ OTC Bulletin Board

Securities registered pursuant to Section 12(g) of the Act: None

Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]  No [ ]

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

Revenues for the issuer's most recent fiscal year: $229,371

On December 31, 2002 the aggregate market value of the Common equity held by
non-affiliates (based upon the average of bid and asked price as of December 31,
2002) was $4,322,095. As of May 19, 2003 the Issuer has 69,444,210 Outstanding
Shares of Common Stock, $0.001 par value.


Transitional Small Business Disclosure Format (check one):  Yes [ ]   No [X]

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Part I

Item 1. Business

Security Asset Capital Corporation, trading under the symbol ("SCYA") is a
software and services company that facilitates on-line debt tracking,
negotiation, settlement and collection for the credit card banking system and
other consumer debt collection industries.

The Company combines both licensed and proprietary software solutions to deliver
its web based services. In house development of The Debt Registry provides
on-line debt tracking and registration functionality combined with the Company's
rights under a licensing agreement with the founders of DebtResolve Inc for
on-line financial settlement and collection services. The Company is presently
seeking to extend and strengthen its current licensing agreement.


Security Asset Capital uses the power, reach and scalability of the Internet to
allow credit card issuers and their respective debtors an easy to use and
confidential process that encourages successful on-line resolution of overdue
debt.

Security Asset Capital was founded in 1993 and is based in San Diego,
California. The company provides its services to the debt industry through
transaction integration and licensing of its technology. The Company's revenues
are generated as a percentage of all debt managed and collected by the Company.

The Company expects to be in market trials with its debt resolution product in
2004. The Debt Registry product will also be in trial deployment with target
clients during Q3 2004. Security Asset Capital Corporation anticipates that it
will breakeven by Q3 2004 with projected growth in revenues and net income
thereafter.


Products and Services

The Debt Registry

The company has developed a proprietary Internet based system for the
acknowledgment and monitoring of outstanding consumer debt. This platform, The
Debt Registry is a national account registration and tracking system, which
allows debt owners, debt collectors, and consumers with credit card debt to
locate, track and verify their debt portfolios. The Company plans to offer debt
owners title and liability insurance and the system has been designed to bring
conformity and efficiency to a previously informal environment protecting both
sides of a loan portfolio sales transaction.

Debt tracking and registration is an integral part of the overall debt
resolution industry and the Company plans to leverage their experience and
market leadership in this discipline when reselling and integrating an internet
based debt resolution and collection service.

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Online Debt Resolution

The Company's future internet based debt resolution process allows credit card
issuers, debt collectors, and consumers to increase the efficiency of settling
outstanding credit card debt. This solution allows parties to use an online
solution to settle their debt quickly and for an amount acceptable to both
parties.

For consumers, the debt collection process is perhaps one of life's most
unpleasant and confusing experiences. They avoid phone calls and posted
reminders. Most of these consumers do not appreciate that they are able to
negotiate a settlement and most feel threatened or intimidated through
conventional collection processes. As debt remains unpaid, consumers' credit
ratings suffer, making it difficult to complete future major purchases like
buying a home or automobile.

The Company believes, the introduction of its internet based system for the
negotiation and settlement of delinquent and charge-off credit card balances
will have a revolutionary impact on the accounts receivable management industry.
Through use of the Company's products, credit originators and collectors can
present consumers the opportunity to resolve account balances in a non-intrusive
manner. This can lead to an increased number of collection opportunities and
higher percentage collections on consumer debt accounts.

Security Asset presently operates under a non-exclusive agreement with the
founders of Debt Resolve Inc of New York which gives Security Asset a license to
present services to the financial industry. The Company is presently seeking to
strengthen and expand the licensing agreement based on mutually exclusive
accounts for an extended period of time with renewal options.

Product roll out

The Company expects to be in market trials with its online debt resolution
product in 2004. The Debt Registry will also be in trial deployment with target
clients during 2004.


The Debt Registry process

The Debt Registry(TM) is an online registration and tracking system specifically
developed for the financial services industry and the consumer. This industry is
the largest in the US in which assets are bought and sold without the benefits
of asset titles or filed ownership documents. The Company is committed to
providing a secure, accessible storage system and environment whereby companies
can conduct due diligence related to possible transactions, including the
ability to verify ownership and information regarding accounts. The system is
designed to assist consumers in locating accounts and verifying ownership prior
to settlement.

At present, no third party tracks accounts or maintains ownership records. Under
The Debt Registry process, each time an account changes ownership, a record of
that sale is registered. Included in the record are identification data for the
accounts, as well as experience information. Each account is assigned a
registration number that is updated and tracked as ownership changes through the
life of the account.

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In the future, the Debt Registry's Clearinghouse will initially act as the hub
for document requests to various banks and credit grantors. The Debt
Registry(TM) will provide the industry with much needed structure without
inviting government regulation. Lending institutions are facing a number of
logistical and legal issues that arise from the inadequate processes and the
overburdened, non-systemic infrastructure through which accounts are currently
being managed and sold. This is the largest industry in which assets are bought
and sold without the benefits of asset titles or filed ownership documents.
While the industry recognizes the importance of maintaining self-regulation, it
has done little to date to assist the consumer or to initiate self-imposed
process improvement as a means of forestalling federal intervention. As a
result, a number of dangerous dynamics are allowed to persist across the
industry. Among these are:

* Lack of a chain of title and verifiable ownership of assets within the
industry.
* Duplicate reporting of account information to the credit bureaus.
*Difficulty in tracking, validating and updating account data.
* Difficulty in routing debtor payments to the current account owner.
* Inability or difficulty in locating sold accounts by consumer.

Competition

While the use of technology has been a key ingredient for success within the
accounts receivable management industry, the Company is not aware of any other
technology, which has the capability to potentially, increase communication with
the consumer and provide the consumer with a non-intrusive way to settle
accounts via the Internet.

Traditional tracking, settling and collection processes are both labor and time
intensive. Credit card holders view these conventional services as highly
emotional and intimidating experience. Such practices, play a large part in
restricting successful debt resolutions.

The Company believes that the combination and attraction of the debt
registration and debt resolution systems will potentially increase the number of
consumers cleaning up their charged off accounts and settling balances at a
higher rate.


RISK FACTORS

             Limited Operations to Date. The Company lacks a substantial prior
operating history and its prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets. Such
risks include, but are not limited to, an evolving and unproven business model
and the management of growth. To address these risks, the Company must, among
other things, maintain and significantly increase its customer base, implement
and successfully execute its business and marketing strategy, continue to
develop and upgrade its technology, provide superior customer service, respond
to competitive developments, and attract and motivate qualified personnel. There
is no assurance that the Company's business strategy will be successful, or that
additional capital will not be required in the short-term to continue business
operations. For the year ended December 31, 2002, the Company had revenues of
$229,371 and a loss of $8.0 million. At December 31, 2002, the Company had a
negative net worth of $3.0 million. No assurance can be given that the Company
will ever have profits.

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             Change in Management. The Company's President, David R. Walton
passed away suddenly in March 2003 bringing an unexpected need for a change in
the management team. Currently, Darrell Musick is functioning as the President,
Chief Executive Officer and Chief Financial Officer. In a planned succession,
Mr. Musick will resign from all capacities on or about May 31, 2003 and will be
replaced by Mr. Daniel J. Hill.

             Consumer Receivables May Not be Collectible. In the past, the
Company has purchased, collected and managed previously defaulted consumer
receivables generated by credit card and other consumer credit transactions.
These are obligations that the individual consumer has failed to pay when due.
The Company purchased the receivables from credit grantors, including banks,
finance companies and other service providers. Substantially all of the
receivables consist of account balances that the credit grantor has deemed
uncollectible and has been charged-off from its balance sheet. Before the
Company purchased the receivables, the credit grantors generally make numerous
attempts to collect on the defaulted accounts. Credit grantors typically use
their in-house collection departments, as well as third-party collection
agencies, to attempt to collect on the overdue payments. The Company purchased
the receivables at a significant discount to the amount the customer owes. The
Company has written down its remaining receivables to approximately $100,000
based on the anticipated net collections to be realized. Despite this belief,
actual recoveries on the receivables may vary as the result of a variety of
factors within and beyond the Company's control and may be less than the amount
the Company expects to recover.

             Risks Associated with New Products and Markets. The market for the
Company's existing and proposed products and services are characterized by rapid
technological changes, changing customer requirements, frequent service and
product enhancements and introductions, and emerging industry standards. The
introduction of products or services embodying new technologies and the
emergence of new industry standards can render existing services or products
obsolete and unmarketable. The Company's future success will depend, in part, on
its ability to develop and use new technologies, respond to technological
advances, enhance its existing services and products and develop new products
and services on a timely and cost-effective basis. There can be no assurance
that the Company will be successful in effectively developing or using new
technologies, responding to technological advances or developing, introducing or
marketing product and service enhancements or new products and services. In
addition, the Company may enter into new markets in connection with enhancing
its existing services and products and developing new products and services.
There can be no assurance that the Company will be successful in pursuing new
opportunities or will compete successfully in any new markets. There can be no
assurance that a market for online consumer debt settlement and collection will
develop or that any such market, if developed, will offer significant revenue
opportunities for the Company. In order for the Company to generate revenues,
banks must direct a portion of their budgets to Internet-based debt settlement
and collection. If not, the Company's business, prospects, financial condition
and results of operations from Debt Resolve would be materially adversely
affected.

             Risks of Rapid Growth. Upon successful introduction of its
technologies, the Company anticipates a period of rapid growth, which may place
strains upon the Company's management and operational resources. The Company's

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ability to manage growth effectively will require the Company to integrate
successfully its business and administrative operations into one dynamic
management structure.

             Dividends Not Likely. No dividends on the Company's Common Stock
have been declared or paid by the Company to date. The Company does not
presently intend to pay dividends on shares for the foreseeable future, but
intends to retain all earnings, if any, for use in the Company's business. There
can be no assurance that dividends will ever be paid on the Common Stock of the
Company.

             Substantial Competition. The bases of competition in markets for
the Company's proposed Debt Resolve product, while limited at this time, could
change. Debt Resolve must overcome significant barriers to entry into the
financial services market and, as a result of its limited operations, its
relatively untested operating system and market. Debt Resolve has no competitors
at this time, however, in the future, competitors may enter this market and have
substantially greater financial, technical, managerial and marketing resources,
longer operating histories, greater name recognition, more established
relationships with customers and content providers. Such competitors may be able
to devote more resources to developing Internet services or online content than
the Company. There can be no assurance that the Company will be able to compete
effectively with current or future competitors or that the competitive pressures
faced by the Company will not have a material adverse effect on the Company's
business, financial condition and operating results.

             Dependence on Computer Systems. The Company operates through a
variety of electronic mediums, including the Internet. These methods are heavily
dependent on the integrity of the electronic systems supporting them.
Extraordinary user volumes could cause the Company's computer systems to operate
at an unacceptably low speed or even fail. Any significant degradation or
failure of the Company's computer systems or any other systems (e.g., online
service providers, record keeping and data processing functions performed by
third parties and third-party software, such as Internet browsers) could cause
customers to suffer delays in receiving services. Such delays could cause
substantial losses for customers and could subject the Company to claims from
customers for losses, including litigation claiming fraud or negligence. There
can be no assurance that the Company's network structure will operate
appropriately in the event of a computer systems failure or that, in the event
of a fire or any other natural disaster, power or telecommunications failure,
act of god or war, the Company will be able to prevent an extended computer
systems failure. Any computer systems' failure that causes interruptions in the
Company's operations could have a material adverse effect on the Company's
business, financial condition and operating results.

             Dependence on Increased Usage and Stability of the Internet.
Critical issues regarding the stability of the Internet's infrastructure remain
unresolved. The rapid rise in the number of Internet users and increased
transmission of audio, video, graphical and other multimedia content over the
web has placed increasing strains on the Internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Internet
and could reduce the usage of the Internet by businesses and individuals. Any
failure of the Internet to support the number of users due to inadequate
infrastructure, or otherwise, could materially and adversely affect the

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acceptance of the Company's products and services which would, in turn,
materially and adversely affect the Company's business, prospects, financial
condition and results of operations.

             Risks Associated with Strategic Acquisitions and Relationships. The
Company has pursued and may in the future pursue strategic acquisitions of
complementary businesses and technologies. Acquisitions entail numerous risks,
including difficulties in the assimilation of acquired operations and products,
diversion of management's attention to other business concerns, amortization of
acquired intangible assets and potential loss of key employees of acquired
companies. There can be no assurance that the Company will be able to integrate
successfully any operations, personnel, services or products that might be
acquired in the future or that any acquisition will enhance the Company's
business, financial condition or operating results. The Company also has
established a number of strategic relationships with debt collectors. The
Company's strategic relationships have been entered into only recently and there
can be no assurance that any such relationships will be maintained, and that if
such relationships are maintained, they will be successful.

             Dependence on Intellectual Property Rights; Lack of Registration.
The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology. The Company regards its technology as
proprietary and attempts to protect it with trademarks, trade secret laws,
restrictions on disclosure and other methods. The Company relies primarily on
state and federal trade secret and trademark common law to protect its
proprietary technology. It is the Company's policy to enter into confidentiality
and non-competition agreements with its associates and generally to control
access to and distribution of its proprietary technology. Notwithstanding the
precautions taken by the Company to protect its intellectual property rights, it
is possible that third parties may copy or otherwise obtain and use the
Company's proprietary technology without authorization or otherwise infringe on
the Company's proprietary rights. It is also possible that third parties may
independently develop technologies similar to those of the Company. Policing
unauthorized use of the Company's intellectual property rights may be difficult,
particularly because it is difficult to control the ultimate destination or
security of information transmitted over the Internet. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology. In addition, the laws of foreign countries may afford inadequate
protection of intellectual property rights.

             Government Regulation. The Company is not a credit card issuer.
Even so, certain of its operations may be affected by laws and regulations
applicable to credit card issuers. The relationship of a customer and a creditor
is extensively regulated by federal and state consumer protection and related
laws and regulations. Significant laws include the Fair Debt Collection
Practices Act, Federal Truth-In-Lending Act, Fair Credit Billing Act, as well as
applicable comparable statutes in the states in which customers reside or in
which the financing institutions who originated the credit account are located.
Failure to comply with applicable federal and state laws and regulations could
have a material adverse effect on the Company. Applicable laws and regulations
may limit the Company's ability to collect amounts owing with respect to
receivables, regardless of any act or omission on the part of the Company. No
assurance can be given that any indemnities received from the financial
institutions who originated the credit account will be adequate to protect the
Company from losses on the receivables or liabilities to customers. Any new laws

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or rulings that may be adopted, and existing consumer protection laws may
adversely affect the Company's ability to collect the receivables. In addition,
the failure of the Company and its affiliates to comply with such requirements
could adversely affect the Company's ability to enforce the receivables and
result in liability.

             The Company conducts a significant portion of its business through
the Internet and intends to expand its use of such medium. To date, the use of
the Internet has been relatively free from regulatory restraints. The SEC and
certain states, however, are beginning to address the regulatory issues that may
arise in connection with the use of the Internet. Accordingly, new regulations
or interpretations probably will be adopted that constrain the Company's ability
to transact business through the Internet. Any additional regulation of the
Company's use of electronic media could render its business or operations more
costly, less efficient, or even impossible.

             The Company is under formal investigation by the Securities and
Exchange Commission and the Pennsylvania Securities Commission regarding the
sale of the investor notes. No provision has been made for the effect, if any,
of any findings from the investigation. The Company is in litigation arising in
the normal course of business. Since the death of David R. Walton, certain
counsel have ceased working with the Company and the status of various matters
is difficult to ascertain. The Company has accrued certain amounts of additional
liabilities to meet the expected but unknown expenses and costs of settling
litigation. Management believes that any outcome of such matters will not be
materially in excess of the recorded accruals.


ITEM 2. PROPERTIES

The Company's principal corporate offices are located at 701 B Street Suite
1775, San Diego, Ca 92101 and consist of approximately 1350 square feet.


ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings, other than in the normal
course of business, that would materially affect the Company. The Company is
under formal investigation by the Securities and Exchange Commission and the
Pennsylvania Securities Commission and the Pennsylvania Securities Commossion
regarding the sale of the investor notes. No provision has been made for the
effect, if any, of any findings from the investigation.


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

Not applicable


PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Stock Trading Symbol - SCYA
Stock Exchange Listings - NASDAQ OTC Bulleting Board
Shareholders - At May 9, 2003, there were approximately 489 shareholders of
record.

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FISCAL YEAR 2001             HIGH             LOW
----------------             ----             ---

First Quarter                .68              .53
Second Quarter               .32              .23
Third Quarter                .15              .10
Fourth Quarter               .08              .07

FISCAL YEAR 2002             HIGH             LOW
----------------             ----             ---

First Quarter                .11              .055
Second Quarter               .31              .065
Third Quarter                .17              .06
Fourth Quarter               .12              .055


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING STATEMENTS

Certain information set forth herein (other than historical data and
information) may constitute forward-looking statements regarding events and
trends which may affect the Company's future operating results and financial
position. The words "believe," "endeavor," "expect," "anticipate," "estimate,"
"intends," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions, including, without limitation, the risks and uncertainties
concerning technological changes, increased competition, and general economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company cautions
potential investors not to place undue reliance on any such forward-looking
statements, all of which speak only as of the date of this Annual Report on Form
10-KSB. It is not possible to foresee or identify all such factors. The Company
disclaims any intention, commitment or obligation to revise or update any
forward-looking statement, or to disclose any facts, events or circumstances
that occur after the date hereof, which may affect the accuracy of any
forward-looking statement.

Overview

As of December 2002, the Company had converted approximately $6.4 million of
short term debt into preferred stock with conversion rights at $2.00 per share
and $1.1 million of short term debt into 16 to 24 month notes at an annual
interest rates from 4% to 12%. The Company is endeavoring to complete the
conversion of the remaining short term debt into preferred stock. During the
year ended December 31, 2002, the Company issued a significant number of shares
of its common stock and options/warrants to purchase share of its common stock
in exchange for services.

A majority of the Company's revenues to date have been from the purchasing and
selling of debt portfolios.

The Company is anticipating that the majority of its future growth will come
from its online debt resolution tool and The Debt Registry(TM). The
concentration is on the online debt resolution tool during 2003 and thereafter
The Debt Registry(TM) in 2004.

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RESULTS OF OPERATIONS

Revenues

Revenues increased to $229,371 in 2002 from $151,327 in 2001. While revenues
increased, the amount of revenues derived from collection and sales of portfolio
assets remained significantly less than in previous years as a result of the
Company's focus on developing new products and services and the aging of the
consumer receivables held. During 2002 and 2001, the Company has incurred
significant write-downs in portfolio value based on the lowered likely
collections from its portfolio assets. As of December 31, 2002, the Company has
valued its remaining consumer receivables at $100,000.

Expenses

Portfolio decreased to $700,000 in 2002 from $1,202,473 in 2001. A significant
amount of portfolio expenses during 2002 and 2001 relate to the write-down of
portfolio assets. General and administrative expenses increased to $3,995,146 in
2002 from $2,856,152 in 2001. The increase is primarily attributable to the
issuance of stock and options/warrants for services. Impairment losses increased
to $3,212,008 in 2002 from $200,000 in 2001 related to the management's
assessment of the carrying values of intangible assets, including patent rights
and The Debt Registry domain names.

Net loss per share

Net loss per share of $.14 in 2002 decreased from $.24 in 2001 as a result of
the increase of approximately 31 million shares in the average number of shares
outstanding and the increase in the net loss of approximately $2.9 million from
2001.

Liquidity and Capital Resources

The Company plans to continue funding its operations from the proceeds of
additional debt and equity capital offerings. There is no assurance that
management will be successful in these endeavors.

The Company's president, David R. Walton passed away in March 2003, bringing a
change in management team and a life insurance policy, purchased in September
2002, has the Company as beneficiary of the death benefit. New management is
hopeful that the funds will give the Company some resources to help bring the
debt resolution product to market.

As of December 2002, the Company converted approximately $6.4 million of its
short-term debt into preferred stock with conversion rights at $2.00 per share
and $1.1 million of the short-term debt into 16 to 24 months obligations at an
annual interest rates from 4% to 12%. The Company is endeavoring to complete the
conversion of the remaining short term debt into preferred stock.

Subsequent Events

On March 14, 2003 the Company announced the sudden passing of its CEO, David
Walton, Jr. Mr. Walton's role will be assumed by Darrell Musick until such time
as an appropriate successor can be named.

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ITEM 7. FINANCIAL STATEMENTS

See Section F


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

None


PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DARRELL MUSICK, 67, President, Chief Executive Officer, and Chief Financial
Officer. Mr. Musick was on the Board of Directors of the Debt Buyers Association
from 1997 through 2002, and maintains direct relationships with credit grantors
from the credit card, financing, banking and commercial industries. Previously,
Mr. Musick was Regional Manager of Fedmart, now known as Costco, where he worked
from 1958 through 1964. From 1964 to 1982, he was General Manager of Crocker
Capital Corporation, an investment company. Mr. Musick has been treasurer of the
nationwide "Debt Buyers Association" for the past two years.

DANIEL J. HILL, 54, Chairman of the Board. He has over 25 years management
experience in the electronics industry, where his focus has been high growth
companies, startups and turnarounds. From 1999 to 2001, Hill was Executive Vice
president and Chief Operating Officer of Cerprobe Corporation. From 1998 to 1999
Hill was executive director for Price Waterhouse Coopers responsible for the
firms focus on the semiconductor industry. From 1995 to 1998 Hill was the
Founder and Chief Executive Officer of InterConnect Technology, a private
semiconductor wafer foundry, located in Sunnyvale, California & Kuching,
Malaysia From 1991 to 1995 Hill was Chairman President, Chief Executive Officer
of Micro Component Technology in St. Paul, Minn. MCT had operations in the U.K.,
France, Germany, Italy, Malaysia, Singapore and Japan. From 1980 to 1991 Hill
held various positions with National Semiconductor, Santa Clara, Calif.
including, Division Vice President, General Manager, and Managing Director of
Malaysian operations where he was responsible for over 6,000 employees. Hill is
an electronics industry speaker and publisher. He holds a Bachelors of Science
degree in Industrial Engineering from New Mexico State University.

BERNARD J. TYLER, 56, Chief Technical Officer has over 30 years experience in
the computer technology industry. For the past 15 year he has focused his
energies on emerging technology and growth oriented companies. From 2000 to
2002, Tyler was Vice President of Engineering and Operations at Path 1 Network
Technologies helping the company become a leader in the Video over IP/Video on
Demand (VOD) marketplace. From 1999 to 2000 Tyler was Vice President of
Engineering at Nautronix Inc., a marine electronics company, where he
reorganized diverging engineering groups and brought process and control of
their product lines. From 1996 to 1999 Tyler worked in Executive Management
positions with several startup company involved in the emerging Internet
e-business and e-commerce applications. From 1994 to 1996 Tyler served initially
as Vice President of Engineering and later made President and CEO of Software

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Sorcery, a computer game manufacturer, where he spearheaded the reorganization
and turnaround of this venture backed company. From 1990 to 1994 Tyler served as
the Director of Software Engineering at Science Application International
Corporation's Computer Systems Group, where he managed 40 engineers performing
on a 500 million dollar systems engineer program for the United States Army.
Tyler holds a Masters degree in Computer Science and a Bachelors of Science
degree in Mathematics.

STEVEN KING, 44 Board of Directors, is a successful businessman and angel
investor specializing in high technology; including networking,
telecommunications, software, Internet business solutions and computer
components. He is currently a Director and Investor of Qualistics Inc., a San
Diego based CRM application software vendor whose clients include McDonalds,
BellSouth and Domino's. In 1999 Mr. King was a co founder and investor in
Solarsoft Ltd., a UK security software developer who licenses its technology to
major PC vendors such as Epson, NEC and Toshiba. From 1998 to 2002 Steve was VP
of Business Development with Memory Corporation PLC, a UK company which he lead
a MBO of a division, DigMedia, Inc., relocating to the USA as its Co-founder and
Chief Marketing Officer. DigMedia specialized in secure Internet broadcasting
software, whose clients included Microsoft and TeleDenmark. He was the Founder
and CEO and Deputy Chairman of Datrontech Group PLC, a leading UK technology
distributor of computer and communications products. Mr. King took Datrontech
public on the London Stock Exchange in 1995 and built the company's revenues in
excess of $500 Million when he left in 1997.

The Directors and Executive officers named above will serve until the next
annual meeting of the shareholders of the Company in the year 2003. Directors
will be elected for one-year terms at each annual shareholder's meeting.
Officers hold their positions at the appointment of the Board of Directors.
Each Director holds office until his successor is elected and qualified or until
his earlier resignation in the manner provided in the bylaws of the Company.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth all annual and long-term compensation for
services in all capacities to the Company in respect of each of the individuals
who were, as of December 31, 2002, considered executive officers.

                            SUMMARY COMPENSATION TABLE

NAME AND PRINCIPAL POSITION        SALARY         RESTRICTED STOCK

David R. Walton                    $6,100            $150,000
Chief Executive Officer

Darrell Musick                     $6,000            $150,000
President

David S. Walton                    $6,000            $150,000
Secretary/Treasurer(a)

(a) Subsequent to December 31, 2002, David S. Walton no longer acts in any
capacity as an officer or director of the Company.

                                       12
<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information about our directors and executive
officers.

                          NAME OF             SHARES OF
    TITLE OF CLASS    BENEFICIAL OWNER       COMMON STOCK    PERCENT OF CLASS
    --------------    ----------------       ------------    -------------------

    Common            Darrell Musick(a)        3,320,000            5.37%

                      David R. Walton          1,000,000            1.78%

                      David S. Walton          3,575,000            5.79%

                      James Burchetta(b)       3,000,000            4.86%

                      Charles Brofman(b)       3,000,000            4.86%

                      Daniel J. Hill(c)           50,000            0.08%

                      Directors and
                      Officers as a
                      Group                    7,945,000           13.02%

(a) Mr. Musick and his wife, Marie A. Musick, are the beneficial owners of Tonda
 Corporation, a Nevada corporation, that owns 1,400,000 shares of the Company's
Common Stock. Although Mr. Musick disclaims beneficial ownership of more than
the shares listed, his son, Daniel Warren Musick, owns 883 shares, his mother,
Esther G. Musick, owns 333 shares, and his wife, Marie A. Musick, owns 333
additional shares.

(b) Mr. Burchetta and Mr. Brofman are the holders of common stock based on
consulting agreements to assist the company develop an online debt resolution
system. Each also holds warrants to purchase 1,500,000 shares of common stock
based on a licensing agreement executed with the Company.

(c) Mr. Hill also holds 200,000 options to purchase shares of the Company's
commons stock at $0.35 per share. Additionally, Mr. Bernie Tyler holds 150,000
options to purchase shares of the Company's common stock at $0.35 per share.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Index to Exhibits

        1       Certificate of Incorporation of the Company - Nevada

        2       Bylaws of the Company

        3       Stock Option Plan (1997)

(b)     Report on Form 8-K - None.

                                       13
<PAGE>

ITEM 14.    CONTROLS AND PROCEDURES

            Within the ninety days prior to the filing date of this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to us required to be included in
our periodic filings with the Securities and Exchange Commission. There have
been no significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
previously mentioned evaluation.



                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                       Security Asset Capital Corporation,
                                     a Nevada corporation


DATED: May 20, 2003                  /s/ Darrell Musick
                                    ------------------------------------------
                                    Darrell Musick
                                    President, Chief Executive Officer and
                                    Chief Financial Officer




                  SARBANES-OXLEY ACT SECTION 302 CERTIFICATION
                           OF CHIEF EXECUTIVE OFFICER

            I, Darrell Musick, President, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Security Asset Capital
     Corporation (the "Company");

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

                                       14
<PAGE>

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the Company as of, and for, the periods presented in this annual report;

     The Company's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in

4.   Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the Company, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     (b)  Evaluated the effectiveness of the Company's disclosure controls and
          procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of ( the Evaluation Date;

5.   The Company's other certifying officer and I have disclosed, based on our
     most recent evaluation, to the Company's auditors and the audit committee
     of the Company's board of directors:

     (a)  All significant deficiencies in the design or operation of internal
          controls which could adversely affect the Company's ability to record,
          process, summarize and report financial data and have identified for
          the Company's auditors any material weaknesses in internal controls;
          and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the Company's internal
          controls; and

6.   The Company's other certifying officer and I have indicated in this annual
     report whether or not there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:    May 20, 2003

                                                By:   /s/ Darrell Musick
                                                     ---------------------------
                                                      Darrell Musick
                                                      President and
                                                      Chief Executive Officer

                                       15
<PAGE>

                  SARBANES-OXLEY ACT SECTION 302 CERTIFICATION
                           OF CHIEF FINANCIAL OFFICER

            I, Darrell Musick, Chief Financial Officer, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Security Asset Capital
     Corporation (the "Company");

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the Company as of, and for, the periods presented in this annual report;

     The Company's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in

4.   Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the Company, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     (b)  Evaluated the effectiveness of the Company's disclosure controls and
          procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of ( the Evaluation Date;

5.   The Company's other certifying officer and I have disclosed, based on our
     most recent evaluation, to the Company's auditors and the audit committee
     of the Company's board of directors:

     (a)  All significant deficiencies in the design or operation of internal
          controls which could adversely affect the Company's ability to record,
          process, summarize and report financial data and have identified for
          the Company's auditors any material weaknesses in internal controls;
          and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the Company's internal
          controls; and

6.   The Company's other certifying officer and I have indicated in this annual
     report whether or not there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:    May 20, 2003

                             By: /s/ Darrell Musick
                                 --------------------------------
                                 Darrell Musick
                                 Chief Financial Officer

                                       16
<PAGE>

                       SECURITY ASSET CAPITAL CORPORATION
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AND INDEPENDENT AUDITORS' REPORT

                 For The Years Ended December 31, 2002 and 2001

                       SECURITY ASSET CAPITAL CORPORATION
                                AND SUBSIDIARIES

                                TABLE OF CONTENTS
                                -----------------

INDEPENDENT AUDITORS'REPORT                                        F-1

FINANCIAL STATEMENTS

      Consolidated Balance Sheet                             F-2 - F-3

      Consolidated Statements of Operations                        F-4

      Consolidated Statements of
         Shareholders' (Deficit) Equity                      F-5 - F-6

      Consolidated Statements of Cash Flows                  F-7 - F-8

      Notes to Consolidated Financial Statements             F-9 - F-23

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Security Asset Capital Corporation

We have audited the accompanying consolidated balance sheet of Security Asset
Capital Corporation and Subsidiaries (the "Company"), as of December 31, 2002,
and the related consolidated statements of operations, shareholders' (deficit)
equity, and cash flows for each of the two years in the period ended December
31, 2002. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Security Asset Capital Corporation and Subsidiaries as of December
31, 2002, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred significant losses
from operations and its largest assets are not currently generating revenue. The
Company's revenues are not sufficient to meet its near term working capital
requirements. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Hurley & Company

Granada Hills, California
April 27, 2003

                                       F-1

<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2002

                                     ASSETS
                                     ------


Current assets:

      Loan portfolio assets                                     $    100,000
      Prepaid expenses and other current assets                        2,500
                                                                -------------
            Total current assets                                     102,500

Long-term note receivable, related parties                           400,000

Furniture and equipment, net of accumulated depreciation              41,076

Patent and patents pending                                            10,000

Other assets                                                          10,000
                                                                -------------

            Total assets                                        $    563,576
                                                                =============

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

                                      F-2

<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET (Continued)
                                December 31, 2002

                      LIABILITIES AND SHAREHOLDERS' DEFICIT
                      -------------------------------------


Current liabilities:
      Bank overdraft                                            $     10,857
      Accounts payable                                               282,302
      Advances from related parties                                   85,310
      Accrued expenses and other liabilities                         742,172
      Notes payable                                                2,492,465
                                                                -------------
        Total current liabilities                                  3,613,106

                                                                -------------
        Total liabilities                                          3,613,106
                                                                -------------

Commitments and contingencies                                             --

Shareholders' deficit:
      Preferred stock, par value $0.001 per share,
        20,000,000 shares authorized, 3,176,654 shares issued
        and outstanding, total liquidation preference
        $6,353,308                                                     6,353
      Common stock, par value $0.001 per share,
        250,000,000 shares authorized; 61,744,210
        shares issued and outstanding                                 61,744
      Additional paid-in capital                                  20,204,238
      Accumulated deficit                                        (23,113,265)
      Less treasury stock at cost, (175,000 shares)                 (208,600)
                                                                -------------
        Total shareholders' deficit                               (3,049,530)
                                                                -------------
        Total liabilities and shareholders' deficit             $    563,576
                                                                =============

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

                                      F-3
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2002 and 2001


                                                      2002           2001
                                                 -------------  -------------
Revenues:
   Portfolio                                     $    229,371   $    151,327
                                                 -------------  -------------

Expenses:
   Portfolio                                          700,000      1,202,473
   General and administrative                       3,995,146      2,856,152
                                                 -------------  -------------

   Total expenses                                   4,695,146      4,058,625
                                                 -------------  -------------

      Loss from continuing operations              (4,465,775)    (3,907,298)
                                                 -------------  -------------
Other income (expense):
   Other income                                            --         14,526
   Interest expense (including amortization of
     deferred financing costs of $273,160
     in 2001)                                        (352,681)    (1,072,699)
   Impairment of intangible assets                 (3,212,008)      (200,000)
                                                 -------------  -------------

   Total other expense                             (3,564,689)    (1,258,173)
                                                 -------------  -------------

      Loss before discontinued operations
         and income tax benefit                    (8,030,464)    (5,165,471)

Income from discontinued operations, net of
  income taxes of $0                                       --         39,835
                                                 -------------  -------------

      Net loss                                   $ (8,030,464)  $ (5,125,636)
                                                 =============  =============


Basic and diluted net loss per share             $      (0.15)  $      (0.24)
                                                 =============  =============
Weighted average number of shares
  outstanding, basic and diluted                   52,271,812     21,328,000
                                                 =============  =============

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

                                      F-4
<PAGE>
<TABLE>
                                         SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
                                           For the Years Ended December 31, 2002 and 2001
<CAPTION>

                                  Common Stock        Treasury Stock      Preferred Stock    Additional
                             --------------------- -------------------- --------------------   Paid-In    Accumulated
                               Shares      Amount   Shares     Amount     Shares     Amount    Capital      Deficit        Total
                             ----------- --------- --------- ---------- ---------- --------- ------------ ------------- ------------
<S>                          <C>         <C>        <C>      <C>        <C>        <C>       <C>          <C>           <C>
Balance, January 1, 2002     28,196,710  $ 28,197   175,000  $(208,600) 2,579,154  $  5,158  $16,069,116  $(15,082,801) $   811,070

Issuances of common stock:

 Consulting services         27,547,500    27,547        --         --         --        --    2,234,427            --    2,261,974

 Services of
   executive officers         6,000,000     6,000        --         --         --        --      444,000            --      450,000

 Issuance of preferred stock
  in conversion of notes payable     --        --        --         --     597,500    1,195      769,063            --      770,258

 Issuance of stock options
  In exchange for services           --        --        --         --         --        --      687,632            --      687,632

Net loss for the year ended
  December 31, 2002                  --        --        --         --         --        --           --    (8,030,464)  (8,030,464)
                             ----------- --------- --------- ---------- ---------- --------- ------------ ------------- ------------

Balance, December 31, 2002   61,744,210  $ 61,744   175,000  $(208,600) 3,176,654  $  6,353  $20,204,238  $(23,113,265) $(3,049,530)
                             =========== ========= ========= ========== ========== ========= ============ ============= ============

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

                                                                 F-5
</TABLE>
<PAGE>
<TABLE>
                                         SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY (Continued)
                                           For the Years Ended December 31, 2002 and 2001
<CAPTION>

                                    Common Stock        Treasury Stock      Preferred Stock     Additional
                               --------------------- -------------------- --------------------   Paid-In    Accumulated
                                  Shares     Amount    Shares    Amount     Shares     Amount    Capital      Deficit       Total
                               ----------- --------- --------- ---------- ---------- --------- ------------ ------------ -----------
<S>                            <C>         <C>        <C>      <C>               <C><C>        <C>          <C>         <C>
Balance, January 1, 2001       15,573,510  $ 15,573   328,850  $(523,085)        -- $      --  $ 8,746,056  $(9,957,165)$(1,718,621)

Issuances of common stock:

  Consulting services           9,180,000     9,180  (153,850)   314,485         --        --    1,789,080           --   2,112,745

  Interest and financing costs    143,200       144        --         --         --        --       35,456           --      35,600

  Services of
    executive officers          3,000,000     3,000        --         --         --        --      177,000           --     180,000

  Issued in acquisition
   of Universal View              300,000       300        --         --         --        --      168,750           --     169,050

Issuance of preferred stock
 in conversion of notes payable        --        --        --         --  2,579,154     5,158    5,152,774           --   5,157,932

Net loss for the year ended
  December 31, 2001                    --        --        --         --         --        --           --   (5,125,636) (5,125,636)
                               ----------- --------- --------- ---------- ---------- --------- ------------ ------------ -----------

Balance, December 31, 2001     28,196,710    28,197   175,000   (208,600) 2,579,154     5,158   16,069,116  (15,082,801)    811,070

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

                                                                 F-6
</TABLE>
<PAGE>
<TABLE>
               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Years Ended December 31, 2002 and 2001
<CAPTION>

                                                           2002          2001
                                                      -------------  -------------
<S>                                                   <C>            <C>
Cash flows from operating activities:
   Net loss                                           $ (8,030,464)  $ (5,125,636)
   Adjustments to reconcile net loss to net
     cash flows used in operating activities:
       Depreciation and amortization                        26,125         11,169
       Amortization of deferred financing costs                 --        273,160
       Notes issued for settlement
          of legal disputes                                312,722             --
       Issuances of common stock for consulting
          and other services                             2,261,974      1,798,260
       Issuances of common stock for consulting
          and other services of executive officers         450,000        180,000
       Impairment of intangible assets                   2,433,128        200,000
       Provision for loss on note receivable               417,810             --
       Issuance of treasury stock for services                  --        314,485
       Issuance of common stock for acquisition
            costs expensed                                      --        169,050
       Issuance of common stock options for
          consulting and other services                    687,632             --
   Changes in operating assets and liabilities:
    (Increase) decrease in:
       Loan portfolio assets                               700,000      1,149,598
       Related party receivables - directors                21,789         24,500
       Prepaid expenses and other current assets            64,700        (42,784)
     Increase (decrease) in:
       Accounts payable, accrued expenses and
         other liabilities                                 102,910        265,913
                                                      -------------  -------------

       Net cash flows provided by (used in)
        operating activities                              (552,394)      (782,285)
                                                      -------------  -------------

Cash flows from investing activities:
   Purchase of property and equipment                           --         (6,263)
   Proceeds from sale of rental properties, net                 --        250,000
                                                      -------------  -------------

      Net cash flows provided by investing activities           --        243,737
                                                      -------------  -------------

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

                                      F-7
</TABLE>
<PAGE>
<TABLE>
                  SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                    For the Years Ended December 31, 2002 and 2001
<CAPTION>

                                                              2002           2001
                                                         -------------    ------------
<S>                                                      <C>              <C>
Cash flows from financing activities:
   Increase (decrease) in bank overdraft                 $    (15,106)    $    18,921
   Repayments of notes payable                                     --              --
   Proceeds from borrowings - notes payable                   567,500         516,184
   Repayments of long-term debt                                    --              --
                                                         -------------    ------------

      Net cash flows provided by (used in)
             financing activities                             552,394         535,105
                                                         -------------    ------------

Net decrease in cash and cash equivalents                          --          (3,443)

Cash and cash equivalents at beginning of year                     --           3,443
                                                         -------------    ------------

Cash and cash equivalents at end of year                 $         --     $        --
                                                         =============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:
      Interest                                           $         --     $        --
                                                         =============    ============
      Income taxes                                       $         --     $        --
                                                         =============    ============


Supplemental disclosure of non-cash investing and financing activities:

      Conversion of notes payable to preferred stock     $    770,258     $ 5,157,932
                                                         =============    ============

      Note receivable from related party in
            in disposition of operations                 $         --     $ 1,200,000
                                                         =============    ============

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

                                          F-8
</TABLE>
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

ORGANIZATION AND BUSINESS

         Security Asset Capital Corporation ("SACC"), a Nevada corporation,
         Trading under the symbol ("SCYA"), operates through the following
         wholly owned subsidiaries:

         Security Asset Management, Inc. ("SAM"), a California corporation,
         which, together with SACC, acquires, manages, collects and markets
         distressed consumer credit portfolios for their own account and third
         parties.

         Security Asset Properties, Inc. ("SAP"), a Nevada corporation, owns and
         operates fourteen income producing residential properties in San Diego
         County, California. This corporation, formerly known as Four D
         Corporation, was acquired in a stock swap on October 31, 1999, whereby
         SACC acquired 100% of the outstanding common stock of Four D
         Corporation in exchange for 900,000 shares of Security Asset Capital
         Corporation's common stock. This transaction has been recorded as a
         purchase. The excess fair value of assets acquired over liabilities
         assumed of $1,067,810 was allocated to rental real estate. The results
         of operations of the acquired business have been included in Security
         Asset Capital Corporation and Subsidiaries' consolidated results of
         operations from the date of acquisition. SAP was sold to former
         officers and shareholders of SAP in March 2001. (See Note 3)

         Broadband Technologies, Inc. ("Tech"), a Nevada corporation, was formed
         in 1999. Tech was capitalized by the contribution from SACC of a patent
         and certain patents pending and licensing for direct on-line full
         screen video technology which was acquired for cash and stock in 1999
         by SACC. Tech will continue development of its capability for video
         streaming on-line and enhanced distributive database management on the
         Internet. There has been no activity within this segment in 2001 or
         2002. The investment has been written down to a de minimis value in
         2002.

         The Debt Trader holds certain technology and rights related to an
         online market place for buyers and sellers of distressed debt
         portfolios, internally known as theDebtTrader.com.

         The Debt Registry, a Nevada corporation, has contracted with Expanets,
         Inc. to develop a software system, which applies to the registration
         and tracking of individual debt accounts sold by lending institutions
         to third parties. The CUSIP type tracking system will bring order and
         accountability to the buying and selling of debt portfolios in a manner
         similar to what the Department of Motor Vehicles does for the
         automotive industry. Management has switched emphasis to a debt
         resolution system that is more of a collection tool for the users of
         the Debt Registry. The product is still in the development stage.

                                      F-9
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

         Universal View Corp., a non operating reporting public shell
         corporation, was acquired by the Company during 2000 through a reverse
         merger for $1,194,050 consisting of cash in the amount of $125,000 and
         700,000 shares of the Company's common stock. Universal View Corp. had
         no operations during the years ended December 31, 2002 and 2001.

PRINCIPLES OF CONSOLIDATION

         The accompanying financial statements consolidate the accounts of
         Security Asset Capital Corporation and its wholly-owned subsidiaries,
         Security Asset Management, Inc., Security Asset Properties, Inc.,
         (prior to its sale in March 2001) Broadband Technologies, Inc., the
         Debt Trader, Universal View Corporation and The Debt Registry. All
         significant intercompany accounts and transactions have been
         eliminated in consolidation.

FINANCIAL INSTRUMENTS

         The carrying amounts reported in the consolidated balance sheet for
         notes receivable, bank overdraft, accounts payable, loan sales payable
         to third parties, loan portfolio payable, accrued expenses and notes
         payable approximate fair value due to the immediate short-term maturity
         of these financial instruments.

FAIR VALUE OF LOAN PORTFOLIO ASSETS

         The fair value of the Loan Portfolio Assets as evaluated by management
         is estimated by using available market information and other valuation
         methodologies. Management estimates the fair value of the Company's
         Loan Portfolio Assets to exceed the related book value.

         Management estimates that the gross margin on resales of Loan Portfolio
         Assets approximates 10% and that the gross potential collections from
         the Loan Portfolio Assets held as of December 31, 2002 will be in the
         range of $100,000 to $180,000, with estimated related collection
         costs of approximately 10% to 20%. These assets are carried on the
         books of the Company at $100,000 at December 31, 2002.

CASH AND CASH EQUIVALENTS

         The Company considers all cash accounts, which are not subject to
         withdrawal restrictions or penalties, and certificates of deposit and
         money market funds purchased with an original maturity of three months
         or less to be cash equivalents. The Company maintains its primary
         checking and savings accounts at two financial institutions located in
         California. Accounts at these banks are insured by the Federal Deposit
         Insurance Corporation (FDIC) up to $100,000.

                                      F-10
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

LOAN PORTFOLIO ASSETS AND REVENUE RECOGNITION

         Loan Portfolio Assets ("Portfolio Assets") represent liquidating loan
         portfolios of delinquent accounts which have been purchased by SACC for
         resale and collection and are stated at cost. The cost of the Loan
         Portfolio Assets are the actual dollars spent for the purchase of the
         portfolio, including related brokerage commissions, if any.

         Loan Portfolio Asset costs are written off by a percentage of cash
         collections on a portfolio-by-portfolio basis. Management had estimated
         that Portfolio Assets in collection would realize gross collections
         equal to approximately three times the purchase price of the Portfolio
         Assets. The Company, had written off one dollar of cost of Portfolio
         Assets for every three dollars in gross collection. In 2001 and 2002,
         the estimate of future collection was reduced such that the Company
         writes off $0.90 of cost for every dollar of gross collection.

         Certain Loan Portfolio Assets are sold in part or in whole by the
         Company. Gains and losses from the disposition of all or part of Loan
         Portfolio Assets are recorded as appropriate when Loan Portfolio Assets
         are sold. The amount of the portfolio cost written off is a percentage
         of the amount sold using the experiences, if any, in sales of the
         specific loan portfolio assets. As a number of sales have and will
         occur, with any one portfolio, various sales prices are considered in
         determining the write off of the portfolio costs against the sales
         proceeds.

         The Company considers a sale to have taken place when there has been a
         transfer of Loan Portfolio Assets and where the Company surrenders
         control over the Loan Portfolio Assets to the extent that consideration
         other than beneficial interests in the transferred Loan Portfolio
         Assets is received in exchange for the Loan Portfolio Assets.

FURNITURE AND EQUIPMENT

         Furniture and equipment is recorded at cost. Depreciation is calculated
         on the straight-line basis over an estimated useful life of five years.

                                      F-11
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

NET LOSS PER SHARE

         Basic net loss per share excludes dilution and is computed by dividing
         net loss by the weighted average number of common shares outstanding
         during the reported periods. Diluted net loss per share reflects the
         potential dilution that could occur if preferred stock were converted,
         and stock options and other commitments to issue common stock were
         exercised. During the years ended December 31, 2002 and 2001, options
         to purchase 14,030,000 and 1,980,000 common shares, respectively, were
         anti-dilutive and have been excluded from the weighted average share
         computation. The 3,176,654 and 2,579,154 shares of preferred stock
         outstanding at December 31, 2002 and 2001, respectively, are also
         anti-dilutive and not included in the computation.

INCOME TAXES

         The Company accounts for income taxes in accordance with SFAS No. 109
         "Accounting for Income Taxes." Under this method, deferred income taxes
         are recognized for the tax consequences of "temporary differences" by
         applying enacted statutory tax rates applicable to future years to
         differences between the financial statement carrying amounts and the
         tax bases of existing assets and liabilities. Deferred tax assets are
         reduced by a valuation allowance when, in the opinion of management, it
         is more likely than not that some portion or all of the deferred tax
         assets will not be realized.

STOCK BASED COMPENSATION

         The Financial Accounting Standards Board (FASB) issued Statement of
         Financial Accounting Standards (SFAS) No. 123, "Accounting for
         Stock-Based Compensation." This statement encourages, but does not
         require, companies to recognize compensation expense for grants of
         stock, stock options, and other equity instruments based on a
         fair-value method of accounting.

         Companies that do not choose to adopt the expense recognition rules of
         SFAS No. 123 will continue to apply the existing accounting rules
         contained in Accounting Principles Board Opinion (APB) No. 25, but will
         be required to provide proforma disclosures of the compensation expense
         determined under the fair-value provisions of SFAS No. 123. APB No. 25
         requires no recognition of compensation expense for most of the
         stock-based compensation arrangements provided by the Company, namely,
         broad-based employee stock purchase plans and option grants where the
         exercise price is equal to the market price at the date of the grant.
         The Company has adopted the disclosure provisions of SFAS No. 123,
         effective January 1, 1998. The Company has opted to follow the
         accounting provisions of APB No. 25 for stock-based compensation and to
         furnish the pro forma disclosures required under SFAS No. 123.
         (See Note 11)

TREASURY STOCK

         The Company has elected to record treasury stock at cost in accordance
         with APB No. 6.

                                      F-12
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
-----------------------------------------------------------

PREFERRED STOCK

         The Company has authorized 20,000,000 shares, $0.001 par value of
         preferred stock. The preferred stock has a $2.00 per share liquidation
         preference. The preferred shares issued in conversion of the investor
         notes were valued at $2.00 per share. The converting shareholders have
         the right to convert their preferred shares to common stock at $2.00
         per share anytime between September 30, 2002 and August 30, 2003. The
         preferred stock will be automatically converted to common stock upon
         closing of a public offering with a value of at least $20,000,000.

USE OF ESTIMATES

         The preparation of these consolidated financial statements in
         conformity with accounting principles generally accepted in the United
         States of America requires management to make estimates and assumptions
         that affect the reported amounts of assets and liabilities and
         disclosure of contingent assets and liabilities at the date of the
         financial statements and the reported amounts of revenues and expenses
         during the reporting period. Significant estimates include the
         estimation of the fair value of rental real estate acquired and the
         expected future return on investments in Broadband Technologies, Inc.
         and The Debt Registry. Expected collections on the loan portfolio and
         the ultimate collectibility of the note due from the sale of SAP are
         also significant estimates. Actual results could materially differ from
         those estimates.

COMPREHENSIVE INCOME

         The FASB has issued Statement of Financial Accounting Standards (SFAS)
         No. 130, "Reporting Comprehensive Income." This statement establishes
         standards for reporting and display of comprehensive income and its
         components. The Company adopted this statement effective January 1,
         1998. For the years ended December 31, 2002 and 2001, the Company had
         no material items that were required to be recognized as components of
         comprehensive income.

DERIVATIVE INSTRUMENTS

         In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
         Instruments and Hedging Activities - Deferral of the Effective Date of
         FASB Statement No. 133," ("SFAS No. 137"). SFAS No. 137 delayed the
         effective date of implementation of SFAS No. 133 for one year and made
         SFAS No. 133 effective for all fiscal quarters of all fiscal years
         beginning after June 15, 2000. Retroactive application to periods prior
         to adoption is not allowed. The Company adopted SFAS No. 137 in the
         first quarter of 2001 and it has not had a material impact on the
         consolidated financial statements.

INTANGIBLE ASSETS

         Prior to July 1, 2001, the cost of acquired businesses in excess of the
         fair value of net assets acquired was recorded as goodwill and
         amortized on the straight-line method over periods not exceeding forty

                                      F-13

<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

         years. Pursuant to the new accounting standards issued in July 2001,
         effective July 1, 2001, goodwill recorded in connection with
         acquisitions consummated prior to that date continued to be amortized
         through December 31, 2001 and have not been amortized thereafter.
         Goodwill recognized in connection with acquisitions consummated after
         June 30, 2001 will not be amortized. Other intangible assets (primarily
         patents and patents pending) are recorded at fair market value at the
         date of acquisition based upon appraisals obtained by management and
         will be amortized on the straight-line method over periods not
         exceeding fifteen years when the products pertaining to the intangible
         assets are available for use by outside parties.

IMPAIRMENT OF ASSETS

         In accordance with SFAS No. 121 "Accounting for Impairment or Disposal
         of Long-Lived Assets" ("SFAS 121"), the Company reviews the
         recoverability of its long-lived assets, including goodwill and
         intangible assets, when events or changes in circumstances occur that
         indicate that the carrying value of the asset may not be recoverable.
         Evaluation of possible impairment is based on the Company's ability to
         recover the asset from the expected future pretax cash flows
         (undiscounted and without interest charges) of the related operations.
         If the expected undiscounted pretax cash flows are less than the
         carrying amount of such asset, including any goodwill associated with
         the asset, an impairment loss is recognized for the difference between
         the estimated fair value and carrying amount of the asset (Note 6).

SEGMENT REPORTING

         The Company currently operates in three reportable business segments.
         Substantially all of the Company's services are provided within the
         United States, and substantially all of the Company's assets are
         located within the Unites States. No one customer accounted for ten
         percent or more of net revenues in 2002 or 2001.

RECENT PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 141, "Business Combinations" ("SFAS 141"), which requires
         business combinations initiated after June 30, 2001 to be accounted for
         using the purchase method of accounting, and SFAS No. 142, "Goodwill
         and Other Intangible Assets" ("SFAS 142"), which broadens the criteria
         for recording intangible assets separate from goodwill. SFAS 142
         requires the use of a non-amortization approach to account for
         purchased goodwill and certain intangibles. Under this approach,
         goodwill and certain intangibles will not be amortized into results of
         operations, but instead will be reviewed for impairment and an
         impairment charge will be recorded in the periods in which the recorded
         carrying value of goodwill and certain intangibles is more than its
         estimated fair value. The provisions of SFAS 141 and SFAS 142 were
         adopted commencing January, 2002.

                                      F-14
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

         In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment
         or Disposal of Long-Lived Assets" ("SFAS 144"), which supercedes SFAS
         No. 121. SFAS 144 further refines SFAS 121's requirement that companies
         recognize an impairment loss if the carrying amount of a long-lived
         asset is not recoverable based on its undiscounted future cash flows
         and measures an impairment loss as the difference between the carrying
         amount and fair value of the asset. In addition, SFAS 144 provides
         guidance on accounting and disclosure issues surrounding long-lived
         assets to be disposed of by sale. SFAS is effective for fiscal years
         beginning after December 15, 2001.

         The adoption of SFAS 142 and SFAS 144 did not have a material effect on
         the Company's consolidated results of operations or financial position.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
         Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections." This statement rescinds, updates, clarifies and
         simplifies existing accounting pronouncements. Among other things, the
         statement rescinds SFAS No. 4, which required all gains and losses from
         extinguishment of debt to be aggregated and, if material, classified as
         an extraordinary item, net of related income tax effect. Under SFAS No.
         145, the criteria in APB No. 30 will now be used to classify those
         gains and losses. SFAS No. 145 is effective for financial statements
         issued for years beginning after May 15, 2002. As of December 31, 2002,
         the Company had not yet adopted SFAS No. 145. In June 2002, the FASB
         issued SFAS No. 146, "Accounting for Costs Associated with Exit or
         Disposal Activities." This statement requires the recording of costs
         associated with exit or disposal activities at their fair values when a
         liability has been incurred. Under previous guidance, certain exit
         costs were accrued upon management's commitment to an exit plan, which
         is generally before an actual liability has been incurred. The
         requirements of SFAS No. 146 are effective prospectively for exit or
         disposal activities initiated after December 31, 2002. Previously
         issued financial statements will not be restated Management does not
         expect adoption of SFAS 145 or 146 to have a material effect on the
         Company's consolidated financial statements.

RECLASSIFICATIONS

         Certain prior year amounts in the accompanying financial statements
         have been reclassified to conform to the current year's presentation.

NOTE 2 - BASIS OF PRESENTATION
------------------------------

         During the two years ended December 31, 2002 and 2001, the Company has
         suffered recurring losses from operations, significant negative working
         capital and no guaranteed access to capital resources. At present, the
         Company's working capital deficit and limited capital resources do not
         enable it to meet the Company's near-term capital needs.

         In addition, The Company's largest assets, The Debt Registry and
         Broadband Technologies, Inc., are not generating any revenue. The note
         receivable from related parties is now is dispute as to due date and
         are disclosed as long-term assets.

         The Company's president, David Walton passed away in March 2003,
         bringing a change in management team. A key man life insurance policy,
         purchased in September 2002 named the Company as beneficiary of the
         death benefit. New Management is hopeful that the proceeds will give
         the Company additional resources to bring the debt resolution system to
         market.

         Management is hopeful that The Debt Registry combined with the debt
         resolution system will become operational in 2004. Management is
         planning to borrow and raise investment capital sufficient to fund
         development of The Debt Registry and debt resolution system. Broadband
         Technologies, Inc. has now been written down as impaired Due to
         inability to attract a partner or bring the technology to market.
         Management is concentrating almost all of its efforts on the debt
         resolution system and Debt Registry programs. However, the Company will
         continue to search for a partner to bring the Broadband technology to
         market or to sell the technology.

                                      F-15
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 2 - BASIS OF PRESENTATION (Continued)
------------------------------

         There is a formal investigation by the Securities and Exchange
         Commission and the Pennsylvania Securities Commission regarding the
         sale of investor notes. No provision has been made for the effect, if
         any, of any findings from that investigation.

         It is not possible to predict the success of management's subsequent
         efforts to achieve profitability. If management is unable to achieve
         its goals, the Company may find it necessary to undertake other actions
         as may be appropriate to continue operations and meet its commitments.

         The accompanying consolidated financial statements do not include any
         adjustments relating to the recoverability and classification of the
         recorded asset amounts or the amounts and classification of liabilities
         that might be necessary should the Company be unable to continue in
         existence.

NOTE 3 - SALE OF INVESTMENT IN RENTAL REAL ESTATE
-------------------------------------------------

         In 2001, the Company sold its subsidiary SAP to Western Asset Limited
         Partnership ("Western") and El Dorado Properties, Inc. ("El Dorado"),
         entities controlled by SAP's former owners, for a $1,200,000 note
         receivable and $250,000 in cash. The note bears interest at 5% per
         annum, payable in arrears, with all unpaid principal and interest due
         on March 28, 2003. The note is secured by SAP's stock as well as the
         900,000 shares of the Company's common stock owned by SAP's former
         owners that were received by them in 1999 when the Company first
         acquired SAP. The sale of SAP resulted in a deferred gain of $382,190
         at December 31, 2001. Due to the uncertainty of collection, the gain
         and the interest on the note will be recognized when the amounts are
         received. The shareholders of SAP have agreed not to sell or encumber
         the rental properties owned by SAP without prior notification and
         approval by SCYA Management. As of May 2003, Western is now disputing
         the due date of the note, citing an agreement with SCYA Management. As
         a result, the note has been written down to reflect the anticipated
         costs to be incurred in collecting the note. In addition, some
         creditors have attached the note and will work with management to
         effect collection.

NOTE 4 - FURNITURE AND EQUIPMENT
--------------------------------

                 Furniture and equipment                          $      83,083
                 Less: accumulated depreciation                         (42,007)
                                                                  --------------
                                                                  $      41,076
                                                                  ==============

NOTE 5 - PATENTS AND PATENTS PENDING
-------------------------------------

         During 1999, the Company acquired a patent, certain patents pending and
         licensing for direct on-line full-motion video on-demand technology in
         exchange for its common stock. The fair market value at the date of
         acquisition was $1,552,500, based on an appraisal obtained by
         management.

         Management wrote the asset down $1,542,000 to $10,000 due to impairment
         and is seeking to sell the technology.

NOTE 6 - GOODWILL
-----------------

         During March 2000, the Company acquired 100% of the outstanding common
         stock of Universal View Corporation (a non operating shell corporation)
         in a reverse merger. The Company acquired all of the outstanding shares
         of Universal View Corporation in exchange for 700,000 shares of Company
         common stock and $125,000 in cash. At the time of purchase, goodwill
         was recorded based on the excess of the fair market value of the cash
         given and the Company's common shares at the date of acquisition over
         the fair market value of Universal View Corporation's shares. Goodwill
         was recorded in the amount of $1,025,000 in 2000.

                                      F-16
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 6 - GOODWILL (Continued)
-----------------

         During 2000, this goodwill was reduced to a net book value of $350,000
         in accordance with FASB No. 121. The amount of impairment loss
         recognized in 2000 for this item was $675,000. In the year ended
         December 31, 2001, the unamortized net book value of goodwill
         associated with the purchase of Universal View Corporation of $200,000
         was written off as impaired and the additional acquisition costs of
         $169,050 incurred in 2001 were expensed.

NOTE 7 - THE DEBT REGISTRY DOMAIN NAMES
----------------------------------------

         During 2000, the Company issued 1,100,000 shares of its common stock in
         exchange for 100% of the outstanding common stock and the "domain
         names" associated with The Debt Registry valued at $900,628, based on
         the fair market value of the common stock on the dates issued.
         The Company wrote off this unamortized intangible asset in 2002 due to
         Impairment.

NOTE 8 - NOTES PAYABLE
----------------------

         In December 1998, the Company entered into a funding agreement with
         Secure Investments, Inc. under which Secure Investments, Inc. has
         agreed to provide up to $24,000,000 in notes payable ("Investor Notes")
         to be used for the purchase of debt portfolios and related note
         expenses. The Investor Notes were structured as nine (9) month notes
         carrying interest at 12% per annum.

         In 2001, Management negotiated a restructuring of the Investor Notes
         into a new class of notes payable bearing interest at 4% per annum due
         from 16 to 24 months.  Also in 2001, $5,157,932 of the $5,557,932
         Investor Notes were exchanged for preferred stock which is convertible
         into common stock at a value of $2.00 per share.  Many of the
         noteholders have disputed the conversions, claiming misrepresentations

         In 2002, other noteholders converted their notes to preferred stock.
         Also in 2002, some noteholders brought suit against the Company and
         were awarded notes in settlement of the dispute.

         Funds from the Investor Notes were used primarily to fund
         acquisitions of distressed consumer loan portfolios and pay costs
         related to notes including commissions and interest.

         Notes payable consist of the following as of December 31, 2002:

         Investor notes, paying interest at 4%, due by 2003  $     267,665
         Estimated investor notes accruing interest
           at 12%, in default                                      600,000
         Notes issued in settlement, bearing interest at
           rates from 4% to 12%, in default                        848,800
         Note, bearing interest at 12%, secured by
           a portfolio of investor notes as well as
           Company assets, in default                              247,500
         Note, bearing interest at 12%, unsecured
           due in 2003                                             150,000
         Note, bearing interest at 12%, unsecured,
           in default                                              175,000
         Other private party notes                                 203,500
                                                             --------------
              Total, all current or in default               $   2,492,465
                                                             ==============

                                      F-17
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 9 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

LITIGATION

         The Company is involved in litigation arising in the normal course of
         business. Since the death of David Walton, certain counsel have ceased
         working with the Company and the status of various matters is difficult
         to ascertain. The Company has accrued approximately $300,000 in
         additional liabilities to meet expected but unknown expenses and costs
         of settling litigation. Management believes that any outcome of such
         matters will not be materially in excess of the recorded accruals.

         Current management of the Company is aware of a total of approximately
         $1,600,000 of judgments and are to settle those judgments. The Company
         expects the final outcome, which may include the payment of cash,
         notes, stock from shareholders as well as stock from the Company to not
         be materially more than what was accrued above. Final settlement
         agreements have not been signed by all parties.

         The SEC has begun a formal investigation of the Company's transactions
         on the sale of investor notes in coordination with an inquiry by the
         Pennsylvania Securities Commission. There have been no provisions for
         any fines or damages which might result from those investigations.
         Several note holders have filed suit and have won judgments for return
         of their investment. Those judgments are included in the notes payable
         together with an additional estimated amount for claims by other note
         holders.

         The Company is not in compliance with the collateral requirements for a
         note of approximately $250,000.

         The termination of the Company's primary counsel for the year ended
         December 31, 2002 has created an uncertainty regarding the status of
         some litigation matters. The counsel will not respond to inquires to
         provide information regarding those matters he was handling. New
         Company counsel is unable to assess the status of these matters and has
         not given an opinion regarding potential liabilities.


OFFICER COMPENSATION

         The Board of Directors established minimum salaries for three of its
         officers aggregating $350,000 for 2002 and a minimum salary of $150,000
         per year from 2003 through 2005 for its CEO.

         Since the death of David Walton, the Board has hired a new management
         team, however, the compensation agreements are all short-term.

LEASES

         The Company rents office space under an operating lease agreement
         through February 2003. Monthly lease payments total approximately
         $3,200. Rent expense for the years ended December 31, 2002 and 2001
         totaled $40,000 and $54,000, respectively. At December 31, 2002, the
         future minimum lease payments required over the remaining terms of
         these leases are $6,400.

NOTE 10 - SHAREHOLDERS' EQUITY
------------------------------

STOCKHOLDERS' EQUITY

         In 2002 and 2001, the Company committed to issuing a total of
         33,547,500 and 12,623,200 shares of common stock, respectively.  The
         shares were granted in the amounts and for the purposes
         described below:

              Purpose                                       Number of Shares
              -------                                       ----------------
          2002
          ----
          Issued to officers for services                          6,000,000
          Issued to third parties for consulting services         27,547,500
                                                                 ------------
                                                                  33,547,500
                                                                 ============

                                      F-18
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 10 - SHAREHOLDERS'EQUITY (Continued)
-----------------------------

              Purpose                                       Number of Shares
              -------                                       ----------------
          2001
          ----
          Acquisition of Universal View Corp.                        300,000
          Issued to officers for services                          3,000,000
          Issued to third parties for consulting services          9,180,000
          Issued in payment of interest and financing costs          143,200
                                                                  -----------
                                                                  12,623,200
                                                                  ===========

         During July and November 2002, the Company issued a total of 6,000,000
         shares of common stock to officers as compensation for services
         provided to the Company. For the year ended December 31, 2002, the
         Company recognized $450,000 as compensation expense associated with
         these grants of shares, based on the fair value of the stock at the
         time of the grant.

         During 2002, the Company issued 27,547,500 shares of common stock to
         third parties as compensation for consulting services provided to the
         Company. For the year ended 2002, the Company recognized $2,261,974 as
         expense related to these issuances based on estimated fair market value
         of the stock at the time of issuance.

         During August 2001, the Company issued a total of 3,000,000 shares of
         common stock to officers of the Company as compensation for services
         provided to the Company. For the year ended 2001, the Company
         recognized $180,000 as compensation expense associated with these
         grants, based on the fair value of the stock at the time of the grant.

         During 2001, the Company issued 9,180,000 shares of common stock to
         third parties as compensation for consulting services provided to the
         Company. For the year ended 2001, the Company recognized $2,112,745 as
         expense related to these issuances based on estimated fair market value
         of the stock at the time of issuance.

         During 2001, the Company issued 143,200 shares for payment of interest
         and finance costs for the year. $35,600 was recorded as expense based
         on share price at the time of issuance.

                                      F-19
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 11 - STOCK OPTION PLAN
---------------------------

         The Company has adopted a stock option plan (the Plan) under which
         options to purchase up to 20,000,000 shares of common stock may be
         granted to officers, employees or directors of the Company, as well as
         consultants, independent contractors or other service providers of the
         Company. "Nonqualified" options may be granted under the Plan.
         Nonqualified options may be granted at an exercise price determined by
         the Board of Directors. Individual option agreements will contain such
         additional terms as may be determined by the Board of Directors at the
         time of the grant. The Plan provides for grants of options with a term
         of up to ten years.

STOCK OPTIONS

         The Company has elected to account for nonqualified grants and grants
         under its Plan following APB No. 25 and related interpretations.
         Accordingly, $687,632 and $0 of compensation costs have been recognized
         for nonqualified options for the years ended December 31, 2002 and
         2001, respectively. Under FASB Statement No.123, Accounting for
         Stock-Compensation, the fair value of each option granted during the
         years ended December 31, 2002 and 2001 was estimated on the measurement
         date utilizing the then current fair value of the underlying shares
         less the exercise price discounted over the average expected life of
         the options of ten years, with an average risk-free interest rate
         ranging from 4.88% to 6.29%, price volatility of 1 and no dividends.
         Had compensation cost for all awards been determined based on the fair
         value method as prescribed by FASB Statement No. 123, reported net loss
         and net loss per common share would have been as follows:

                                                        2002           2001
                                                    -------------  -------------
         Net loss:
            As reported                             $ (8,030,464)  $ (5,125,636)
            Proforma                                $ (8,030,464)  $ (5,125,636)

         Basic and diluted net loss per share:
            As reported                             $      (0.15)  $      (0.24)
            Proforma                                $      (0.15)  $      (0.24)

                                      F-20
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 11 - STOCK OPTION PLAN  (Continued)
----------------------------

         A summary of the activity of the stock options for the years ended
         December 31, 2002 and 2001 is as follows:
<TABLE>
<CAPTION>
                                               2002                2001
                                        -------------------------------------------
                                                    Weighted               Weighted
                                                    Average                Average
                                                    Exercise               Exercise
                                          Shares     Price      Shares      Price
                                        -------------------------------------------
         <S>                               <C>        <C>       <C>         <C>
         Outstanding, beginning of period  2,180,000  $0.43     1,980,000   $  0.37
         Granted                          11,850,000  $0.08       200,000      1.00
         Forfeited                                --     --            --        --
         Expired                                  --     --            --        --
                                        -------------------------------------------
         Outstanding at end of period     14,030,000  $0.14    2,180,000    $  0.43
                                        ===========================================
         Exercisable at end of period     13.280,000  $0.14    1,980,000    $  0.43
                                        ===========================================
         Weighted-average fair value of
          options granted during the period           $0.08                 $  1.00
                                                      =====                ========
</TABLE>

         A further summary of options outstanding at December 31, 2002 is as
         follows:

                             Options Outstanding          Options Exercisable
               -----------------------------------------------------------------
                                  Weighted
                                   Average    Weighted                Weighted
                                  Remaining   Average                 Average
                 Number          Contractual  Exercise     Number     Exercise
               Outstanding           Life      Price     Exercisable   Price
               -----------------------------------------------------------------
                   20,000         1.00 years   $ 0.75        20,000   $ 0.75
                1,700,000         2.00 years     0.07     1,700,000     0.07
                4,750,000         3.00 years     0.08     4,750,000     0.08
                3,550,000         5.00 years     0.09     3,550,000     0.09
                  450,000         6.00 years     0.08       450,000     0.08
                  600,000         7.00 years     0.25       600,000     0.25
                  400,000         8.00 years     0.25       400,000     0.25
                  265,000         8.40 years     0.91       265,000     0.91
                  245,000         8.75 years     0.80       245,000     0.80
                  200,000         9.25 years     1.00       200,000     1.00
                1,850,000        10.00 years     0.08     1,100,000     0.07
               -----------                               -----------
               14,030,000                                13,280,000
               ===========                               ===========

         During 2000, the Company granted 630,000 options which included 200,000
         options which become exercisable at the time the Company's share price
         reaches $5.00 per share. At such time, the Company will record an
         expense of approximately $973,000.

                                      F-21
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE 12 - INCOME TAXES
----------------------

         Deferred income taxes reflect the net tax effects of the temporary
         differences between the carrying amounts of assets and liabilities for
         financial reporting and the amounts used for income tax purposes. The
         tax effect of temporary differences consisted of the following as
         of December 31, 2002:

         Deferred tax assets:
         Net operating loss carryforwards                           $ 7,700,000
         Compensation element of stock options issued                  (200,000)

         Less valuation allowance                                    (7,500,000)
                                                                    ------------
                  Net deferred tax assets                           $        --
                                                                    ============

         Realization of deferred tax assets is dependant upon generating
         sufficient future taxable income during the period that deductible
         temporary differences and carryforwards are expected to be available to
         reduce taxable income. As the achievement of required future taxable
         income is uncertain, the Company recorded a valuation allowance. The
         valuation allowance increased by $2,500,000 and $1,722,000 for the
         years ended December 31, 2002 and 2001, respectively. The Company will
         continue to assess the valuation allowance and to the extent it is
         determined that such allowance is no longer required, the tax benefit
         of the remaining net deferred tax assets will be recognized in the
         future.

         As of December 31, 2002, the Company has net operating loss
         carryforwards for both federal and state income tax purposes. Federal
         net operating loss carryforwards totaling approximately $22,000,000
         expire in the years 2009 through 2022. State net operating loss
         carryforwards totaling approximately $10,000,000 expire in the years
         2003 through 2007.  California has temporarily suspended loss
         carryforwards.  It is uncertain when the suspended losses may be
         available.  Due to Internal Revenue Service regulations, the
         availability of the operating loss carryforwards may be limited upon a
         substantial change in ownership.

         A reconciliation of the effective tax rates with the federal statutory
         rate is as follows as of December 31:

                                                           2002         2001
                                                       ------------ ------------
         Income tax benefit at statutory rate          $ 2,700,000  $ 1,722,000
         Nondeductible expenses                           (200,000)          --
         Change in valuation allowance                  (2,500,000)  (1,722,000)
         State income taxes, net                                --           --
                                                       ------------ ------------
                                                       $        --  $        --
                                                       ============ ============

                                      F-22
<PAGE>

               SECURITY ASSET CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002and 2001

NOTE 13 - RELATED PARTY TRANSACTIONS
------------------------------------

         During 2002 and 2001, the Company made payments for consulting services
         to the CEO, President, CFO, and the Secretary of the Corporation.
         Payments for consulting services made to these individuals were,
         $6,100 $6,000, $0 and $6,000 and $23,565, $18,500, $0 and
         $21,000, respectively. Also during 2002 and 2001, these individuals
         received common stock valued at $200,000, $200,000, $0 and $200,000
         and $60,000, $60,000, $65,000 and $60,000, respectively. These shares
         have been valued based on the fair value of the shares on the date of
         grant.

NOTE 14 - SEGMENT INFORMATION
-----------------------------

         The Company had three reportable segments: consumer credit portfolio,
         rental real estate portfolio and broadband technology. The consumer
         credit portfolio segment acquires, manages, collects and markets
         distressed consumer credit portfolios. The rental real estate portfolio
         acquires, manages and sells residential properties located in San Diego
         County, California. The broadband segment holds a patent, certain
         patents pending and licensing for direct on-line full screen video
         technology.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on income or loss from operations before
         income taxes not including nonrecurring gains and losses. The Company's
         reportable segments are strategic business units that offer different
         products or services. They are managed separately because each business
         requires different marketing strategies.

         Information about reported segment profit or loss and segment assets
         for the years ended December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                     Consumer       Rental
                                      Credit      Real Estate    Broadband
                                     Portfolio     Portfolio     Technology       Total
                                     ----------   -----------  -------------  ------------
  <S>                                <C>          <C>            <C>          <C>
  2002 Revenues                      $  229,371   $        --    $        --  $    229,371
  2001 Revenues                         151,327            --             --       151.327

  2002 Interest expense                 352,681            --             --       352,681
  2001 Interest expense               1,072,699            --             --     1,072,699

  2002 Net (loss)                    (6,487,964)           --      1,542,500    (8,030,464)
  2001 Net (loss) income             (5,155,084)       30,248             --    (5,125,636)

  2002 Assets                           553,576            --         10,000       563,576
  2001 Assets                         3,056,018            --      1,552,500     4,609,318

</TABLE>

                                      F-23