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

FORM 10-KSB

|x                                                                  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                       
|------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|                                                                   |  |                                                                                                            
|                                                                   |  | For the fiscal year ended December 31, 2002                                                                
|                                                                   |  | OR                                                                                                         
|o                                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
|                                                                   |  |                                                                                                            
|                                                                   |  | For the transition period from _______________to _______________                                           
|                                                                   |  |                                                                                                            
|                                                                   |  | Commission file number: 001-16123                                                                          
|                                                                   |  |                                                                                                            
|NEWTEK BUSINESS SERVICES, INC.                                    
|                                                                   |  |                                                                                                            
|New York                                                           |  | 11-3504638                                                                                                 
|                                                                   |  |                                                                                                            
|(State or other jurisdiction of incorporation or organization)     |  | (I.R.S. Employer Identification No.)                                                                       
|                                                                   |  |                                                                                                            
|100 Quentin Roosevelt Boulevard Suite 408 Garden City NY           |  | 11530                                                                                                      
|                                                                   |  |                                                                                                            
|(Address of principal executive offices)                           |  | (Zip Code)                                                                                                 
|                                                                   |  |                                                                                                            
|Registrants telephone number, including area code: (516) 390-2260
|                                                                  
|Securities Registered Pursuant to Section 12(b) of the Act:       
|                                                                  
|                                                                  
|Common Stock, par value $0.02 per share                           
|                                                                   |  |                                                                                                            
|(Title of class)                                                  
|                                                                  
|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 o
|----- | ----

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B 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. o

State the issuers revenues for its most recent fiscal year: $34,624,151

The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the price at which the common equity was sold on
March 17, 2003, was approximately $44,851,144.

As of March 17, 2003 there were 25,410,844 shares issued and outstanding of the
registrants Common Stock, par value $0.02 per share.

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PART I

Item 1.          DESCRIPTION OF
BUSINESS

The Company

Overview.  Newtek Business Services,
Inc., which changed its name from that of Newtek Capital, Inc. in November 2002 in order to emphasize its current business objectives, is engaged in the business of

| |  | owning, operating or coordinating 8 businesses lines which serve small businesses and                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                         
| |  | organizing certified capital companies (capcos) and investing funds made available under the capco programs in small businesses including, those in which it holds an
equity position.

During 2002, direct business operations of its businesses resulted in revenue of approximately $4
Million or 12% of total revenue and the operation of the capcos resulted in non-cash revenues related to the capco tax credits of approximately $30 Million, or 88% of total revenue.  The chart on the following page depicts how these revenues
are generated.  During the same period, Newtek realized net income (exclusive of extraordinary gains) of approximately $4.5 Million, substantially all of which is attributable to the non-cash income related to the capco programs.

Newtek is a New York corporation organized in 1999 in conjunction with the combination of the business of Newteks predecessor, BJB Holdings,
Inc., and REXX Environmental Corporation which at that time was traded on the American Stock Exchange.

Business & Business
Strategy.   Newteks strategy is to operate the capcos and utilize resources available under the programs to develop businesses that emphasize serving other small businesses.  During 2002 Newtek has reduced the number of
business lines that it is investing in and operating and as of year-end Newtek is placing primary emphasis on 8 such lines. Services to small businesses which Newtek has emphasized during 2002 and expects to emphasize into the future
include:

|                                                     | Newtek Small Business Finance small business loans available under programs of the United States Small Business Administration
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------
|                                                     | Newtek Merchant Solutions small business electronic payment processing                                                        
|                                                     | Newtek Financial Information Services small business financial and management reporting and planning                          
|                                                     | Newtek Business Exchange-- small business brokerage and M & A services                                                         
|                                                     | Newtek Tax Servicessmall business tax preparation services (currently being organized)                                        
|                                                     |                                                                                                                                
|Secondary emphasis has been placed on the following:
|                                                    
|                                                     | Newtek IT Services--software development and systems integration for small businesses                                          
|                                                     | Newtek Securities -- small business capital formation assistance of a broker-dealer                                            
|                                                     | Newtek Strategies -- small business strategic marketing planning and advice                                                    

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Newteks business originated in 1998 and initially focused exclusively on developing income opportunities
related to the capco programs.  Through the end of 2002, it has established and/or manages 10 capcos or capco funds and provided the initial required capitalization for them of approximately $3.8 Million.  Conceived as venture capital
funds, it has become very apparent both to Newtek and state governments, that additional funds through the capco programs are only one element of successful business strategies for new and growing small businesses.  After its first year of
operations, Newtek determined that it would take a hands-on approach to its investments and provide the other elements necessary for the businesses to survive and succeed.  Through 2001 and 2002, this trend to greater participation
in the businesses in which it has invested has led Newtek to the determination to focus on the types of businesses in which it will primarily (but not exclusively) invest, as described above, and to take a very active role in the management of these
businesses.

Newtek continues to distinguish between its partner companies (those where it takes a greater role in ownership and
management) and the other investments (those where it has a lesser role, or lesser equity or only a loan to the business).  Marketing strategies have been developed during 2002 to enable the partner companies, operating in different markets and
with overlapping but not identical ownership and management, to benefit from the unified market presence as a NEWTEK-branded business service or financial product.

Also during  2002 Newtek completed the acquisition of a company that manages an operating capco in New York and organized and arranged the funding for the ninth
and tenth capcos under new legislation in Colorado and Louisiana.* The entity that manages and owns a minority interest in the operating capco was acquired in January 2002 in an all stock transaction, Exponential, LLC, and was a partially-owned
subsidiary of a private company, operating out of offices in Albany and Syracuse, New York.  The net current asset value of Exponential is small but Newtek believes that the increased presence in the up-state New York region will be beneficial
to its overall business.

Subsequent to a capco investment made in September 2002, in December Newtek added its own resources to those of
its partner company and facilitated the acquisition of Commercial Capital Corporation, one of only 14 licensees of the US Small Business Administration permitted to originate SBA guaranteed loans nationwide.  This company had made approximately
$370 Million in such loans since its inception in 1994, and held a current loan servicing portfolio of approximately $196 Million including loans serviced for others of $141 Million.  Newtek has licensed the use of the Newtek brand
name at no cost and the acquired company now operates as Newtek Small Business Finance.  In conjunction with Newteks participation in the acquisition, and its corporate guaranty, the principal warehouse lender for Commercial
Capital, a Deutsche Bank affiliate, agreed to renew its $75 Million revolving credit facility and agreed to exchange $1.5 million of borrowings for $1.5 Million in Commercial Capitals preferred stock in the lender.  In addition, in
January 2003, Newtek was instrumental in arranging for the strategic investment in Newtek Small Business Finance by an affiliate of Credit Suisse First Boston Corporation of an additional $2 Million.  This addition to the business of Newtek
will greatly supplement the services which Newtek can provide to the small business market.

Certified Capital Companies - capcos

---

*  In Louisiana, due to the structure of the capco legislation, Newtek has one capco which operates three separate funds.  Because the funds are organized and funded separately, Newtek
considers them and here refers to them as three separate capcos.

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Overview.   A capco is either a corporation or a limited liability company, established in and
chartered by one of the six states currently with authorizing legislation (Florida, Louisiana, Missouri, Colorado, New York and Wisconsin).  Aside from seed capital provided by an organizer such as Newtek, a capco will issue debt and equity
instruments exclusively to insurance companies, and the capcos then are authorized under the respective state statutes to make targeted acquisitions of interests in companies which may be majority-owned or primarily controlled by the capcos after
the acquisition is consummated, and which may or may not be in conjunction with loans to such companies.  In most cases, the tax credits provided by the states are equal to the amount of investment by the insurance companies in the securities
of the capcos, which can be utilized by them over no less than ten years, or approximately 10% per year.  These credits are unaffected by the returns or lack of returns on investments made by the capcos.

During 2002 Newtek established two new capcos or capco funds; Wilshire Colorado Partners, LLC which obtained approximately $22.7 Million in funding in April 2002 and
Wilshire Louisiana Partners III, LLC,  which raised approximately $8 Million in October 2002.

The Role of Capcos in
Newteks Business Strategy.  Management of Newtek has determined that the features of the capco programs facilitate the use of the capco funds in the support of its development as a holding company for a network of small business
service providers.  The authorizing statutes in each of the states in which Newteks capcos operate explicitly allow and encourage the capcos to take equity interests, which in some cases may include majority or controlling interests, in
companies. Consequently, Newtek may, consistent with its business objectives, acquire interests in companies through its capcos and provide management and other services to these companies. The states objectives of job creation and economic
development are unquestionably met, and since participation in these programs does not require or encourage short-term profitability, Newtek is able to use these funds in a patient manner.  All of Newteks current majority-owned companies
are less than three years old, some are less than one year old, and all but one have produced a loss for 2002.  Because of the nature of the capco program, Newtek may accept a normal level of start up loss, as it has the ability to
devote the time, attention and resources to these companies which they require to become successful.

These capco programs are, in the
view of Newteks management, a complement to Newteks long-term strategy of acquiring, developing and operating companies that provide business products and financial services to small businesses.  Based upon the experience of its
management, Newtek determined early in the operations of the capcos that the targeted new and small businesses required much more than just the funds available in the capcos. These businesses also require administrative, managerial, technical, legal
and financial management assistance that Newtek provided in structuring and building the businesses. This hands-on management approach facilitates the general objectives of the capco programs of economic development, while at the same time
permitting Newtek to develop its long-term investments.

Management of Newtek believes that it has built upon the resources of the capco
programs to enhance the development of small businesses by significantly more than investing or loaning capco funds to an entrepreneur.  Passive investment may have worked often enough in the business climate of the 1990s, but businesses
today, particularly small businesses, require much more than funds to succeed. In order to make the capco investments successful, and thus to fulfill the public policy objectives of the capco programs, Newtek has attempted to take the next step with
the active addition of management resources, technical and professional expertise and

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non-capco funds.  This has included during 2002 the development of  the zero-cost NEWTEK branding for the partner companies, as well as the material and
significant assistance that Newtek provided to its partner company, Newtek Small Business Finance, in the negotiation of an extension of a $75 Million credit line, which included an $3 Million debt forgiveness and conversion of $1.5 Million into
preferred stock of the partner company.  This was followed by  the subsequent sale in January 2003 by the partner company of $2 Million in preferred stock to a unit of Credit Suisse First Boston Corporation in conjunction with a referral
agreement for lending business. These are good examples of the other types of possible benefits available to the partner companies by association with a larger business such as Newtek.

The Capco Programs; Tax Credits.  The recognition of revenue by the capcos organized by Newtek at present represents the largest single source of revenue
to the company, or approximately 88% of gross revenue in 2002. Such revenue is the principal contribution to Newteks net income in 2002 and 2001.

In return for the capcos making investments in the targeted companies, the states provide tax credits that are available for use by insurance companies that provide
the funds to the capcos.  In order to maintain its status as a capco, and to avoid recapture or forfeiture of the tax credits, each capco must meet a number of specific investment requirements, including a minimum investment schedule.  A
final loss of capco status, that is decertification as a capco, could result in loss or possible recapture of the tax credit.  Newteks capcos have agreed with their funding insurance companies to provide, in the event of decertification,
payments by the capco or, as described below, by the capco insurer to the insurance companies in the nature of compensatory payments, to replace the lost tax credits.

Investment Requirements.  Each of the state capco programs has a requirement that a capco, in order to maintain its certified status, must meet certain
investment requirements, both qualitative and quantitative benchmarks.

Quantitative Requirements:  For example in the
state of New York, a capco must invest at least 25% of its certified capital (the amount of the original funding of the capco by the insurance companies) by 24 months from the initial investment date, 40% by 36 months and 50% by 48
months. The minimum investment requirements and time periods, along with the related tax credit recapture requirements are set out in detail below. See, also, Managements Discussion and Analysis -Income from Tax Credits and Note 1 of Notes to
Consolidated Financial Statements - Revenue Recognition.

Qualitative Requirements:  These include limitations on the initial
size of the recipients of the capco funds, including the number of their employees, the location within the respective state of the recipients and the recipients commitment to remain therein for a specified period of time, the types of
business conducted by the recipients, and the terms of the investments in the recipients.  Most significant for Newteks business is the fact that the capco programs generally do not pose any obstacle to investments in qualified businesses
which result in significant, majority or, in some cases, controlling ownership positions.  This enables Newtek to achieve both public policy objectives of the capco programs, of increasing the number of small businesses and job opportunities in
the state, as well as its own objectives of developing a number of small business service companies which may become profitable and return a meaningful return both to Newteks stockholders and to the local participants in the businesses. In
addition, because the businesses that Newtek is building themselves provide needed, and in managements judgment cost effective, goods and services to other small businesses, the growth of this important segment of a states economy may be
accelerated

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Enforcement of Requirements:The various states, which administer these programs through their
insurance, banking or commerce departments, conduct periodic reviews and on site examinations of the capcos in order to verify that the capcos have met applicable investment requirements and are otherwise acting in conformance with the statutes and
rules. Capcos are required to maintain detailed records so as to demonstrate to state examiners compliance with all applicable requirements.  A failure of a capco to meet one of the statutory minimum quantitativeinvestment benchmarks
within the time specified would constitute grounds for the loss of the capcos status, or its decertification, and the loss and recapture of some or all of the tax credits previously passed through the capco to its investors.  A
decertification of one of Newteks capcos would have a material adverse effect on the business of Newtek in that it would require the capco insurer to make compensatory payments equal to the lost tax credits and would permit the insurer to
assume control over the assets of the capco in order to cover its losses.  See, also, -- Government Regulation; State Capco Regulations, below.

Newteks Record of Compliance:As of the end of 2002, all of Newteks capcos were in material compliance with all applicable requirements and four of
the ten capcos had met their final, minimum 50 % thresholds.  This achievement eliminates entirely the risk of decertification and tax credit recapture or loss for its insurance company investors in these capcos, and  this represents
approximately $51.4 Million of tax credits, or about 35% of the tax credits associated with Newteks capcos.

Capco
Insurance: Credit Defeasance & Credit Enhancement.  Newtek has purchased insurance to cover the risks associated with the operation of its capcos from a subsidiary of American International Group, Inc. (AIG), a well respected and AAA
credit rated, international insurer.  Under the terms of this insurance, which is for the benefit of the insurance company investors, the capco insurer assumes the obligation to repay the insurance companies the principal amount of their debt
(the defeasance) as well as to make compensatory payments in the event of a loss of the availability of the related tax credits (the enhancement).  In the event of a threat of or final decertification by a state, the capco insurer would be
authorized to assume partial or complete control of the business of the particular capco so as to ensure compliance with investment or other requirements.  This would likely avoid final decertification and the necessity of insurance or cash
interest payments.  However, control by the insurer would also result in significant disruption of the particular capcos business and likely result in significant financial loss to that capco. Decertification would also likely impair
Newteks ability to obtain certification for capcos in additional states as new legislation makes other opportunities available.  The individual capcos are individually insured, and the assets of one are not at risk for the obligations of
the others.

In addition, Newteks capcos have the ability to borrow additional funds, that is, to increase the amount of their
uncertified capital, but Newtek has no need for or anticipation of utilizing this capacity. Such an increase in non-certified capital by a capco would have no effect on tax credit income or investment benchmarks for the capco. The additional funds
could, however, be invested in qualified investments and speed the achievement of the benchmarks.

In order to address this risk of
decertification, which may generally be eliminated by meeting a 50% of capital investment threshold, Newteks capcos have structured their investment program, consistent with safe and sound operations, so as to meet the investment benchmarks as
early as possible.  As of December 31, 2002, four of Newteks capcos, Wilshire Advisers, LLC Wilshire Partners, LLC Wilshire New York Partners II, LLC and Wilshire Louisiana Partners II, LLC had exceed the 50% investment benchmarks and
placed their tax credits

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beyond loss or recapture.  The table below presents the dates and amounts paid for the capco insurance related to the defeasance: repayment of principal to the insurance
company investors (Coverage A) and credit enhancement: the compensatory payments in the event of a loss of tax credits (Coverage B). There were no such insurance purchases made in 2001. See, also, Note 2 of Notes to Consolidated Financial
Statements.

|Capco        |  | Date of Purchase |               | Premium Paid for Coverage A |   | Premium Paid for Coverage B | 
|------------ |  | ---------------- | ------------- | --------------------------- | - | --------------------------- | 
|             |  |                  |               |                             |   |                             | 
|WA           |  |                  | November 1998 |                             | $ | 1,647,905                   | 
|Total  1998 |  |                  |               |                             | $ | 1,647,905                   | 
|             |  |                  |               |                             |   |                             | 
|WP           |  |                  | April 1999    |                             | $ | 23,127,927                  | 
|WLA          |  |                  | October 1999  |                             | $ | 9,175,844                   | 
|WI           |  |                  | October 1999  |                             | $ | 9,086,227                   | 
|Total  1999 |  |                  |               |                             | $ | 41,389,998                  | 
|             |  |                  |               |                             |   |                             | 
|WNYII        |  |                  | April 2000    |                             | $ | 5,019,803                   | 
|WA           |  |                  | May 2000      |                             | $ | 661,432                     | 
|WLPII        |  |                  | October 2000  |                             | $ | 2,456,565                   | 
|WNYIII       |  |                  | December 2000 |                             | $ | 29,052,790                  | 
|Total  2000 |  |                  |               |                             | $ | 37,190,590                  | 
|             |  |                  |               |                             |   |                             | 
|Colorado     |  |                  | April 2002    |                             | $ | 11,654,021                  | 
|WLPIII       |  |                  | October 2002  |                             | $ | 2,859,644                   | 
|Total 2002   |  |                  |               |                             | $ | 14,513,665                  | 

Newtek manages a
tenth capco, Exponential, LLC, which is not covered by capco insurance as are its other capcos. Exponential is structured differently than Newteks other capcos.

Newteks Ability to Compete.  Newteks business now requires it to compete at two basic levels.  The capcos compete in their offerings with
the three or four other capcos sponsored by various national financial organizations, as well as locally sponsored companies in one or another state.  Newteks management believes it has been successful in raising funds because
of:

| |  | the manner in which it has structured the participation by the insurance companies;                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                    
| |  | the insurance which it has been able to obtain to cover any loss of the tax credits and the obligation to repay principal, resulting in a credit rating for the instruments of
AAA;
| |   |                                                                                                                                                                                    
| |  | the previous business experience of its principals;                                                                                                                                
| |   |                                                                                                                                                                                    
| |  | the national marketing of its programs; and                                                                                                                                        
| |   |                                                                                                                                                                                    
| |  | the extensive contacts that its management has as a result of previous experience in the financial community.                                                                      

Newtek has structured the capco securities as debt instruments and either warrants for participation in the equity of the particular capco or, during 2002, as a unit
with shares of Newtek. Newteks capco debt instruments have all been rated AAA or the equivalent by Standard and Poors or another nationally recognized rating agency. The debt instruments and the tax credits they are related to are in
some but not all state programs transferable, but such a transfer would have no effect on Newtek.  In the past the individual capcos issued warrants entitling the holders to between 4% and 20% of the equity of the particular capco at a nominal
exercise price.  During 2002, Newtek has negotiated the exchange of many of these warrants for stock of Newtek which has the effect of reducing or eliminating the minority interests in the

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capcos and permitting all of the profits or losses of the capcos investments to flow up to Newtek as the principal owner of the capcos.  Future capco offerings will
likely not include capco warrants as part of the debt offering and will likely include the sale of Newtek common stock.

In addition to
competing for capco funds, which are integral to the current state of the business, Newtek and particularly its partner companies must also compete in a number of markets for the sale of services to other businesses.  Newtek has narrowed the
focus of it principal investments to that of 8 business lines.  Each of these require the partner companies to compete not only against other suppliers in their particular state or region of the country, but also against suppliers operating on
a national and even a multi-national scale.  However, none of the markets in which the partner companies compete are dominated by a small number of companies which could materially effect the nature or terms of the competition.  In
addition, in many cases, the competitors which the partner companies face are not as able as are the partner companies to take advantage of changes in business practices due to technological developments and, by their large size, are unable to offer
the personalized service that many small business owners and operators seem to want.  Through the resources available in Newtek, the company is attempting to build the partner companies into successful and profitable ventures.  In 2002,
the first of the partner companies showed a net profit for the first time.  Management of Newtek is focused on improving these results of operations.

Principal Business Activities: Partner
Companies

Majority-owned or Primarily Controlled Partner Companies.  Newtek refers to its partner companies as those
companies in which it owns 50% or more of the outstanding voting securities, or majority-owned partner companies, and those companies in which it owns more than 25% but less than 50% of the outstanding securities, and exercises more
control over Newtek than any other shareholder, or primarily controlled partner companies. Currently, fourteen (14) of the investments in partner companies are accounted for as consolidated subsidiaries and four (4) of the investments in
the partner companies are accounted for under the equity method of accounting. Of these, two have thus far primarily engaged in business with other partner companies and the others are engaged in business with third parties.  See Note 3 to
Notes to Consolidated Financial Statements.

Majority-owned Companies (accounted for under the consolidation method)

At December 31, 2002, Newtek had 14 majority-owned partner companies, all of which were as a result of investments through the capco programs. The
majority-owned companies are grouped below by their business lines:

| |  | Newtek Small Business Finance, Inc.  SBA Holdings, Inc.                                            
| | - | ----------------------------------------------------------------------------------------------------
| |   |                                                                                                     
| |  | Newtek Merchant Solutions  Universal Processing Services  Wisconsin, LLC                          
| |   |                                                                                                     
| |  | Newtek Merchant Solutions  Universal Processing Services, LLC (NY)                                 
| |   |                                                                                                     
| |  | Newtek Merchant Solutions  Universal Processing Services  Louisiana, LLC                          
| |   |                                                                                                     
| |  | Newtek Merchant Solutions  Universal Processing Services  Colorado, LLC                           
| |   |                                                                                                     
| |  | Newtek Financial Information Systems of  Florida  Group Management Technologies, LLC               
| |   |                                                                                                     
| |  | Newtek Financial Information Systems of Louisiana -- Group Management Technologies of Louisiana, LLC

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| |  | Newtek Strategies  Harvest Strategies, LLC                       
| | - | ------------------------------------------------------------------
| |   |                                                                   
| |  | Newtek Business Exchange  Transworld Business Brokers of NY, LLC 
| |   |                                                                   
| |  | Newtek Client Services  Global Small Business Services, LLC      
| |   |                                                                   
| |  | Newtek IT Services -- Advanced Internet Design & Applications, LLC
| |   |                                                                   
| |  | PPM Link, LLC  operating as Newtek Securities, LLC               
| |   |                                                                   
| |  | Exponential Business Development Corp.                            
| |   |                                                                   
| |  | DC Media, LLC                                                     

For these majority-owned partner companies, Newtek will generally actively direct much of
their operations. These companies are described below and summary financial information is also provided for each in the charts below.  See also, Managements Discussion and Analysis or Plan of Operation and Note 22 of the Notes to
Consolidated Financial Statements.

Newtek Small Business Finance, Inc. (NSBF). This latest of Newteks
principal investments was a major transaction for the company and holds much potential for the future.  John Cox, a former Deputy Administrator of the US Small Business Administration with over 30 years experience, and until September 2002 a
director of Newtek, following his resignation from the board of Newtek, joined with another 25 year veteran of the SBA, Michael Dowd, and together they organized and initially capitalized what became NSBF.  One of Newteks New York capcos
provided $2 Million in capital and additional capital of $3.5 Million was raised from other institutional sources of which 2 million was subsequent to December 31, 2002.  NSBF and Newtek together acquired Comcap Holdings Corp., and its
subsidiary Commercial Capital Corporation, closing on the last day of 2002.  Commercial Capital had been an active participant in the SBA-guaranteed loan market, having originated about $370 Million in loans and currently servicing about $196
Million in loans including $141 Million of loans serviced for others.

Newtek was able to bring significant internal and external
resources to bear to the transaction, including the agreement to provide a corporate guaranty of NSBFs bank debt, and issuing 380,471shares of its common stock as consideration for the acquisition (an additional 82,980 shares will be issued in
the future if certain hurdles are met).

Universal Processing Services - Wisconsin, LLC d/b/a Newtek Merchant Solutions of Wisconsin
(UPS-WI) provides credit card, debit card, gift card and check processing services directly to merchants and also, on a wholesale basis, acts as a processor for merchants that are brought to it through unrelated, third-party
marketing organizations.  UPS-WI acquires the majority of its merchant-customers through agreements with independent sales organizations and associations throughout the country which then contract with UPS-WI to provide processing services, and
UPS-WI pays these organizations and associations a percentage of the processing revenue derived from their respective merchants.  UPS-WI assists merchants with their initial installation of equipment and initial and on-going service and any
other special processing needs that they may have. UPS-WI is continuing to enter into additional independent sales agreements with organizations and associations and has grown its customer base significantly during 2002.

Since inception in June 2001, UPS-WI has experienced operating losses in each year of operations.  These losses have been primarily related to general corporate
overhead and compensation paid to employees of UPS-WI, which together have been greater than the revenues generated by the company on an annual basis.  The company is currently adding approximately 125 customers per month and has reached a
customer base of approximately 1,200 as of the end of 2002.  Because of the growth experienced in 2002 and early in 2003, management of Newtek expects that this partner company may show positive cash flow and earnings by the end of 2003. 
In addition, the residual value of the current recurring revenue stream could, in the judgment of

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management, be readily sold at a price approximately equal to the companys accumulated losses.

Universal Processing Services, LLC d/b/a Newtek Merchant Solutions of NY(UPS) organized in March 2001 and based in New York, markets check, credit
and debit card processing services, as well as ancillary processing equipment and software to merchants who accept credit cards, debit cards, and other non-cash forms of payment, the company also markets its products to larger national merchants
with multiple locations.  In addition to marketing these services to local markets, UPS is currently establishing relationships with local and regional banks that do not offer their own merchant processing, to enable them to offer these
services to their clients through UPS.  UPS provides direct merchant processing services, ancillary processing equipment and other related services for merchants. UPS contracts for the actual processing services provided to its merchants
through an agreement with another Newtek partner company, Universal Processing Services -- Wisconsin, LLC.  UPS has steadily increased the number of merchants under contract and has therefore experienced a continued  increase in its
monthly residual payments that it receives.

Since inception UPS has experienced operating losses in each year of operations.  These
losses have been primarily attributable to general corporate overhead and compensation and commissions paid to employees of UPS, which together have historically been greater than the revenues generated by the company on an annual basis  
As with UPS-WI, the recurring revenue stream created by the aggregation of processing customers will create a value to Newtek that could be significant.

Universal Processing Services - Louisiana, LLC d/b/a Newtek Merchant Solutions of Louisiana (UPS-LA)is engaged in the same business line as the
previous partner company, UPS in New York.  It too, has experienced a steady but slow growth in its customer base since beginning operations in September 2001.  Since inception UPS-LA has experienced operating losses in each year of
operations.  These losses have been primarily attributable to general corporate overhead and compensation and commissions paid to employees of UPS, which together have historically been greater than the revenues generated by the company on an
annual basis

Universal Processing Services Colorado, LLC d/b/a Newtek Merchant Solutions of Colorado (UPS-CO)is based in Colorado was a start-up in December 2002 and is engaged in the same business line as the previous partner companies, UPS in New York and UPS-LA.  As a start-up, this Company has had no significant business during
2002.

Harvest Strategies, LLC d/b/a Newtek Strategies (Harvest)based in New York provides business development and
outsourced management services to small and medium sized businesses. While many startup companies have viable products and services with exciting potential, history has confirmed that most will fail in a short period of time due to their lack of
management expertise. Unlike management consulting firms that leave it to management to implement their suggestions, Harvest is distinguished by rolling up its sleeves and executing the plan as a true operating partner.  In
addition, its principals have experience in assisting companies implement large scale strategies. Harvest is a provider of outsourced executive management and strategic business development and implementation services to startup and early stage
businesses. This portion of the market of smaller businesses is, in the judgment of

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management, largely untouched by the large management consulting firms that are strictly focused on Fortune 1000 companies.

Harvests areas of expertise include sales and marketing, strategy formulation and implementation, financial services, internal control analysis and information
technology consulting in the areas of operations and systems management. Upon engagement of Harvest as a strategic partner, each client undergoes a comprehensive and detailed evaluation to determine the appropriate level of involvement by Harvest.
Factors considered in this assessment include:

|                                                                                 |  | the overall viability, short and long term, of the clients business;                                                                                      
|-------------------------------------------------------------------------------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | the market positioning of the clients product and/or service;                                                                                             
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | the clients business planning capabilities in the areas of marketing, sales and sales management, margin management human resources and technical support;
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | the core competencies, skill sets and management skills needed to accomplish goals and objectives; and                                                     
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | the financial controls and corporate governance policies in place.                                                                                         
|                                                                                 |   |                                                                                                                                                            
|Harvest is most frequently retained to assist businesses in the following areas:
|                                                                                
|                                                                                 |  | business plan formulation and implementation;                                                                                                              
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | identification and execution of strategic business initiatives;                                                                                            
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | corporate governance assistance that formally sets forth all the appropriate board, management and legal policies;                                         
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | financial management;                                                                                                                                      
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | development of product offerings, and recommendations concerning sales and marketing initiatives;                                                          
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | investor relations management;                                                                                                                             
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | recruitment and training of employees; and                                                                                                                 
|                                                                                 |   |                                                                                                                                                            
|                                                                                 |  | participation in client board meetings as requested.                                                                                                       

Since inception Harvest has experienced operating losses in each year of operations.  These losses have been primarily attributable to relatively large general
corporate overhead and the necessary compensation paid to its employees, which together have historically been greater than the revenues generated.  Harvest has been working to improve its gross margins by engaging in consulting agreements with
clients that it believes will deliver higher gross margin percentages, providing additional services to existing clients and better overall utilization of its corporate resources and employee productivity.

Transworld Business Brokers of New York, LLC (Transworld NY) d/b/a Newtek Business Exchange of  New Yorkis based in New York and provides
brokerage and consulting services in the purchase and sale of small and medium-sized businesses.  Transworld NY focuses on marketing its services to  businesses with annual sales between 1 Million to 20 Million Dollars.  Since
Newteks original investment in March 2002, Transworld NY has gone through management changes and has experienced operating losses since its inception.  These losses have been primarily attributable to general corporate overhead and
compensation paid to employees, which together have historically been greater than the revenues generated by the company on an annual basis.

Group Management Technologies, LLC (GMT) d/b/a Newtek Financial Information Systems of Floridais based in Florida and provides administrative and
technological support for small businesses by designing and implementing specialized financial. and management reporting systems and by providing outsourced financial management functions

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that reduce costs and management requirements for its clientele. GMT targets the market segment of businesses that are too small to afford a full time financial executive, but
have grown to the point where managerial and financial controls must be introduced in order to grow the business to the next level. GMTs specialists work closely with management to create budgets and forecasts that serve as planning tools as
well as performance evaluation and control benchmarks.

Since inception in November 1999, GMT has experienced operating losses in each
year of operations.  These losses have been primarily attributable to general corporate overhead and compensation and commissions paid to employees of  GMT, which together have historically been greater than the revenues generated by the
company on an annual basis.

Group Management Technologies of  Louisiana, LLC (GMT-LA) d/b/a Newtek Financial
Information Systems of Louisianawas organized in December 2002 and is based in Louisiana; it is engaged in the same line of business as is GMT.  Management anticipates that in the future GMT-LA will contract with GMT for some of the
services that are supplied to its clients.  Since inception GMT-LA has experienced losses  of which the majority are related to the start up expenses of the company.

Global Small Business Services, LLC (Global) d/b/a Newtek Client Servicesis based in Florida.  The Company was organized in June 2002 and
provides marketing and database management services to small and mid-sized businesses.  Services provided include direct mail, direct response, inbound and outbound targeted telephone marketing and marketing consultation on program design and
development.  Since inception Global has experienced losses of which the majority are related to the start up expenses of the company.

Advanced Internet Design & Applications, LLC (AIDA) d/b/a Newtek IT Serviceswas organized in western New York in 2000 and sells services to
fulfill the need of small businesses for internet website creation, design and hosting.  In particular, AIDA provides integrated and marketing internet portals on a project basis for small businesses.  Newtek originally had high
expectations for this company, but the developments in this area of business have made the ability of small companies to market such services profitability much more difficult.  AIDA has experienced operating losses since inception. 
Newtek has narrowed the focus of the business and is exploring other ways in which it can improve the results of its operations.

PPM
Link, LLC(PPM Link) based in New York City and operating through its subsidiary Newtek Securities, LLC,  raises equity capital and debt for its clients, which are predominately small to mid sized businesses which need
financing for the implementation of their business plan. PPM Link owns Newtek Securities, a broker dealer registered with the National Association of Security Dealers, and placed most efforts during 2002 into building a data base of potential
investors. Newtek Securities began in 2002 to market its services as a placement agent for the securities of businesses across a number of industries. In 2002 these have included companies that focus on the specialty finance industry, the gaming
industry and the transportation industry.  Only one transaction has been completed through December 31, 2002.

Since inception in
March 2001, PPM Link has experienced operating losses in each year of operations.  These losses have been primarily attributable to general corporate overhead and

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compensation and commissions paid to employees of PPM Link, which together have historically been greater than the revenues generated.  In addition, general economic and
market conditions during the past year have made raising money for small and mid-sized companies quite difficult, and this has had a negative effect on the performance of PPM Link.

Exponential Business Development Company, Inc. (Exponential) was originally organized in the mid-1990s to participate in the New York State capco
program (effectively, a competitor of Newtek).  It had structured its capco (Exponential, LLC) transactions differently than has Newtek with ownership being sold to the insurance company investors and a small equity portion retained by
Exponential, the manager.  The capco has made 11 small equity investments and 3 additional investments of both debt and equity.  Exponential has also organized another investment vehicle (Exponential of New York, LP) that has made 6 equity
investments and two others involving debt. Newteks interest in this acquisition was due to the high reputation of the individuals participating in the company and the ability to identify and make investments in the northern and western
areas of New York State.

DC Media Finance, LLCwas organized in mid 2002 to engage in the business of providing financing
necessary for a number of small businesses attempting to market a product through direct response  television advertising.  This niche product enables such manufacturers or distributors to obtain financing specifically structured for the
acquisition of media time with repayment also structured for the requirements of that function.  DC Media has completed one financing transaction and has shown a loss in its first half year of operations.

The unaudited summary financials for the partner companies accounted for as consolidated subsidiaries follow. These financial statements also reflect the degree to
which Newteks partner companies interact with each other to provide and market needed goods or, particularly, services from each other. The income from services provided to other partner companies is shown as Intercompany Eliminated
Revenue and the cost of services acquired from other partner companies is shown as Intercompany Eliminated Expenses. All such inter-partner company transactions were conducted on terms and conditions no less favorable to each party
than those available from third parties. See also Note 22 to the Notes to the Consolidated Financial Statements.

CONSOLIDATED ENTITIES

|                       |  | Newtek  Strategies  (Harvest) |         | Newtek Merchant Solutions  CO  (UPC-CO) |   | Newtek  Merchant  Solutions  NY  (UPS) |  | Newtek  Merchant  Solutions  LA  (UPS-LA) |           | Newtek  Merchant  Solutions  WI  (UPS-WI) | 
|---------------------- |  | ----------------------------- | ------- | ---------------------------------------- | - | --------------------------------------- |  | ------------------------------------------ | --------- | ------------------------------------------ | 
|                       |  |                               |         |                                          |   |                                         |  |                                            |           |                                            | 
|                       |  | 2002                          |         | 2001                                     |   | 2002                                    |  | 2001                                       |           | 2002                                       | 
|                       |  |                               |         |                                          |   |                                         |  |                                            |           |                                            | 
|Cash                   |  | $                             | 256,233 |                                          | $ | 1,638,703                               |  | $                                          | 3,248,403 |                                            | 
|Other Assets           |  | $                             | 207,801 |                                          | $ | 117,588                                 |  | $                                          | 2,662     |                                            | 
|Total Assets           |  | $                             | 464,034 |                                          | $ | 1,756,291                               |  | $                                          | 3,251,065 |                                            | 
|Current Liabilities    |  | $                             | 33,006  |                                          | $ | 53,026                                  |  | $                                          | 14,433    |                                            | 
|Total Liabilities      |  | $                             | 33,006  |                                          | $ | 1,002,978                               |  | $                                          | 14,433    |                                            | 
|Total Equity (Deficit) |  | $                             | 431,028 |                                          | $ | 753,313                                 |  | $                                          | 3,236,632 |                                            | 

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CONSOLIDATED ENTITIES

|                       |  | PPM Link |           | Exponential  Business  Development Co., Inc. |   | Newtek  Small Business  Finance  (NSBF) |   | Newtek  IT  Services  (AIDA) |        | Newtek  Financial Information  Systems  FL  (GMT) |  
|---------------------- |  | -------- | --------- | -------------------------------------------- | - | --------------------------------------- | - | ---------------------------- | ------ | -------------------------------------------------- | -
|                       |  |          |           |                                              |   |                                         |   |                              |        |                                                    |  
|                       |  | 2002     |           | 2001                                         |   | 2002                                    |   | 2001                         |        | 2002                                               |  
|                       |  |          |           |                                              |   |                                         |   |                              |        |                                                    |  
|Cash                   |  | $        | 1,254,506 |                                              | $ | 1,700,109                               |   | $                            | 41,973 |                                                    | $
|Other Assets           |  | $        | 61,686    |                                              | $ | 130,558                                 |   | $                            | 25,551 |                                                    | $
|Total Assets           |  | $        | 1,316,192 |                                              | $ | 1,830,667                               |   | $                            | 67,524 |                                                    | $
|Current Liabilities    |  | $        | 1,069,144 |                                              | $ | 46,553                                  |   | $                            | 59,996 |                                                    | $
|Total Liabilities      |  | $        | 1,919,144 |                                              | $ | 1,896,553                               |   | $                            | 59,996 |                                                    | $
|Total Equity (Deficit) |  | $        | (602,952  | )                                            | $ | (65,886                                 | ) | $                            | 7,528  |                                                    | $

CONSOLIDATED ENTITIES

|                       |  | Newtek Financial Information  Systems  LA  (GMT-LA) |         | Newtek  Business Exchange  of NY  (Transworld  NY) |  | Newtek Client  Services  (Global) |     | DC Media  Finance |           | Totals | 
|---------------------- |  | ---------------------------------------------------- | ------- | --------------------------------------------------- |  | --------------------------------- | --- | ----------------- | --------- | ------ | 
|                       |  |                                                      |         |                                                     |  |                                   |     |                   |           |        | 
|                       |  | 2002                                                 |         | 2001                                                |  | 2002                              |     | 2001              |           | 2002   | 
|                       |  |                                                      |         |                                                     |  |                                   |     |                   |           |        | 
|Cash                   |  | $                                                    | 284,000 |                                                     |  |                                   | (a) | $                 | 3,186,239 |        | 
|Other Assets           |  | $                                                    | 500     |                                                     |  |                                   | (a) | $                 | 55,005    |        | 
|Total Assets           |  | $                                                    | 284,500 |                                                     |  |                                   | (a) | $                 | 3,241,244 |        | 
|Current Liabilities    |  | $                                                    | 11,373  |                                                     |  |                                   | (a) | $                 | 21,089    |        | 
|Total Liabilities      |  | $                                                    | 11,373  |                                                     |  |                                   | (a) | $                 | 346,089   |        | 
|Total Equity (Deficit) |  | $                                                    | 273,127 |                                                     |  |                                   | (a) | $                 | 2,895,155 |        | 

CONSOLIDATED ENTITIES

|                                     |  | Newtek Strategies  (Harvest) |          | Newtek  Merchant  Solutions  CO (UPC-CO) |   | Newtek  Merchant  Solutions  NY  (UPS) |   | Newtek  Merchant  Solutions  LA  (UPS-LA) |         | Newtek  Merchant  Solutions  WI (UPS-WI) | 
|------------------------------------ |  | ---------------------------- | -------- | ----------------------------------------- | - | --------------------------------------- | - | ------------------------------------------ | ------- | ----------------------------------------- | 
|                                     |  |                              |          |                                           |   |                                         |   |                                            |         |                                           | 
|                                     |  | 2002                         |          | 2001                                      |   | 2002                                    |   | 2001                                       |         | 2002                                      | 
|                                     |  |                              |          |                                           |   |                                         |   |                                            |         |                                           | 
|Revenue                              |  | $                            | 558,119  |                                           | $ | 167,256                                 |   | $                                          | 215     |                                           | 
|SG&A                                 |  |                              | 835,247  |                                           |   | 393,976                                 |   |                                            | 72,258  |                                           | 
|Depreciation and Amortization        |  |                              | 8,886    |                                           |   | 488                                     |   |                                            | 0       |                                           | 
|Interest  expense                    |  |                              | 35,624   |                                           |   | 19,479                                  |   |                                            | 0       |                                           | 
|Income/Loss                          |  |                              | (321,638 | )                                         |   | (246,687                                | ) |                                            | (72,043 | )                                         | 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE |  |                              |          |                                           |   |                                         |   |                                            |         |                                           | 
|Revenue                              |  |                              | 404,612  |                                           |   | 78,179                                  |   |                                            | 15      |                                           | 
|SG&A                                 |  |                              | 45,842   |                                           |   | 12,649                                  |   |                                            | 95      |                                           | 
|Interest Expense                     |  |                              | 35,625   |                                           |   | 19,479                                  |   |                                            | 0       |                                           | 

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CONSOLIDATED ENTITIES

|                                     |  | PPM Link |          | Exponential Business  Development Co., Inc. |   | Newtek  Small Business  Finance (NSBF) |   | Newtek  IT  Services  (AIDA) |         | Newtek  Financial Information  Systems  FL  (GMT) |  
|------------------------------------ |  | -------- | -------- | ------------------------------------------- | - | -------------------------------------- | - | ---------------------------- | ------- | -------------------------------------------------- | -
|                                     |  |          |          |                                             |   |                                        |   |                              |         |                                                    |  
|                                     |  | 2002     |          | 2001                                        |   | 2002                                   |   | 2001                         |         | 2002                                               |  
|                                     |  |          |          |                                             |   |                                        |   |                              |         |                                                    |  
|Revenue                              |  | $        | 367,604  |                                             | $ | 35,000                                 |   | $                            | 223,160 |                                                    | $
|SG&A                                 |  |          | 677,601  |                                             |   | 361,449                                |   |                              | 305,496 |                                                    |  
|Depreciation and Amortization        |  |          | 875      |                                             |   | 159                                    |   |                              | 800     |                                                    |  
|Interest  expense                    |  |          | 97,510   |                                             |   | 80,367                                 |   |                              | 0       |                                                    |  
|Income/Loss                          |  |          | (408,382 | )                                           | $ | (406,975                               | ) |                              | (83,136 | )                                                  |  
|INTERCOMPANY ITEMS INCLUDED IN ABOVE |  |          |          |                                             |   |                                        |   |                              |         |                                                    |  
|Revenue                              |  |          | 175,218  |                                             |   | 15,000                                 |   |                              |        |                                                    |  
|SG&A                                 |  |          | 36,923   |                                             |   | 8,690                                  |   |                              |        |                                                    |  
|Interest Expense                     |  |          | 97,510   |                                             |   | 80,367                                 |   |                              |        |                                                    |  

CONSOLIDATED ENTITIES

|                                     |  | Newtek Financial Information  Systems  LA (GMT-LA) |         | Newtek  Business Exchange  of NY (Transworld  NY) |  | Newtek Client  Services (Global) |  | DC Media Finance |          | Totals | 
|------------------------------------ |  | --------------------------------------------------- | ------- | -------------------------------------------------- |  | -------------------------------- |  | ---------------- | -------- | ------ | 
|                                     |  |                                                     |         |                                                    |  |                                  |  |                  |          |        | 
|                                     |  | 2002                                                |         | 2001                                               |  | 2002                             |  | 2001             |          | 2002   | 
|                                     |  |                                                     |         |                                                    |  |                                  |  |                  |          |        | 
|Revenue                              |  | $                                                   | 0       |                                                    |  | (a)                              |  | $                | 0        |        | 
|SG&A                                 |  |                                                     | 11,373  |                                                    |  | (a)                              |  |                  | 195,996  |        | 
|Depreciation and Amortization        |  |                                                     | 0       |                                                    |  | (a)                              |  |                  | 6,630    |        | 
|Interest expense                     |  |                                                     | 0       |                                                    |  | (a)                              |  |                  | 6,649    |        | 
|Income/Loss                          |  |                                                     | (11,373 | )                                                  |  | (a)                              |  |                  | (209,275 | )      | 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE |  |                                                     |         |                                                    |  |                                  |  |                  |          |        | 
|Revenue                              |  |                                                     | 0       |                                                    |  | (a)                              |  |                  |         |        | 
|SG&A                                 |  |                                                     | 0       |                                                    |  | (a)                              |  |                  | 37,900   |        | 
|Interest Expense                     |  |                                                     | 0       |                                                    |  | (a)                              |  |                  | 6,094    |        | 

(a)  Not in existence or prior to acquisition

Primarily Controlled Companies (accounted for under the equity method)

At December 31, 2002, Newtek had four primarily controlled partner companies, all of which were as a result of investments through the capco programs. For
primarily-controlled partner companies, Newtek will generally have significant involvement in and influence over their operating activities, including rights to participate in material management decisions. A description of these partner companies
and a summary of their financial results follows.  See also Managements Discussion and Analysis and Note 22 to the Consolidated Financial Statements.

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Starphire Technologies, LLC, (Starphire),located in Clearwater, Florida, was organized to
provide  information technology and electronic commerce services to small and mid-sized companies, including both software development and consulting services. Starphires flagship product, SiteSageTM is a suite of web-site
development, deployment and management software, consisting of an editing environment from which technical users can build custom applications and non-technical users can manage site content quickly and efficiently.  Newtek monitored this
partner company closely over its first two years of operations and determined late in 2002 that the resources and capital to Starphire would be insufficient to permit it to compete effectively in a very dynamic market with major, well funded
competitors.  As a result, the decision was made to wind-down operations and focus on providing hardware and software products and services provided by other larger scale providers.  Starphire and Newtek are currently exploring a strategic
alliance, joint venture or private labeling arrangement which would permit the company to market the services, which are in clear demand by small businesses, of a larger company under the Newtek small business brand.

NicheDirectories, LLC, (Niche),a Florida-based company, was founded in 1995. Niche is an online service provider and informational directory for
the summer camp industry. KidsCamps.com (www.kidscamps.com) their flagship brand, is an online directory for information on over 1,400 summer camps and experiences for children. The company entered into a joint marketing agreement with MBNA
America Bank, N.A. to provide what management believes to be the first consumer credit facility specifically designed to finance childrens tuition for summer camp and related recreational and educational programs. The company also publishes
CampJobs.com (www.CampJobs.com), a job posting site for the camping industry, GrownUpCamps.com (www.GrownUpCamps.com), a directory for recreational and instructional programs for adults, RetreatSearch.com
(www.RetreatSearch.com), an online directory of alternative meeting sites for seminars, reunions and picnics, and the e-commerce sites CampersMall.com. and CampDirectorsMall.com.  Newtek has also been instrumental in assisting Niche
enter into an agreement with American International Group for the marketing of specialized insurance products to camp operators and attendees.  Niche management believes that at present it is the most popular internet site for camp related
information.

Transworld Business Brokers, LLC (TWBB)based in Florida, is engaged in the marketing and sale of small
to medium-sized businesses and serves as a consultant in mergers and acquisitions of companies in this size range. TWBB specializes in dealing with businesses in several categories including the automotive, distribution, restaurant, manufacturing,
medical, retail, service, and franchise industries. TWBBs revenue in 2001 exceed $1 Million and in 2002 grew to $2.2 Million.  The company was profitable in 2002 having brokered over 300 business transactions since inception in
2000.  The companys goals include maintaining increased revenues and profitability, and to geographically expand to include all of Florida and neighboring states, and to introduce new technological methods of evaluating and facilitating
transactions, and eventually to establish a dominant presence as a business broker on a national basis.

Copia Technology Services, LLC
(Copia)is a Wisconsin-based company recently organized to provide billing management services. Newteks equity interest in Copia was obtained through a merger of into it of CB Real Net, LLC (a former Newtek partner company
which was not successful)  Copia was organized late in 2002 and as yet has no employees or assets.  Newtek management and the organizers of Copia are currently working on designing projects that would provide outsourced services to
municipalities for the collection and payment

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of parking and traffic violations.  Because it is initiating operations, no summary financial statements are shown below for this company.

The former partner company, CB Real Net, LLC, had been organized to provide the design and implementation of a technology platform for an affiliated entity
which was in the process of establishing a real estate franchise network in Europe, which for various reasons unrelated to the performance of Newteks partner company was unsuccessful.  Newteks capco had made a loan of $2.5 Million
and taken a 20% equity participation in CB Real Net; principal and interest on the loan was paid in full and thereafter the company was merged into Copia, in which Newtek retains its 20% interest.

The summary financials for these Partner companies accounted for through the equity method follow. These unaudited summary financial statements also reflect the
degree to which Newteks partner companies interact with each other to provide and market needed goods or, particularly, services from each other. The income from services provided to other partner companies is shown as Intercompany
Eliminated Revenue and the cost of services acquired from other partner companies is shown as Intercompany Eliminated Expenses. All such inter-partner company transactions were conducted on terms and conditions no less favorable to
each party than those available from third parties. See also Note 22 to the Notes to the Consolidated Financial Statements.

ENTITIES UNDER THE EQUITY METHOD (a)

|                       |  | Starphire |         | Nichedirectories |   | Transworld Business Brokers  FL |  | Totals |        
|---------------------- |  | --------- | ------- | ---------------- | - | -------------------------------- |  | ------ | -------
|                       |  |           |         |                  |   |                                  |  |        |        
|                       |  | 2002      |         | 2001             |   | 2002                             |  | 2001   |        
|                       |  |           |         |                  |   |                                  |  |        |        
|Cash                   |  | $         | 14,653  |                  | $ | 1,352,823                        |  | $      | 212,409
|Other Assets           |  |           | 402,874 |                  |   | 460,508                          |  |        | 288,093
|Total Assets           |  | $         | 417,527 |                  | $ | 1,813,331                        |  | $      | 500,502
|Current Liabilities    |  | $         | 34,330  |                  | $ | 85,652                           |  | $      | 438,915
|Total Liabilities      |  | $         | 34,330  |                  | $ | 1,085,652                        |  | $      | 484,850
|Total Equity (Deficit) |  | $         | 383,197 |                  | $ | 727,679                          |  | $      | 15,652 

(a)  Copia Technology Services, LLC omitted due to lack of operations since inception in
2002.

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ENTITIES UNDER THE EQUITY METHOD (a)

|                                     |  | Starphire |          | Nichedirectories |   | Transworld Business Brokers  FL |   | Totals |          
|------------------------------------ |  | --------- | -------- | ---------------- | - | -------------------------------- | - | ------ | ---------
|                                     |  |           |          |                  |   |                                  |   |        |          
|                                     |  | 2002      |          | 2001             |   | 2002                             |   | 2001   |          
|                                     |  |           |          |                  |   |                                  |   |        |          
|Revenue                              |  | $         | 122,782  |                  | $ | 359,675                          |   | $      | 754,043  
|SG&A                                 |  |           | 426,476  |                  |   | 1,073,104                        |   |        | 1,123,519
|Depreciation and Amortization        |  |           | 28,252   |                  |   | 30,863                           |   |        | 20,214   
|Interest expense                     |  |           | 12,451   |                  |   | 28,156                           |   |        | 1,194    
|Income/Loss                          |  |           | (344,397 | )                |   | (772,448                         | ) |        | (390,884 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE |  |           |          |                  |   |                                  |   |        |          
|Revenue                              |  |           | (17,127  | )                |   | 73,397                           |   |        |         
|SG&A                                 |  |           | 28,578   |                  |   | 46,107                           |   |        | 66,908   
|Interest Expense                     |  |           | 12,451   |                  |   | 28,750                           |   |        |         

(a)  Copia Technology Services, LLC omitted due to lack of operations
since inception in 2002.

Other, Passive or Venture Capital Investments.

In addition to its principal business activities focused on the provision of services to small and medium sized business, Newtek also has made investments, usually
smaller or in the form of debt, in a number of other companies. For those companies in which Newteks equity ownership and voting power is less than 25% Newtek is generally not actively involved in the management or day-to-day operations, but
offers the businesses advisory services or assistance with particular projects, as well as the collaborative services of its partner companies. In pursuing business objectives, Newtek intends to hold a decreasing portion of its total assets in
companies in which it has voting power of less than 25%, but these companies are an important part of the network that Newtek is developing, as they provide access to markets and customer lists that are valuable for all of the other partner
companies in one manner or another.

As Newtek pursues its business strategy and focuses on the acquisition of majority or controlling
positions in additional partner companies, it expects other company investments to comprise a shrinking portion of its overall income and value. In addition, Newtek may, to the extent possible, increase its interests in these companies so that it
has an ownership interest sufficient to integrate them within its network of partner companies. Alternatively, it may dispose of some or all of the interests in other investments if, in the aggregate, they are anticipated to constitute more than 30%
of Newteks non-consolidated total assets (exclusive of Government securities and cash items). See Government Regulation; Investment Company Act of 1940.

A listing of all of the debt or equity investments in these and all other companies is set forth in the Notes to the Consolidated Financial Statements. The principal
investments in this category are described below.  Note that each of these companies had received significant debt investments from Newteks capcos (other than MDS) and all have been repaid in full.

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Distribution Video and Audio, LLCis a seller of closeout VHS videotapes, DVDs, video games and CD/cassette
music units in the wholesale and library markets. This company has built a large inventory of these media products by purchasing on a liquidated basis from major studios and retailers, and distributes these products to other distributors, public
libraries, school districts, US Embassies in 120 countries and other traditional means of distribution.

1-800 Gift Certificate,
Inc. (1-800) sells corporate incentive programs through proprietary Internet-based programs that are designed to influence consumer and employee behavior by enabling them to select the award of their choice. In conjunction with
providing such programs, 1-800 builds a data base of incentive program participants. By retaining the rights to this data base, the company creates powerful revenue opportunities by developing these data bases for third parties. 1-800 combines
Internet-based solutions with gift certificates from over 150 national retailers to create dynamic reward/incentive programs. The companys web-based infrastructure provides participants real-time access through multiple channels, both online
and off. It also provides administrators with a platform that is flexible, scalable and cost-effective.

Direct Creations, LLCis
a direct response marketing company that develops and markets products for sale to consumers through short and long-term television advertisement programs, electronic and traditional retail distribution channels and the Internet. The Company
launched its first commercial product, the Zen Oracle golf putter in 2001,. The management of the company has many years of experience in the direct response industry, with expertise in the areas of manufacturing, marketing,
info-mercial production, advertising and intellectual property development..

Merchant Data Systems, LLC
(MDS) (www.merchantdatasystems.com) offers almost all types of businesses an array of services including credit and debit card processing, electronic benefits transfer, electronic check services, equipment sales, leasing and rental
programs, 24-7 customer service, supplies and technical support as well as other related payment processing products and services. Through network resources, MDS can offer all the necessary credit card services to meet the needs of almost any
commercial establishment in the United States and Canada. MDS relationships include some of the largest FDIC insured banks in the United States.

BuySeasons, LLC, a Wisconsin based company, is a retailer of seasonal merchandise and category-specific, informational content on the Internet. The company
creates category-specific and uniquely branded web sites that utilize the same personnel and site infrastructure but serve different peak selling periods, thereby leveraging fixed costs and expenses. By producing a family of Internet
sites that target specific markets, BuySeasons is able to provide a multitude of products to an increasingly diverse customer base.

Investment Selection Philosophy.

There are currently four prevailing themes in the selection of
partner companies which play a guiding if not absolute role in the investments of Newtek, its capcos and subsidiaries.

| |  | First, service provider companies that are able to provide business and management services to small and medium sized businesses in a cost effective way. The service
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   | providers ability to construct innovative business models, target new market opportunities, define growth plans and develop new service offerings plays an important role
in the overall success of  Newteks partner companies as well as other small businesses.                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Second, are small businesses that have developed a product or service, sold this product or service to an existing, defined customer base and have successfully captured a
meaningful segment of a market. These companies benefit from the other, service provider partner companies core competencies which are used to support and supplement the existing management skills. This structure lets the management teams
exploit their personal strengths as managers and supplement their needs through an integrated network of service provider companies.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Third, are strong management team members and core competencies to add to the partner company network. Generally, these partner company investments involve the replication of an
existing partner companys products and services in another geographic region in which Newtek operates.                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Fourth, the ability of the business to add large numbers of other small businesses to the marketing universe of affiliated companies as to facilitate the cross marketing of many
other products and services. This ties in directly with Newteks overall objective of aggregating numerous small business markets for purposes of cross marketing.                                                                                                                                                                                                           

The Company has adopted a committee approach to investment or partner selection decisions, thereby tapping the experience of all participants in the process. A key
feature of Newteks decision-making process is its requirement that the selection of companies to include within its collaborative network and other investments be made unanimously by the senior management and the local participants in the
involved Regional Business Development Center. The Company believes that this unanimity requirement ensures that its decisions will continue to be well developed, sound and consensus oriented.

Execution

Regional Business Development Centers.  A key to the implementation of
Newteks strategy is its emphasis on its eight Regional Business Development Centers. These offices are staffed or associated with individuals with experience in working with small businesses who are able to identify and evaluate potential
partner companies and particularly the local entrepreneurs that Newtek will work with.  They are also able to provide important services for Newtek in its monitoring efforts and assist in the promotion and development of the Newtek brands of
small business products and services. In many cases, these individuals have made substantial investments in the equity of the capcos associated with their regional centers and retain responsibility for local coordination of communications and
compliance with local capco programs.

Once a company becomes associated with Newtek, it benefits not only from access to financing that
Newtek can make available or assist in finding, but also from the involvement of Newteks senior management and its Advisory Committee, (described below), all of whom have significant experience in meeting the critical needs of small
businesses.

Regional Managers. Newteks regional management consists of the following individuals.

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Christopher Bauer, Wisconsin - Mr. Bauer has had over 28 years of experience in commercial banking at Firstar
Corporation, a $38 Billion diversified financial services company. For the last 10 years Mr. Bauer has served as the President of Firstar Bank of Milwaukee. Firstar Bank of Milwaukee is considered one of the regions leading banks in
structuring and financing a host of commercial products, including capital markets, structured finance, mergers and acquisitions and venture equity investments, especially in small to mid-ranged companies. Prior to serving as President, Mr. Bauer
directed all merger and acquisition activity for Firstar, following 15 years experience in various capacities focused on consumer and small business banking. He was also a director of the $10 Million Wisconsin Venture Capital Fund, which assisted
small early-stage Wisconsin companies.

Charles W. Kearns, Wisconsin - Mr. Kearns has spent the last 16 years working with both
regional and national investment banking firm including E.F. Hutton, Salomon Smith Barney, Cleary Gull, and B.C. Ziegler & Co. Mr. Kearns experience includes Manager of the Financial Institutions and Fixed Income Departments, as well as
serving on the Board of Directors at Cleary Gull. Mr. Kearns is currently founder and Principal of Premier Financial Corporation, a financial advisory firm.  He has participated in raising venture capital for several enterprises, including
Internet and financial service companies, as well as numerous private and public placements of debt and equity securities. Mr. Kearns is also co-founder and owner of Klein Corporation, a manufacturing company in the standby power
industry.

Gregory L. Zink, Florida - Mr. Zink has over 20 years of broad based international financial and managerial experience
in public and private corporations. Mr. Zink also has over 10 years experience in the venture capital business including investing, structuring, consulting, and managing investments in both early stage and mature private and public businesses. Mr.
Zink has previously served as the investment advisor and consultant to a private investment trust with assets in excess of $30 Million as well as a Director, President, CEO and CFO of Heuristic Development Group, Inc.(HDG). Mr. Zink was
a founder and President at the time of HDGs initial public offering on NASDAQ. He has also been the Chairman and CFO of Nekton Diving Cruises, Inc. and currently serves as a Director, CEO and CFO of Nautilus Group Japan, Ltd. (NGY). NGJ
is the exclusive distributor and franchiser of Nautilus in Japan. During Mr. Zinks tenure, he has negotiated several contracts and a leveraged buyout with some of Japans largest corporations, including Mitsubishi and Sumitomo. Mr. Zink
earned his MBA from the Wharton Business School at the University of Pennsylvania in 1983 and his BS in Finance from Pennsylvania State University in 1979. In 1981, he graduated from General Electric Corporations Financial Management Program
after holding a variety of financial positions at GEs Lighting Business Group in Cleveland, Ohio. Following graduate business school, Mr. Zink was employed as a Senior Consultant with Touche Ross (now merged as Deloitte Consulting). During his
three years, he worked on a variety of financial, strategic and operational consulting assignments.

Jeff M. Schottenstein, Florida -During the past 30 years, Mr. Schottenstein has been a Director of Schottenstein Investment, a diversified investment holding company with $650 Million in assets, Vice President of Schottenstein Stores Value City Stores Division (NYSE
symbol VCD) and CEO of Schottenstein Realty Company, which specializes in the investment and restructuring of companies. Mr. Schottenstein has been involved in the capitalization and restructuring of numerous retail enterprises, including
Weiboldts Department Stores, Chicago, Illinois; Strauss Auto Parts, New York, New York; Valley Fair Discount Stores, New Jersey; Steinbach Stores and others. Along with his investors, Jeff Schottenstein has successfully

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acquired Bell Supply Company (retail oil and gas equipment supply company based in Kilgore, Texas) and Omni Exploration Company, the first successful Chapter 11 reorganization
of an oil and gas service company in the United States. Mr. Schottenstein also serves on the Board of Directors of Newtek.

F.
Anderson Stone, Louisiana - Mr. Stone has more than 25 years of institutional credit analysis and investment experience managing high-grade public and private corporate, high yield public corporate, and mortgage-backed fixed income; equity;
limited partnership and alternative asset portfolios for income and growth. Mr. Stone has held various life insurance investment positions including Vice President Corporate Securities at Pan-American Life Insurance Company, and Senior Portfolio
Manager at The Life Insurance Company of Virginia and Second-Vice President-Investments at Shenandoah Life Insurance Company. As a registered investment advisor and register representative, he has advised individuals and institutions in the
formation and implementation of portfolio strategies.

Dirk E. Sonneborn, New York - Mr. Sonneborn organized and continues,
following Newteks acquisition, managing and operating the Exponential capco. Mr. Sonneborn has 25 years experience as a certified public accountant and, while at a predecessor firm of PricewaterhouseCoopers, LLP, he was a manager in the
Emerging Business Service Group focused on new and emerging businesses. He has managed the capco program and its investments for Exponential and has participated as an investor in numerous technology oriented business ventures in the upstate New
York area. He was also a founding member in 1986 of the Technology Business Advisory Group, a trade organization based in Syracuse. As a resource within Newteks network of companies, Mr. Sonneborn will be available to assist other partner
companies their business plans.

Doug Baird, Colorado -Mr. Baird is Vice President - Marketing for The Stone Pine Companies,
Denver, CO. Since 1997 Mr. Baird has identified Colorado-based venture capital investments for Stone Pine and maintains strong relationships within the states venture community. He has built and maintains Stone Pines data base of active
private equity funds, sponsors and private equity advisors. Mr. Baird has developed long-standing relationships with senior members of Hamilton Lane Advisors, Inc., the private equity advisor to several large public employee pension systems. For 17
years prior to joining Stone Pine Mr. Baird had developed and/or marketed financial and investment products to institutional and retail clients including leasing portfolios, commercial real estate, public securities and private equity venture
transactions. With associates and partners, he has been responsible for raising capital in excess of $100 Million. In 1991 Mr. Baird founded and served as Managing Director of Golden State Financial Services, LLC, a Denver-based private investment
banking firm. Mr. Baird negotiated several private financing facilities including one between a large Denver homebuilder & site developer and GE Capital.  Mr. Baird was Vice President and Regional Marketing Director for Franchise Finance
Corporation of America (FFCA) from 1988 through 1991. While at FFCA Mr. Baird assisted in raising over $200 Million in private equity investments for issuers in a variety of industry sectors. Mr. Baird received N.A.S.D. Series 7 and 63 licenses in
1980 and in 1983 began employment with PaineWebber, Inc.

The individuals managing the Regional Business Development Centers (the
regional managers) have all participated in the capitalization and organization of the capco located in their area. They serve a number of functions within Newteks business model. The regional management are the local principals
that satisfy any applicable capco requirements for the participation of local parties with investment experience. In addition, each individual, excluding

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Mr. Schottenstein, has consulting agreements with one of Newteks non-capco subsidiaries whereby they provide time and resources (office space, telephones, supplies,
clerical assistance) to the management of their respective capco. Fees paid to the regional managers are a portion of the management fee earned by Newtek for the management of the capco funds, and range in amount from $77,000 to $115,000 per year.
Two of the individuals devote a much greater proportion of their time to the affairs of the respective capco and are employed by Newteks subsidiary at salaries of approximately $120,000 per year. These costs are not paid or reimbursed by the
capcos or the partner companies.

These consulting agreements require that the regional managers provide a meaningful amount of their
time, but none are on a full time basis and all conduct other activities, and other investments, as well. Included within the services provided are the services provided by Newtek to the investee companies which receive funds from a capco. As the
regional managers have been chosen because they have many years of relevant experience, the investee and partner companies are able to benefit from the availability of their experiences, knowledge, contacts, resources and skills. Partner companies
and other investees who receive these services do not generally pay anything for them as they are provided by Newtek to ensure the success of its acquisitions and investments. However, when a partner company within Newteks network purchases
services from another partner company, it pays the fair value for those services but because of inter-company elimination, the effect on Newtek is nil.

Similarly, the capcos themselves require attention for the identification of debt or equity investments in order to meet their respective minimum investment goals
under the programs. The regional managers are an important part of Newteks efforts to identify and screen appropriate investments because of their deep knowledge of and participation in their communities. The cost of these services are
included in the consulting agreements with the individuals. Finally, because of their stature in their communities, the regional managers are able to assist Newtek in its newer initiatives in non-capco areas

Newteks Regional Business Development Centers are located as follows:

|                             | Wisconsin                      |  | New York
|----------------------------- | ------------------------------ | - | --------
|1330 West Towne Square Road   | 462 Seventh Avenue, 14th Floor
|Mequon, Wisconsin  53902      | New York, New York  10018     
|                              |                               
|                              |                               
|                             | Florida                        |  | New York
|1000 Brickell Avenue          | 100 Quentin Roosevelt Blvd.   
|Miami, Florida  33131         | Garden City, New York  11550  
|                              |                               
|                             | Florida                        |  | New York
|Boynton Beach, Florida        | 216 Walton Street             
|                              | Syracuse, New York  13202     
|                              |                               
|                             | Louisiana                      |  | Alabama 
|1 Canal Place                 | 250 Commerce Street           
|New Orleans, Louisiana  70130 | Montgomery, AL 36104          
|                              |                               
|                             | Colorado                       |  
|1530 16thStreet               |                               
|Denver, Colorado  80202       |                               
|                              |                                |   |         

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Advisory Committee. The Advisory Committee has been used as a direct extension of Newtek management.
Advisory Committee members are a source of information and are used to focus on specific technologies and industries where the highest level of sophistication is required for business development. The Advisory Committee consists of individuals from
diverse backgrounds, but with specific knowledge regarding different aspects of business development and  technology. The individuals include:

| |  | Michael Balboni - New York State Senator                                                      
| | - | ----------------------------------------------------------------------------------------------
| |   |                                                                                               
| |  | Barry Simon - Vice President, Content Development - American Express                          
| |   |                                                                                               
| |  | Thomas P. Falus  President, Strategic Ventures Group, and Director, Cushman & Wakefield, Inc.

Members of the Newtek Advisory Committee have provided or are currently providing assistance in areas such as the introduction and negotiation of potential joint
ventures, marketing analysis and strategic advice to Newtek and the partner companies and management recruitment assistance. Specifically, advisory members have provided assistance to partner companies in the area of negotiating a consumer credit
facility with a major national financial service provider and have assisted in the solicitation of credit card processing businesses. The members of Newteks Advisory Committee have made themselves available to consult with management or
partner companies on an as needed basis. The compensation provided to the members of the Advisory Committee has been in the form of, generally 10,000, stock options. Depending on the scope and extent of services provided by a member of the Advisory
Committee, Newtek may agree to enter into additional compensation arrangements if so warranted.  Newtek is not currently under contract to any of the Advisory Committee members and is under no obligation to make any future payments to any of
them.

Government Regulation; Investment Company Act of 1940

Overview.  Because of the nature of the business of Newtek, management of Newtek has addressed the question of the application of the Investment Company
Act of 1940, as amended (the Investment Company Act), to the business of Newtek. As discussed below, the application of the Investment Company Act to Newtek would impose requirements and limitations that are materially inconsistent with
Newteks current and intended business strategy.  However, with the increase during 2001 and 2002 of investment focus on operating companies, management believes that concern for unintended holding company status has been decreased
materially.

Companies that are publicly offered in the U.S. and which (1) are, or hold themselves out as being, engaged primarily or
proposing to engage primarily in the business of investing, reinvesting or trading in securities, or (2) own or hold investment securities exceeding 40% of the value of their total assets (adjusted to exclude U.S. government securities and cash) and
are engaged in the business of investing, reinvesting, owning, holding or trading in securities, are considered to be investment companies under the Investment Company Act. Unless an exclusion from registration were available or obtained by grant of
a Securities and Exchange Commission (SEC) order, these companies must register under this Act and, thus, become subject to extensive regulation regarding several aspects of their operations.

The SEC has adopted Rule 3a-1 that provides an exclusion from registration as an investment company if a company meets both an asset and an income test and is not
otherwise primarily engaged in an investment company business by, among other things, holding itself out

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to the public as such or by taking controlling interests in companies with a view to realizing profits through subsequent sales of these interests. A company satisfies the
asset test of Rule 3a-1 if it has no more than 45% of the value of its total assets (adjusted to exclude U.S. government securities and cash) in the form of securities other than interests in majority owned subsidiaries and companies which it
primarily and actively controls. A company satisfies the income test of Rule 3a-1 if it has derived no more than 45% of its net income for its last four fiscal quarters combined from securities other than interests in majority owned subsidiaries and
primarily and actively controlled companies.

Newteks business strategy and business activities involve taking mainly
majority-ownership and primary controlling interests in partner companies with a view to participating actively in their management and development. Newtek believes that this strategy and the scope of its business activities would not cause it to
fall within the definition of investment company or, if so, provide it with a basis for an exclusion from the definition of investment company under the Investment Company Act.

Consequences of Investment Company Regulation.  Investment Company Act regulations are inconsistent with Newteks strategy of actively managing,
operating and promoting collaboration among its network of partner companies, and it is not feasible for Newtek to operate its business as a registered investment company. Newtek believes that because of the planned structure of Newteks
interests in its partner companies and its business strategy, it will not be regulated under the Investment Company Act.  However, Newtek cannot assure you that the structure of its partner company interests and other investments and its
business strategy will preclude regulation under the Investment Company Act, and Newtek may need to take specific actions that would not otherwise be in its best interests to avoid such regulation.

If Newtek falls under the definition of an investment company, and is unable to rely on an available exclusion or to obtain an order of the SEC granting an exclusion,
it would have to register under the Investment Company Act and comply with substantive requirements under the Investment Company Act applicable to registered investment companies. These requirements include:

| |  | limitations on Newteks ability to borrow;                                                          
| | - | ----------------------------------------------------------------------------------------------------
| |   |                                                                                                     
| |  | limitations on Newteks capital structure;                                                          
| |   |                                                                                                     
| |  | restrictions on acquisitions of interests in associated companies;                                  
| |   |                                                                                                     
| |  | prohibitions on transactions with affiliates;                                                       
| |   |                                                                                                     
| |  | restrictions on specific investments; and                                                           
| |   |                                                                                                     
| |  | compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations.

These rules and regulations would significantly change Newteks operations and prevent it from executing its business model.

Government Regulation; State Capco Regulations

Each of the states which operate capco tax credit programs
have established administrative mechanisms to monitor compliance with the requirements of the programs, that is to verify that the capcos have met applicable minimum investment requirements and are otherwise acting in conformance with the statutes
and rules. Requirements include limitations on the initial size of the recipients of the capco funds, including the number of their employees, the location within the respective state of the recipients and the recipients commitment to remain
therein for a specified period of time, the types of business conducted by the recipients, and the

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terms of the investments in the recipients. Capcos are required to maintain detailed records so as to demonstrate to state examiners compliance with all applicable
requirements. Contrary to other programs, the regulatory requirements applicable to capcos are, generally, limited to the minimum investment requirements. The capcos operated by Newtek are currently in full compliance with all applicable
requirements and management anticipates no difficulty in maintaining that status in the future.

Government Regulation: Sarbanes-Oxley Act of 2002

On July 30, 2002, the President of the United States signed the Sarbanes-Oxley Act of 2002 into law.  The Sarbanes-Oxley Act provides for sweeping changes with
respect to corporate governance, accounting policies and disclosure requirements for public companies, and also for their directors and officers.  Section 302 of the Sarbanes-Oxley Act (Corporate Responsibility for Financial
Reports) required the SEC to adopt new rules to implement the requirements of the Sarbanes-Oxley Act.  These requirements include new financial reporting requirements and rules concerning corporate governance.  New SEC rules,
effective August 29, 2002, require a reporting companys chief executive and chief financial officers to certify certain financial and other information included in the companys quarterly and annual reports.  The rules also require
these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the companys disclosure controls and procedures; that they have made certain disclosures to the auditors and to the
audit committee of the board of directors about the companys controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes to the
controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation.

See
Certifications for certifications by Newteks Chief Executive Officer and Chief Financial Officer of the financial statements and other information included in this Annual Report on Form 10-KSB.  See Item 14 (Controls and
Procedures) below for Newteks evaluation of disclosure controls and procedures.  The certifications required by Section 906 of the Sarbanes-Oxley Act also accompany this Form 10-KSB.

Shareholder Value

Throughout its existence since 1998, Newteks principal business objective has been
to promote longer-term shareholder value for its shareholders and those of its partner companies.  However, because of the way in which the business has been focused beginning in 2001 and primarily in 2002, the manner in which this value may be
achieved has changed.

From 1998 through 2001, management expected that material shareholder value ultimately would be realized through
the growth of each individual parner company leading to independent creation of value, possibly in the form of a public offering of the stock of the partner companies. In the event of such a public offering by a partner company, Newtek would
generally expect to retain a majority or controlling interest in such a partner company and to benefit as a shareholder from the increased public company value. Other possible liquidity events could be the merger or sale of an entire
company.

Primary emphasis in now being placed by management on assisting the Newtek partner companies to develop as successful
businesses, with earnings, surplus cash flow and the aggregation of other small business customers.  The NEWTEK branding strategy will help in consolidating the group of related small business services.  Because of this
approach, the

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likelihood of a sale or public offering of one of the partner companies is smaller now due to the expectation of greater benefit to be gained by keeping all as part of the
whole.  However, notwithstanding these objectives, Newtek may from time to time undertake sales of its interests in partner companies when it believes the action to be in Newteks and the shareholders overall best interests. Such
possible sales could be influenced in part by the need to monitor and control the receipt of the type of income that would cause Newtek to be subject to regulation as an investment company. See Government Regulation: Investment Company Act of 1940 -
Asset and Income Composition.

Risks Associated with Newteks Business

The following factors are important to understand managements current assessment of the principal risks associated with Newteks business.

1.          There is a risk that Newtek and its partner companies may not be profitable on a
consolidated basis, or may never become profitable. Newteks partner companies are now and are expected to remain in early stages of development and will have limited revenues. Further, the income, if any, generated by partner companies will be
offset by losses of other partner companies. Moreover, Newteks continuing acquisition of interests in early stage partner companies may further hinder profitability. Newteks short-term success will depend heavily on the continued
operations of its capcos which in 2002 produced 88% of revenues and were the principal reason Newtek generated net income in 2002 and 2001.

2.          The value of Newteks common stock would be materially impacted by the performance of the
companies in which it invests, aspects of which may be outside the control of Newtek. Each of the companies and their businesses may be effected by economic, governmental, industrial and internal factors outside the control of Newtek. If the
companies do not succeed and generate income, the value of Newteks assets and the price of Newteks stock would decline.

3.          Because Newteks capcos are subject to various state law requirements, a failure of any of
them to meet these requirements could subject the capco and Newteks shareholders to serious financial consequences. In general, Newteks capcos issue debt instruments to insurance company investors and the capcos then acquire interests in
companies in accordance with applicable state statutes. In return, the states issue tax credits to the capcos, which are available to and used by the insurance company investors to reduce their state tax liabilities. In order to maintain its status
as a capco and to avoid the recapture of the tax credits granted, each capco must meet a number of state requirements. A key requirement in order to continue capco certification is that a capco must comply with minimum investment schedules that
benchmark both the timing and type of required investments. A final loss of capco status, that is decertification as a capco, results in loss of the tax credits.

Because each of Newteks capcos utilizes a substantial portion of its initial funding to pay for credit enhancement and capco insurance, its cash available for
investment to meet these minimum investment requirements is reduced. Losses by the capcos on their investments would make it significantly more difficult for the capcos to meet minimum state statutory investment benchmarks.  In all capco
programs, the risk of decertification is not eliminated until the capco meets a minimum 50% investment threshold.

4.          Under the terms of insurance purchased by the capcos for the benefit of the investors, the capco
insurer would be authorized, in the event of a threat of decertification by a state, to assume up to complete control of a capco so as to avoid final decertification and interest

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payments. While avoiding final decertification, control by the insurer would result in significant disruption of the capcos business and likely result in financial loss
to the capco and possibly Newtek and its shareholders.

5.          A
substantial portion of Newteks 2002 and 2001 revenue was derived from the recognition of income related to tax credits available under current certified capital company programs in which it participates. Newtek will recognize additional income
over the next four to ten years from these programs. Thereafter, unless additional capco programs are adopted and Newtek is able to participate in them Newtek will derive no new revenue from this source. The adoption of new state capco programs in
the future could be materially and adversely affected by the continuation of current adverse economic conditions. If adverse conditions continue, the willingness of state governments to provide capco tax credits could be materially diminished. 
In the absence of income from this source, Newtek would have only the income it derives from its current and future investments.

6.          Because Newteks method of recognition of income derived from the capco tax credits causes
most or all such income to be recognized in early years of the programs, in the absence of income from other sources, Newtek and its capcos could sustain material losses in later years.  Despite the cessation of tax credit income, Newtek will
continue to incur costs for the administration of the capcos.

Employees

As
of December 31, 2001, Newtek and the companies in which it holds a controlling interest had approximately 160 employees, independent representatives and contract employees, of which 11 assist on an as-needed basis with the operation of capcos in
Florida, Wisconsin and Louisiana.  Newtek believes its labor relations are good and none of its employees are covered by a collective bargaining agreement.

Item
2.          DESCRIPTION OF PROPERTY

Newtek maintains leased office space at 462
Seventh Avenue, 14th Floor, New York, New York, 10018 and leases an additional office at 100 Quentin Roosevelt Blvd, Garden City, New York.  As of December 31, 2002, Newtek also leased offices for the capcos and other subsidiaries in the
following locations:

| |  | Syracuse, New York        
| | - | --------------------------
| |   |                           
| |  | New Orleans, Louisiana    
| |   |                           
| |  | Miami, Florida            
| |   |                           
| |  | Boynton Beach, Florida    
| |   |                           
| |  | Milwaukee, Wisconsin; and,
| |   |                           
| |  | Denver, Colorado          

Newtek leases office space
for its Manhattan office at an annual cost of approximately $240,000 on a lease which expires in 2011, or approximately $25 per square foot.  Space of the Garden City office is leased on a lease which expires in 2005 at an annual cost of
$73,000, or approximately $21 per square foot.  All other office leases are on a month-to-month basis. Newtek believes that its office space is satisfactory for its current needs.

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As a result of the acquisition of REXX on September 19, 2000, Newtek acquired title to a warehouse previously used
by REXX in a former business.  In March, 2002, the property was sold for a gain of $16,841 over its previously written-down book value as of December 31, 2001. Newtek received payment in cash and applied the proceeds to pay off the outstanding
mortgage.

Item 3.          LEGAL PROCEEDINGS

From time to time, Newtek and its subsidiaries are parties to various legal proceedings incident to its business. At December 31, 2002, there were no legal
proceedings which management anticipates would have a material adverse effect on Newtek.

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

During the quarter ended December 31, 2001 Newtek held a special meeting of stockholders on November 5, 2002, at
which time the change of the companys name from that of Newtek Capital, Inc.,  to that of Newtek Business Services, Inc. was approved as was the change of the companys official address for the service of
process.  At the meeting on November 5, 2002, there were present in person or by proxy shares representing 62.6% of the total outstanding shares at that date of 24, 698,542.  The amendment to the companys Certificate of Incorporation
was approved for the change of name by a vote of 15,637,175 for and 250 against; and for the change of address by a vote of 15,635,175 for and 2,250 against.

PART
II

Item 5.          MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)  Market Information.  The following table sets forth, for the periods indicated, the range of high and low closing sale prices for Newteks
common stock on the American Stock Exchange (AMEX).  Newteks common stock trades under the symbol NKC. The stock began trading on the AMEX on September 20, 2000.

|                                                           |  | Closing Price |     
|---------------------------------------------------------- |  | ------------- | ----
|                                                           |  |               |     
|                                                           |  | High          |     
|                                                           |  |               |     
|First Quarter (January 1, 2002 through March 31, 2002)     |  | $             | 3.95
|Second Quarter (April 1, 2002 through June 30, 2002)       |  | $             | 5.20
|Third Quarter (July 1, 2002 through September 30, 2002)    |  | $             | 4.24
|Fourth Quarter (October 1, 2002 through December 31, 2002) |  | $             | 4.39
|First Quarter (January 1, 2003 through March 17, 2003)     |  | $             | 5.30

Sales of
Unregistered Securities:  During the fourth calendar quarter of 2002, Newtek sold the following common stock or options for common stock of the company in unregistered, private placement, transactions.

|DATE          |  | PURCHASER |                                          | SHARES |  | PRICE               | 
|------------- |  | --------- | ---------------------------------------- | ------ |  | ------------------- | 
|              |  |           |                                          |        |  |                     | 
|Sept 30, 2002 |  |           | Gregory Zink                             |        |  | Options for 40,302  | 
|Sept 30, 2002 |  |           | Jeffrey M. Schottenstein                 |        |  | Options for 211,753 | 
|Oct. 15, 2002 |  |           | 7 major insurance companies              |        |  | 46,200              | 
|Dec. 10, 2002 |  |           | Daniel Breen                             |        |  | 25,000              | 
|Dec. 16, 2002 |  |           | North American Ins., Co.                 |        |  | 19,223              | 
|Dec. 16, 2002 |  |           | Republic Western Ins., Co.               |        |  | 21,359              | 
|Dec. 17, 2002 |  |           | Celia Holtzberg                          |        |  | 11,224              | 
|Dec. 31, 2002 |  |           | 54 holders of Comcap Holdings Corp stock |        |  | 380,471 + 82,980    | 

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(1)          The options sold to Messrs. Schottenstein and Zink
were in exchange for their interests in one of Newteks capcos, Wilshire Partners, LLC.  These two individuals are residents of Florida and were participants in the organization and capitalization of the capco and participate as Regional
Managers in its operations (see, Business  Execution  Regional Managers).  The options are exercisable for $0.01 for ten years but may not be exercised fully for the first three years.  Due to the restrictions attached to the
options and the unregistered underlying securities, the parties negotiated a valuation on the interest exchanged equal to the market price of Newteks stock at the time ($3.30), reduced by a 45% discount due to lack of liquidity, times the
number of shares.  The price paid was, thus, $73,148 for Mr. Zink and $384,332 for Mr. Schottenstein.  This exchange is a part of Newteks program to reduce or eliminate minority interests in its subsidiary companies.  Mr.
Schottenstein was throughout 2002 a director of Newtek but did not take part in the consideration or approval of the foregoing transaction, which was negotiated by management and approved by the remaining members of the board.

(2)          In conjunction with the funding of Newteks most recent capco fund, Wilshire Louisiana
Partners III, LLC, Newtek facilitated the marketing of the capcos debt by contributing to the capco the 46,200 shares to be sold to the insurance companies which participate in funding the capco.  The shares had a market value on the date
of funding of $3.55 per share.  The purchasers were The Equitable Life Assurance Society of the United States ($37,275), American Memorial Life Insurance Company ($9,940), Fortis Benefits Insurance Company ($16,153), First Colony Life Insurance
Company ($31,063), American Home Assurance Company ($24,850), the Prudential Insurance Company of America ($34,790) and PRUCO Life Insurance Company ($9,940).

(3)          Non-cash exchanges of either warrants for shares of one of Newteks capcos or a minority interest
in a capco, in furtherance of Newteks program to reduce minority interests.  The shares issued were unregistered and the insurance companies agreed to hold the shares for a period of up to three years and a discount of 45% was applied to
the market value on the date of issue of $3.70.  The price paid was thus $31,119 for North American, $43,466 for Republic and $22,840 for Ms. Holtzberg.  Ms. Holtzberg is an employee of one of Newteks partner companies and earned the
interest here exchanged by her efforts in the marketing of the capcos notes during 2002.

(4)          Stock issued in exchange for the stock of Comcap Holdings Corp. and Commercial Capital
Corporation.  The valuation of this acquisition is discussed at Note 18 to the Consolidated Financial Statement.  Of the total of 463,451 shares, 82,980 are held in escrow pending the achievement of certain hurdles contained in the
indemnity agreement for certain possible losses.  The market price as of the date of the announcement of the transaction was $3.38 to which Newtek applied a

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discount of 30% representing the reduced liquidity due to the nature of the unregistered shares issued without registration rights.

(b)  Holders.On March 17, 2003, as reported by Newteks transfer agent, shares of common stock were held by approximately 437 people, based on
the number of record holders, including nominees for an undetermined number of beneficial owners.

(c)  Dividends.  To
date, Newtek has not paid any cash dividends on our common stock. Any determination to pay dividends in the future will be at the discretion of Newteks Board of Directors. The Boards determination whether to pay dividends in the future
will be at the discretion of Newteks Board of Directors. The Boards determination whether to pay dividends will depend upon Newteks earnings, if any, financial condition and capital requirements as well as other relevant factors.
The Board of Directors does not intend to declare dividends in the foreseeable future, but instead intends to retain earnings, if any, for use in Newteks business operations.

(d)  Securities Authorized for Issuance Under Equity Compensation Plans.

|Plan Category                                              |  | Number of securities to be issued upon  exercise of  outstanding options,  warrants and  rights  (a) |           | Weighted-average exercise  price of outstanding options, warrants and rights (b) |   | Number of securities  remaining available for  future issuance under equity compensation  plans (excluding  securities
reflected in  column (a))  (c) | 
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                           |  |                                                                                                      |           |                                                                                  |   |                                                                                                                                                       | 
|Equity compensation plans approved by security holders     |  |                                                                                                      | 2,456,837 |                                                                                  | $ | 4.30                                                                                                                                                  | 
|Equity compensation plans not approved by security holders |  |                                                                                                      | 0         |                                                                                  |   | 0                                                                                                                                                     | 
|Total                                                      |  |                                                                                                      | 2,456,837 |                                                                                  | $ | 4.30                                                                                                                                                  | 

None of these options have been granted to
Messrs. Sloane, Rubin or Wasserman.

Item 6.          MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Introduction and Certain Cautionary Statements

The following discussion and analysis of our
financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business development for the periods covered by the
consolidated financial statements included in this Annual Report. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial
statements (including the notes

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thereto and the independent auditors report thereon), the description of our business, all as set forth in this filing, as well as the risk factors discussed
below.

The discussion set forth below, as well as other portions of this filing, contains statements concerning potential future
events. Readers can identify these forward-looking statements by their use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any of our assumptions on which the statements are based prove incorrect or
should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not
limited to, those discussed below. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. We will not update any forward-looking statements in this filing.

Critical Accounting Policies

Revenue Recognition.  Income from tax credits: Following an
application process, a state will notify a company that it has been certified as a capco. The state then allocates an aggregate dollar amount of tax credits to the capco. However, such amount is neither recognized as income nor otherwise recorded in
the financial statements since it has yet to be earned by the capco. The capco is entitled to earn tax credits upon satisfying defined investment percentage thresholds within specified time requirements. Newtek has capcos in five states. Each
statute requires that the capco invest a threshold percentage of certified capital (the funds provided by the insurance company investors) in businesses defined as qualified within the time frames specified. As the capco meets these
requirements, it avoids grounds under the statute for its disqualification for continued participation in the capco program. Such a disqualification, or decertification as a capco results in a permanent recapture of all or a portion of
the allocated tax credits. The proportion of the possible recapture is reduced over time as the capco remains in general compliance with the program rules and meets the progressively increasing investment benchmarks. As the capco progresses in its
investments in Qualified Businesses and, accordingly, places an increasing proportion of the tax credits beyond recapture, it earns an amount equal to the non-recapturable tax credits and records such amount as income, with a corresponding asset
called credits in lieu of cash in the balance sheet.

The amount earned and recorded as income is determined by multiplying
the total amount of tax credits allocated to the capco by the percentage of tax credits immune from recapture (the earned income percentage) at that point. To the extent that the investment requirements are met ahead of schedule, and the percentage
of non-recapturable tax credits is accelerated, the present value of the tax credit earned is recognized currently and the asset, credits in lieu of cash, is accreted up to the amount of tax credits deliverable to the Certified Investors. The
obligation to deliver tax credits to the Certified Investors is recorded as interest payable. On the date the tax credits are utilizable by the Certified Investors, the capco decreases credits in lieu of cash with a corresponding decrease to
interest payable.

Interest income on loans is recognized as earned.  When a loan is 90 days past due with respect to principal or
interest and, in the opinion of management, interest or principal on individual loans is not collectible, or at such earlier time as management determines that the collectibility of such principal or interest is unlikely, the accrual of interest is
discontinued and all accrued but uncollected interest income is reversed.  Cash payments subsequently received on nonaccrual loans are recognized as income only where the future collection of the recorded value of the loan is considered by
management to be probable.  Certain related direct costs to originate

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loans (including fees paid to loan brokers) are deferred and amortized over the contractual life of the loan using a method that approximates the effective interest
method.

Defeasance of Debt.  At the initiation of the transaction, the capco issues notes to the insurance company investors
and takes some of the cash proceeds and purchases an insurance contract from American International Specialty Lines Insurance Company, an insurance company subsidiary of The American International Group, Inc.

This transaction makes the insurer the primary obligor for the principal payment at maturity (i.e., the insurer must repay the principal at maturity). As a result, no
liability for the recognition of the Principal is recorded on the capcos books. However, the capco remains secondarily liable for such principal payment and must periodically assess the likelihood that it will become primarily liable and, if
necessary, record a liability at that time.

Investment Valuation. The various interests that the capcos and Newtek acquire
as a result of their investments are accounted for under three methods: consolidation, equity method and cost method. The applicable accounting method is generally determined based on Newteks voting interest in a company, and monthly
valuations are performed so as to keep Newteks records current in reflecting the operations of all of its investments.

Companies
in which Newtek directly or indirectly owns more than 50% of the outstanding voting securities or those Newtek has effective control over are generally accounted for under the consolidation method of accounting and are referred to as Newteks
partner companies. Under this method, an investments results of operations are reflected within Newteks Consolidated Statement of Operations. All significant intercompany accounts and transactions are eliminated. The results of
operations and cash flows of a consolidated partner company are included through the latest interim period in which Newtek owned a greater than 50% direct or indirect voting interest for the entire interim period or otherwise exercised control over
the partner company. Upon dilution of control at or below 50%, the accounting method is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

Companies that are not consolidated, but over which Newtek exercises significant influence, are accounted for under the equity method of accounting. Whether or not
Newtek exercises significant influence with respect to a company depends on an evaluation of several factors including, among others, representation on the board of directors and ownership level, which is generally a 20% to 50% interest in the
voting securities, including voting rights associated with Newteks holdings in common, preferred and other convertible instruments. Under the equity method of accounting, a companys accounts are not reflected within Newteks
Consolidated Statements of Operations; however, the companys earnings or losses is reflected under the caption Equity income (loss) in the Consolidated Statements of Operations.

Companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting, for which monthly
valuations are performed. Under this method, Newteks share of the earnings or losses of such companies is not included in the Consolidated Statements of Operations, but the investment is carried at historical cost. In addition, cost method
impairment charges are recognized as necessary, in the Consolidated Statement of Income if circumstances suggest that this is an other than temporary decline in the value of the investment, particularly due to losses. Subsequent
increases in value, if any, of the underlying companies are not reflected in Newteks financial statements until realized in cash. Newtek records as

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income amounts previously written off only when and if Newtek receives cash in excess of its remaining investment balance.

On a monthly basis, the investment committee of each capco meets to evaluate each of Newteks investments.  Newtek considers several factors in determining
whether an impairment exists on the investment, such as the companies net book value, cash flow, revenue growth and net income. In addition, the investment committee looks at larger variables, such as the economy and the particular
companys industry, to determine if an other than temporary decline in value exists in each capcos and Newteks investment.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial accounting and reporting for business combinations and is effective for all business combinations after June 30, 2001. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and is effective for fiscal years beginning after December 15, 2001.  This statement requires that goodwill and intangible assets with indefinite useful lives no longer be amortized
but instead tested for impairment at least annually.   The Company has determined that no impairment existed as of December 31, 2002. The adoption of these standards did not have a material impact on Newteks financial position or
results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of  and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined). The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, with early application encouraged and generally are to be applied prospectively. The adoption of SFAS No. 144 did not have a material impact on Newteks financial position or results of operations.

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (FAS 145). This statement eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified
as an extraordinary item, net of the related income tax effect. However, an entity would not be prohibited from classifying such gains and losses as extraordinary items so long as they are both unusual in nature and infrequent in occurrence. This
provision of FAS 145 will be effective for Newtek as of the beginning of fiscal year 2004. This statement also amends FAS 13, Accounting for Leases and certain other authoritative pronouncements to make technical corrections or
clarifications. FAS 145 will be effective related to the amendment of FAS 13 for all transactions occurring after May 15, 2002. All other provisions of FAS 145 will be effective for financial statements issued after May 15, 2002. Newtek has
determined that this Statement will have no significant impact on the companys financial condition and

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results of operations.

In July 2002, the FASB issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when
the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of an entitys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at
fair value. The provisions of SFAS No. 146 will be adopted for exit or disposal activities that are initiated after December 31, 2002.   Newtek is currently evaluating the impact of implementing FAS 146.

In October 2002, the FASB issued Statement No. 147 (SFAS 147), Acquisitions of Certain Financial Institutions. SFAS 147 addresses financial
accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. SFAS 147 also provides guidance on the accounting for the impairment or disposal of acquired
long-term customer-relationship intangible assets of financial institutions, including those acquired in transactions between two or more mutual enterprises. The provisions of the statement will be effective for acquisitions on or after October 1,
2002. The adoption of SFAS No. 147 is not expected to have a material impact on Newteks financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The adoption of SFAS No. 148 did  not have a material impact on Newteks financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others, an interpretation of FIN No. 5, 57 and 107, and rescission of FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while, the provisions of the
disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties
and provide general indemnifications. The Companys maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. Based on the Companys
experience, the Company expects the risk of loss to be remote.

In January 2003, the FASB issued FIN No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that

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variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or is
entitled to receive a majority of the entitys residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable
interest. The consolidation requirements of FIN No. 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first
fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. Newtek is currently evaluating the impact of implementing FIN No. 46.

Comparison of the years ended December 31, 2002 and December 31, 2001

Revenues increased by
approximately $10,824,000 to $34,624,000 for the year ended December 31, 2002, from $23,800,000 for the year ended December 31, 2001.  Income from tax credits increased by approximately $9,105,000, from $21,498,000 for the year ended December
31, 2001, to $30,603,000 for the year ended December 31, 2002,  due to Newteks capcos achieving various additional investment thresholds mandated by the various state capco statutes in 2002 versus 2001. Interest and dividend income
decreased by approximately $945,000 to $900,000 for the year ended December 31, 2002, from $1,845,000 for the year ended December 31, 2001. This decrease was due primarily to lower bank interest rates and less loans outstanding to qualified
businesses.  Consulting fee income increased by approximately $379,000 to $388,000 for the year ended December 31, 2002, from $9,000 for the year ended December 31, 2001, due to one of Newteks partner companies experiencing a significant
increase in consulting income. Other income increased by approximately $2,285,000 to $2,733,000 for the year ended December 31, 2002 from $448,000 for the year ended December 31, 2001.  This increase was due to the consolidation of revenues
with additional partner companies (mostly credit card processing entities) now consolidated into Newtek.

Interest expense
decreased by approximately $92,000 to $11,485,000 for the year ended December 31, 2002 from $11,577,000 for the year ended December 31, 2001.  The decrease was due primarily to the reduction of interest payable due to delivery of tax credits to
certified investors.  Payroll and consulting fees increased by approximately $1,901,000 to $4,566,000 for the year ended December 31, 2002 from $2,665,000 for the year ended December 31, 2001.  The increase was due to the consolidation of
operating expenses with additional partner companies now consolidated into Newtek.  Professional fees increased by approximately $1,084,000 to $3,145,000 for the year ended December 31, 2002 from $2,061,000 for the year ended December 31,
2001.  This increase is due to the new capco and capco fund that were formed in the year. Insurance expense increased by approximately $421,000 to $1,951,000 for the year ended December 31, 2002 from $1,530,000 for the year ended December 31,
2001.  This increase is due to the new prepaid insurance amortization on the newly formed capco and capco fund that were formed in the year.

Other expenses increased by approximately $2,497,000 to $3,672,000 for the year ended December 31, 2002 from $1,175,000 for the year ended December 31, 2001. 
The increase was due primarily to the consolidation of operating expenses from additional partner companies now consolidated into Newtek.

Newtek determined that there was $1,574,000 of other than temporary decline in the value of some of its investments (net of recoveries), versus $372,000 for the same
period last

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year.  The increase was due primarily to managements analysis of its investments which indicated more impairment for the current period. Newtek considers several
factors in determining whether an impairment exists on the investment, such as the investees net book value, cash flow, revenue and net income.  Newtek recognizes that in developing new and small businesses, significant impairments in the
value of the investments may occur.

Net income increased by approximately $7,238,000, to net income of $8,168,000 for the year ended
December 31, 2002, compared to net income of $930,000 for the year ended December 31, 2001, due to the increases in revenue and general and administrative expenses discussed above, offset by the increase in other than temporary decline in
investments of approximately  $1,202,000, decreased equity in losses of approximately $1,551,000 due to the consolidation of certain investments previously accounted for under the equity method, an increase in income taxes of approximately
$2,122,000, and the extraordinary gains of $3,643,000 (of which $2,735,000 is attributable to Newteks acquisition of Commercial Capital, and $908,000 to Newteks acquisition of minority interests.)

Partner Companies:At December 31, 2002, Newtek had fourteen majority-owned partner companies, all of which were as a result of investments
through the capco programs.  For the year ended December 31, 2002, these companies represented approximately $3,416,000 in losses that are consolidated in Newteks results. For the year ended December 31, 2001, these companies represented
approximately $904,000 in losses that are consolidated in Newteks results.

At December 31, 2002, Newtek had four companies
accounted for under the equity method, all of which were as a result of investments through the capco programs. For the year ended December 31, 2002, these companies represented approximately $729,000 in losses that are shown on the consolidated
statement of income as equity in net losses of affiliates.  For the year ended December 31, 2001, these companies represented approximately $2,280,000 in losses that are shown on the consolidated statement of income as equity in net losses of
affiliates.

Liquidity and Capital Resources

Newtek has funded its operations
primarily through the issuance of notes to insurance companies through the capco programs. Through December 31, 2002, Newtek has received approximately $166,700,000 in proceeds from the issuance of long-term debt, Capco warrants, and Newtek common
stock through the capco programs. Newteks principal capital requirements have been to fund the defeasance of the principal amount of notes issued to the insurance companies (approximately $94,081,000), the acquisition of capco insurance
policies ($18,519,000), the acquisition of partner companies interests, finding of other capco-qualified investments, and working capital needs resulting from operating and business development activities of its partner companies.

Net cash used in operating activities for the twelve months ended December 31, 2002 of approximately $9,908,000 resulted primarily from net income of
$8,168,000 adjusted for the non-cash interest expense of approximately $10,733,000 and non-cash income tax expense of approximately $2,657,000. It was also affected by the approximately $729,000 in equity in net losses of affiliates and
approximately $335,000 of minority interest. This was offset by the approximately $30,603,000 in non-cash income from tax credits and $3,643,000 in extraordinary

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gains. In addition, Newtek had an increase in components of working capital of approximately $118,000.

Net cash provided by investing activities for the year ended December 31, 2002 of approximately $9,266,000 resulted primarily from approximately $16,196,000 in
additional qualified investments made in the period offset by repayments on debt instruments of $8,743,000, cash from consolidation of entities of $14,173,000 and the $2,475,000 in cash received in connection with the acquisitions of Exponential and
Commercial Capital.

Net cash provided by financing activities for the year ended December 31, 2002 was approximately $10,642,000
primarily attributable to the approximately $30,000,000 in proceeds from the issuance of long term debt, net proceeds of approximately $720,000 from the issuance of common stock to certified investors, and net proceeds of approximately $1,371,000
from the net proceeds from issuance of stock during the twelve months ended December 31, 2002. This was offset by payments on a premium financing note payable-insurance of approximately $7,034,000, debt defeasance of approximately $14,514,000 and
the full repayment of a mortgage obligation of approximately $307,000.

Liquidity Risk.  Newtek believes that its cash and
cash equivalents, its anticipated cash flow from operations, its ability to access private and public debt and equity markets, and the availability of funds under its existing JP Morgan line of credit will provide it with sufficient liquidity to
meet its short and long-term capital needs. The loss of any one or two of these liquidity sources would not present an impossible obstacle to Newteks operations. However, the failure of the insurer, which is primarily liable for the repayment
of the capco defeased debt of $149,337,000  would require the capcos to assume this repayment obligation upon the maturity of the notes. Management has determined that the likelihood of the capcos becoming primarily liable for a material
portion of this debt due to the failure of the insurer, which is a subsidiary of The American International Group, Inc., and is currently credit rated as AAA, is remote.

The following chart represents Newteks obligations and commitments, as of December 31, 2002, other than capco debt repayment discussed above for future cash
payments under debt, lease and employment agreements:

|Year  |  | Debt |            | Leases |   | Employment  Agreements |  | Total |          
|----- |  | ---- | ---------- | ------ | - | ---------------------- |  | ----- | ---------
|      |  |      |            |        |   |                        |  |       |          
|2003  |  | $    | 3,860,588  |        | $ | 752,149                |  | $     | 855,000  
|2004  |  |      | 2,197,013  |        |   | 735,503                |  |       | 855,000  
|2005  |  |      | 1,184,567  |        |   | 374,769                |  |       | 855,000  
|2006  |  |      |           |        |   | 345,534                |  |       |         
|2007  |  |      |           |        |   | 258,867                |  |       |         
|2008+ |  |      | 3,810,161  |        |   | 1,562,121              |  |       |         
|      |  |      |            |        |   |                        |  |       |          
|Total |  | $    | 11,052,329 |        | $ | 4,028,943              |  | $     | 2,565,000
|      |  |      |            |        |   |                        |  |       |          

This chart excludes the taxes due to
capco minority owners (which can not be anticipated).

Commercial Capital Corp. (CCC), at the time of its acquisition by the
Company had a $10 Million line of credit with a bank. As of December 31, 2002, the amounts outstanding under this line of credit were $3,998,630 and were assumed by Newtek in connection with its acquisition of CCC (included in Bank Notes Payable on
the accompanying consolidated balance sheet). The line of credit is collateralized by loans made by CCC.  The line of credit bears interest at the prime interest rate plus 1% with interest payable monthly. The average rate for the year ended
December 31, 2002 was 5.76%. The rate at December 31, 2002 was 5.25%. There was no accrued interest payable under this line of credit as of December 31, 2002. In addition, this line of credit requires that a percentage of all advances made to CCC be
deposited into an

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account in the name of the bank. The balance in this account as of December 31, 2002 was $198,467 and is included in receivable from bank on the accompanying consolidated
balance sheet.

CCC also had a line of credit with another bank for $75,000,000. As of December 31, 2002, the amount outstanding under
this line of credit was $51,325,862 and, less $1,500,000 which was converted into CCC Preferred Stock, was assumed by Newtek in connection with its acquisition of CCC (included in Bank Notes Payable on the accompanying consolidated balance
sheet).  The line of credit bears interest at the one-month LIBOR rate plus 2.50%, and was collateralized by the loans made by CCC. The average interest rate for the year ended December 31, 2002 was 4.3%. The interest rate at December 31, 2002
was 3.88%. Interest on the line is payable monthly in arrears.  In addition, this line of credit required that a percentage of all advances made to CCC be deposited into an account in the name of the bank. This line of credit required CCC to
meet certain administrative and financial covenants, including the maintenance of a minimum net worth, ratio of total indebtedness to net worth, limitation on permitted subordinated debt and profitability covenants as defined in the agreement. Under
the terms of an agreement between CCC and both of the banks with which CCC maintains lines of credit, all payments received from CCCs borrowers except for principal and interest on the guaranteed portion of the loans are transferred into a
restricted bank account. CCC cannot use these funds until the end of a calendar month at which time the funds are used to pay required principal and interest to the banks and certain other required payments.

Effective with the Companys acquisition of Commercial Capital, a new line of credit was provided by Deutsche Bank to the successor to Commercial Capital, Newtek
Small Business Finance. The aforementioned CCC credit lines were refinanced, with the aforementioned outstanding loan balances aggregating, after accounting for the conversion of $1,500,000 to preferred stock, $53,824,492 at December 31, 2002. The
new line of credit for $75 Million expires March 31, 2004 and is guaranteed by Newtek. Newtek Small Business Finance may request an increase in the line of credit, for which Deutsche Bank, in its sole discretion, may increase in total up to $100
Million.  The new Deutsche Bank line has terms and conditions similar to those contained in the Commercial Capital line, described above.

During the year ended December 31, 2002 Newtek generated cash flow primarily from the following sources:

| |                                | common stock sales, netting $2,091,000;                                                                                                                                 
| | ------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                | proceeds from issuance of a long-term debt and warrants of $30,000,000;                                                                                                 
| |                                | return of investments of approximately $14,045,000, which was held pending reinvestment;                                                                                
| |                                | interest and dividend income of approximately $900,000; and                                                                                                             
| |                                | other income of approximately $2,733,000, which represents revenue from the companys consolidated partner company entities.                                            
| |                                | cash received from acquired companies of approximately $2,475,000;                                                                                                      
| |                                 |                                                                                                                                                                         
| | The cash was primarily used to:
| |                                 |                                                                                                                                                                         
| |                                | invest approximately $16,196,000 (including approximately $13,861,000 which was consolidated into Newteks financial statements) in small or early stage businesses;
and
| |                                | repayment of  a note payable-insurance of approximately $7,034,000.                                                                                                   
| |                                | purchase insurance coverage to defease the new capco and capco fund debt obligations for approximately $14,514,000;                                                     

During the year ended December 31, 2001 Newtek generated cash flow primarily from the following sources:

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| |                                | private placement of common stock, netting $726,000;                                                                                        
| | ------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------
| |                                | proceeds from issuance of note payable-insurance of $5,200,000;                                                                             
| |                                | proceeds from a JP Morgan Chase line of credit of $575,000, with a December 31, 2001 interest rate of 5%;                                   
| |                                | return of investments of $12,072,000;                                                                                                       
| |                                | investment income of approximately $1,845,000; and                                                                                          
| |                                | other income of approximately $448,000.                                                                                                     
| |                                 |                                                                                                                                             
| | The cash was primarily used to:
| |                                 |                                                                                                                                             
| |                                | fund distributions to owners of the predecessors of Newtek in lieu of compensation and related to passed-through tax liabilities of $608,000
| |                                | invest $24,588,000 (less $10,893,000 which was consolidated into Newteks financial statements) in small or early stage businesses; and     
| |                                | repay to a finance company note payable insurance of approximately $1,596,000.                                                              

As of December 31, 2002, Newtek had approximately $41,171,000 in cash of which substantially all was restricted for use for capco activities.

Newtek will have current working capital requirements associated with operating its current businesses. It is Newteks intention to acquire interests in
partner companies through additional capco programs and through acquisitions made by Newtek directly. Newteks working capital requirements may, therefore, increase in the future and require additional external financing. Newtek expects to
finance its participation in additional capcos and other ventures principally with externally generated funds, which may include:

| |  | borrowings under current or future bank facilities; and/or                                                                            
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | the sale of equity, equity-related or debt securities on terms and conditions similar to those obtained for similar sales during 2002.

There can be no assurance, however, financing will be available in amounts, at rates or on terms and conditions acceptable to Newtek.

Income from capco Tax
Credits

In general, the capcos issue debt and equity instruments, to insurance company investors. For a description of the debt and
equity instruments and warrants issued by Newteks capcos, see the Companys Notes to the Consolidated Financial Statements. The capcos then make targeted investments, as defined under the respective state statutes, with the funds raised.
Each capco, has a contractual arrangement with the particular state that entitles the capco to receive (or, earn) tax credits from the state upon satisfying quantified, defined investment percentage thresholds and time requirements. In order for the
capcos to maintain their state-issued certifications, the capcos must make targeted investments in accordance with these requirements, which requirements are consistent with Newteks overall business strategy of acquiring controlling positions
in its partner companies. Each capco also has separate, contractual arrangements with the insurance company investors obligating the capco to pay interest on the aforementioned debt instruments. The capco may satisfy this interest obligation by
delivering the tax credits or paying cash. The insurance company investors have the legal right to receive and use the tax credits and would, in turn, use these tax credits to reduce their respective state tax liabilities in an amount usually equal
to 100% of their investments in the capcos. The tax credits can be utilized over a ten-year period at a rate of, usually, 10% per year and in some instances are transferable and can be carried forward.

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A description is set forth above of the manner in which Newtek and its capcos account for the tax credit
income.  See, --Critical Accounting Policies  Revenue Recognition.

The amount earned and recorded as income is determined by
multiplying the total amount of tax credits initially allocated to the capco by the percentage of tax credits immune from recapture (the earned income percentage) under the state statute. The total amount of tax credits allocated to each of the
capcos, the required investment percentages, recapture percentages and related earned income percentages, and pertinent dates are summarized as follows:

|The First to Occur  | 
|------------------- | 
|                    | 
|State Capco or Fund | 
|                    | 
|FLORIDA             | 
|Wilshire            | 
|Partners(WP)        | 
|                    | 
|                    | 
|NEW YORK            | 
|Wilshire            | 
|N.Y. Partners III   | 
|(WNY III)           | 
|COLORADO            | 
|Statewide Pool      | 
|Wilshire Colorado   | 
|Partners(WC)        | 
|COLORADO            | 
|Rural Pool          | 
|Wilshire Colorado   | 
|Partners (WC)       | 
|LOUISIANA           | 
|Wilshire LA         | 
|Advisers(WLA)       | 
|WISCONSIN           | 
|Wilshire            | 
|Investors(WI)       | 
|LOUISIANA           | 
|Wilshire            | 
|LA Partners III     | 
|(WLPIII)            | 
|NEW YORK            | 
|Wilshire            | 
|N.Y. Advisers II    | 
|(WLA II)            | 
|NEW YORK            | 
|Wilshire            | 
|Advisers(WA)        | 
|                    | 
|LOUISIANA           | 
|Wilshire            | 
|LA Advisers II      | 
|(WLA II)            | 

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Under the various state capco provisions there is a difference in the amount of qualified investments made and the
amount of income recognized by the respective capcos upon satisfaction of the various benchmarks. The table below relates the investments made, both as percentage of total funds and in dollar amounts, to the income recognized as each benchmark is
achieved. In all of these programs, a majority of Newteks income from the delivery of the tax credits will be recognized no later than five years into the ten-year programs.

|State  Capco or Fund  |  | Allocated Tax  Credits |            | Investment Benchmark  Percentage/Dollars |  | Earned  Income  Percentage/Dollars |  
|--------------------- |  | ---------------------- | ---------- | ---------------------------------------- |  | ---------------------------------- | -
|                      |  |                        |            |                                          |  |                                    |  
|FLORIDA               |  | $                      | 37,384,028 |                                          |  | 20                                 | %
|Wilshire              |  |                        |            |                                          |  | 30                                 | %
|Partners (WP)         |  |                        |            |                                          |  | 40                                 | %
|                      |  |                        |            |                                          |  | 50                                 | %
|NEW YORK.             |  | $                      | 35,160,202 |                                          |  | 25                                 | %
|Wilshire N.Y          |  |                        |            |                                          |  | 40                                 | %
|Partners III(WNY III) |  |                        |            |                                          |  | 50                                 | %
|COLORADO              |  | $                      | 16,175,415 |                                          |  | 30                                 | %
|Wilshire Colorado     |  |                        |            |                                          |  | 50                                 | %
|Partners(WC)          |  |                        |            |                                          |  |                                    |  
|Statewide Pool        |  |                        |            |                                          |  |                                    |  
|COLORADO              |  | $                      | 5,882,352  |                                          |  | 30                                 | %
|Wilshire Colorado     |  |                        |            |                                          |  | 50                                 | %
|Partners(WC)          |  |                        |            |                                          |  |                                    |  
|Rural Pool            |  |                        |            |                                          |  |                                    |  
|LOUISIANA             |  | $                      | 18,040,000 |                                          |  | 30                                 | %
|Wilshire LA           |  |                        |            |                                          |  | 50                                 | %
|Advisers(WLA)         |  |                        |            |                                          |  |                                    |  
|WISCONSIN             |  | $                      | 16,666,667 |                                          |  | 30                                 | %
|Wilshire              |  |                        |            |                                          |  | 50                                 | %
|Investors(WI)         |  |                        |            |                                          |  |                                    |  
|LOUISIANA             |  | $                      | 8,000,000  |                                          |  | 30                                 | %
|Wilshire LA           |  |                        |            |                                          |  | 50                                 | %
|Partners III(WLPIII)  |  |                        |            |                                          |  |                                    |  
|NEW YORK.             |  | $                      | 6,807,866  |                                          |  | 25                                 | %
|Wilshire N.Y          |  |                        |            |                                          |  | 40                                 | %
|Advisers II(WNY II)   |  |                        |            |                                          |  | 50                                 | %
|NEW YORK              |  | $                      | 3,810,161  |                                          |  | 25                                 | %
|Wilshire              |  |                        |            |                                          |  | 40                                 | %
|Advisers(WA)          |  |                        |            |                                          |  | 50                                 | %
|LOUISIANA             |  | $                      | 3,355,000  |                                          |  | 30                                 | %
|Wilshire LA           |  |                        |            |                                          |  | 50                                 | %
|Advisers II(WLA II)   |  |                        |            |                                          |  |                                    |  

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During the years ended December 31, 2002 and 2001, the capcos satisfied certain investment benchmarks and the
related recapture percentage requirements and accordingly, earned a portion of the tax credits. In addition, in both 2002 and 2001 Newtek recognized income from tax credits in prior years resulting from the accretion of the discount attributable to
tax credits earned in prior years. See the Companys Notes to Consolidated Financial Statements.

During 2002, Newtek established
and received certification for two new capcos, Wilshire Colorado and Wilshire Louisiana Partners III.

Impact of Inflation

The impact of inflation on Newteks results of operations is not material.

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##### Table of Contents

Item 7.          FINANCIAL STATEMENTS

INDEX TO NEWTEK
BUSINESS SERVICES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS

TABLE OF CONTENTS

|                                                                                                                   | PAGE NO.
|------------------------------------------------------------------------------------------------------------------ | --------
|                                                                                                                   |         
|Report of Independent Accountants                                                                                  | 46      
|                                                                                                                   |         
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                       | 47      
|                                                                                                                   |         
|Consolidated Statements of Income for the years ended December 31, 2002 and December 31, 2001                      | 48      
|                                                                                                                   |         
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2002 and December 2001 | 49      
|                                                                                                                   |         
|Consolidated Statements of Cash Flows for the years ended December 31, 2002 and December 31, 2001                  | 50      
|                                                                                                                   |         
|Notes to Consolidated Financial Statements                                                                         | 53      

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##### Table of Contents

Report of Independent Accountants

To the Board of Directors and Stockholders of Newtek Business Services, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders equity and cash flows present fairly, in all material respects, the
financial position of Newtek Business Services, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for the years ended December 31, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

|PRICEWATERHOUSECOOPERS LLP           | 
|------------------------------------ | 
|                                     | 
|/s/ PRICEWATERHOUSECOOPERS LLP       | 
|                                     | 
|New York, New York February 28, 2003 | 

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001

|                                                                                                          |                                                                                                                          | 2002 |             | 2001        |  
|--------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ---- | ----------- | ----------- | -
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | A S S E T S                                                                                                              |      |             |             |  
|Cash and Cash equivalents                                                                                 |                                                                                                                          | $    | 41,171,358  |             | $
|Credits in lieu of cash                                                                                   |                                                                                                                          |      | 41,580,950  |             |  
|Loans receivable                                                                                          |                                                                                                                          |      | 56,073,016  |             |  
|Accounts receivable, (net of allowance of $34,466 in 2002)                                                |                                                                                                                          |      | 661,351     |             |  
|Receivable from bank                                                                                      |                                                                                                                          |      | 2,938,309   |             |  
|Accrued interest receivable                                                                               |                                                                                                                          |      | 285,151     |             |  
|Investments in qualified businesses  held to maturity investments                                        |                                                                                                                          |      | 3,962,353   |             |  
|Investments in qualified businesses  equity method investments                                           |                                                                                                                          |      | 1,091,110   |             |  
|Structured insurance product                                                                              |                                                                                                                          |      | 2,893,301   |             |  
|Prepaid insurance                                                                                         |                                                                                                                          |      | 14,056,196  |             |  
|Prepaid expenses and other assets                                                                         |                                                                                                                          |      | 932,447     |             |  
|Furniture, fixtures and equipment, (net of accumulated depreciation of $190,590and $18,957,
respectively) |                                                                                                                          |      | 546,231     |             |  
|Goodwill                                                                                                  |                                                                                                                          |      | 2,862,965   |             |  
|Asset held for sale                                                                                       |                                                                                                                          |      |            |             |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|Total assets                                                                                              |                                                                                                                          | $    | 169,054,738 |             | $
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |      |             |             |  
|Liabilities:                                                                                              |                                                                                                                          |      |             |             |  
|                                                                                                          | Accounts payable and accrued expenses                                                                                    |      | $           | 4,218,367   |  
|                                                                                                          | Notes payable  certified investors                                                                                      |      |             | 3,844,181   |  
|                                                                                                          | Notes payable  insurance                                                                                                |      |             | 5,369,896   |  
|                                                                                                          | Notes payable  other                                                                                                    |      |             | 480,500     |  
|                                                                                                          | Borrowings under line of credit                                                                                          |      |             | 450,000     |  
|                                                                                                          | Bank notes payable                                                                                                       |      |             | 53,824,492  |  
|                                                                                                          | Interest payable in credits in lieu of cash                                                                              |      |             | 65,196,116  |  
|                                                                                                          | Mortgage payable                                                                                                         |      |             |            |  
|                                                                                                          | Deferred tax liability                                                                                                   |      |             | 3,726,151   |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | Total liabilities                                                                                                        |      |             | 137,109,703 |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | Minority interest                                                                                                        |      |             | 4,772,741   |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | Commitments and contingencies                                                                                            |      |             |            |  
|                                                                                                          | Stockholders equity:                                                                                                    |      |             |             |  
|                                                                                                          | Common stock (par value $0.02 per share; authorized 39,000,000 shares, Issued and outstanding
25,341,428 and 22,212,517) |      |             | 506,828     |  
|                                                                                                          | Additional paid-in capital                                                                                               |      |             | 20,992,827  |  
|                                                                                                          | Retained earnings (accumulated deficit)                                                                                  |      |             | 5,672,639   |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | Total stockholders equity                                                                                               |      |             | 27,172,294  |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          | Total liabilities and stockholders equity                                                                               |      | $           | 169,054,738 |  
|                                                                                                          |                                                                                                                          |      |             |             |  
|                                                                                                          |                                                                                                                          |      |             |             |  

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

|                                                                                                                                                                                                                                                                                                                                                        |                              | 2002 |            | 2001       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | ---------- | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Revenue:                                                                                                                                                                                                                                                                                                                                                |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Income from tax credits      |      | $          | 30,603,046 |  
|                                                                                                                                                                                                                                                                                                                                                        | Consulting fee income        |      |            | 387,604    |  
|                                                                                                                                                                                                                                                                                                                                                        | Interest and dividend income |      |            | 900,127    |  
|                                                                                                                                                                                                                                                                                                                                                        | Other Income                 |      |            | 2,733,374  |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Total revenue                |      |            | 34,624,151 |  
|Expenses:                                                                                                                                                                                                                                                                                                                                               |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Interest                     |      |            | 11,485,367 |  
|                                                                                                                                                                                                                                                                                                                                                        | Payroll and consulting fees  |      |            | 4,565,954  |  
|                                                                                                                                                                                                                                                                                                                                                        | Professional fees            |      |            | 3,145,246  |  
|                                                                                                                                                                                                                                                                                                                                                        | Insurance                    |      |            | 1,951,248  |  
|                                                                                                                                                                                                                                                                                                                                                        | Other                        |      |            | 3,672,362  |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Total expenses               |      |            | 24,820,177 |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Income before other  than temporary decline in value of investments, gain on sale of property,
write-down of asset held for sale to net realizable value, equity in net losses of affiliates, minority interest, provision for income taxes, extraordinary gain on acquisition of minority interest and extraordinary gain on acquisition of a
business |                              |      | 9,803,974  |            |  
|Other than temporary decline in value of investments (net of $28,635 recovery in 2002)                                                                                                                                                                                                                                                                  |                              |      | (1,573,730 | )          |  
|Gain on sale of property                                                                                                                                                                                                                                                                                                                                |                              |      | 16,841     |            |  
|Write-down of asset held for sale to net realizable value                                                                                                                                                                                                                                                                                               |                              |      |           |            |  
|Equity in net losses of affiliates                                                                                                                                                                                                                                                                                                                      |                              |      | (729,109   | )          |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Income before minority interest, provision for income taxes, extraordinary gain on acquisition of
minority interest and extraordinary gain on acquisition of a business                                                                                                                                                                                 |                              |      | 7,517,976  |            |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Minority interest                                                                                                                                                                                                                                                                                                                                       |                              |      | (335,324   | )          |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Income before provision for income taxes, extraordinary gain on acquisition of minority interest and
extraordinary gain on acquisition of a business                                                                                                                                                                                                    |                              |      | 7,182,652  |            |  
|Provision for income taxes                                                                                                                                                                                                                                                                                                                              |                              |      | (2,657,410 | )          |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Income before extraordinary gain on acquisition of minority interest and extraordinary gain on
acquisition of  a business                                                                                                                                                                                                                               |                              |      | 4,525,242  |            |  
|Extraordinary gain on acquisition of minority interests                                                                                                                                                                                                                                                                                                 |                              |      | 907,766    |            |  
|Extraordinary gain on acquisition of a business                                                                                                                                                                                                                                                                                                         |                              |      | 2,735,243  |            |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Net income                                                                                                                                                                                                                                                                                                                                              |                              | $    | 8,168,251  |            | $
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  
|Weighted average common shares outstanding                                                                                                                                                                                                                                                                                                              |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Basic                        |      |            | 24,183,501 |  
|                                                                                                                                                                                                                                                                                                                                                        | Diluted                      |      |            | 24,293,540 |  
|Income per share after extraordinary gain                                                                                                                                                                                                                                                                                                               |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Basic                        |      | $          | .34        |  
|                                                                                                                                                                                                                                                                                                                                                        | Diluted                      |      | $          | .34        |  
|Income per share before extraordinary gain                                                                                                                                                                                                                                                                                                              |                              |      |            |            |  
|                                                                                                                                                                                                                                                                                                                                                        | Basic                        |      | $          | .19        |  
|                                                                                                                                                                                                                                                                                                                                                        | Diluted                      |      | $          | .19        |  
|                                                                                                                                                                                                                                                                                                                                                        |                              |      |            |            |  

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

|                                                       |  | Shares |            | Common  Stock |   | Additional  Paid-in -Capital |  | (Accumulated Deficit)  Retained  Earnings |            | Total |  
|------------------------------------------------------ |  | ------ | ---------- | ------------- | - | ---------------------------- |  | ----------------------------------------- | ---------- | ----- | -
|                                                       |  |        |            |               |   |                              |  |                                           |            |       |  
|Balance at December 31, 2000                           |  |        | 21,373,460 |               | $ | 427,469                      |  | $                                         | 12,267,052 |       | $
|Issuance of Common Stock and Warrants                  |  |        | 839,057    |               |   | 16,781                       |  |                                           | 1,745,413  |       |  
|Distributions to Capco members                         |  |        |            |               |   |                              |  |                                           | (607,542   | )     |  
|Issuance of stock options to non-employees             |  |        |            |               |   |                              |  |                                           | 37,976     |       |  
|Net Income                                             |  |        |            |               |   |                              |  |                                           |            |       |  
|Balance at December 31, 2001                           |  |        | 22,212,517 |               | $ | 444,250                      |  | $                                         | 13,442,899 |       | $
|Issuance of Common Stock                               |  |        | 3,080,341  |               |   | 61,607                       |  |                                           | 6,810,504  |       |  
|Issuance of stock options to non-employees             |  |        |            |               |   |                              |  |                                           | 89,134     |       |  
|Issuance of common stock  to employees and consultants |  |        | 48,570     |               |   | 971                          |  |                                           | 139,459    |       |  
|Issuance of warrants                                   |  |        |            |               |   |                              |  |                                           | 510,831    |       |  
|Net income                                             |  |        |            |               |   |                              |  |                                           |            |       |  
|Balance at December 31, 2002                           |  |        | 25,341,428 |               | $ | 506,828                      |  | $                                         | 20,992,827 |       | $

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

|                                      |                                                                                | 2002 |            | 2001        |  
|------------------------------------- | ------------------------------------------------------------------------------ | ---- | ---------- | ----------- | -
|                                      |                                                                                |      |            |             |  
|Cash flows from operating activities: |                                                                                |      |            |             |  
|                                      | Net income                                                                     |      | $          | 8,168,251   |  
|                                      | Adjustments to reconcile net income to net cash used in operating activities:  |      |            |             |  
|                                      | Other than temporary decline in value of investments                           |      |            | 1,573,730   |  
|                                      | Write-down of asset held for sale to net realizable value                      |      |            |            |  
|                                      | Equity in losses of affiliates                                                 |      |            | 729,109     |  
|                                      | Extraordinary gain on acquisition of minority interests                        |      |            | (907,766    | )
|                                      | Extraordinary gain on acquisition of subsidiary                                |      |            | (2,735,243  | )
|                                      | Gain on sale of asset held for sale                                            |      |            | (16,841     | )
|                                      | Loss on disposition of assets                                                  |      |            | 39,725      |  
|                                      | Income from tax credits                                                        |      |            | (30,603,046 | )
|                                      | Deferred income taxes                                                          |      |            | 2,657,410   |  
|                                      | Depreciation and amortization                                                  |      |            | 147,681     |  
|                                      | Provision for doubtful accounts                                                |      |            | 34,466      |  
|                                      | Accretion of interest income                                                   |      |            | (175,615    | )
|                                      | Accretion of interest expense                                                  |      |            | 10,732,980  |  
|                                      | Issuance of stock for services performed                                       |      |            | 140,430     |  
|                                      | Non cash compensation                                                          |      |            | 89,134      |  
|                                      | Minority interest                                                              |      |            | 335,324     |  
|                                      | Changes in assets and liabilities, net of the effect of business acquisitions: |      |            |             |  
|                                      | Prepaid insurance                                                              |      |            | 506,227     |  
|                                      | Prepaid expenses, accounts receivable and other assets                         |      |            | (247,975    | )
|                                      | Accounts payable and accrued expenses                                          |      |            | (376,122    | )
|                                      |                                                                                |      |            |             |  
|Net cash used in operating activities |                                                                                |      | (9,908,141 | )           |  
|                                      |                                                                                |      |            |             |  
|Cash flows from investing activities: |                                                                                |      |            |             |  
|                                      | Investments in qualified businesses (held to maturity investments)             |      |            | (2,334,724  | )
|                                      | Investments in qualified businesses (equity method investments)                |      |            |            |  
|                                      | Investments in qualified businesses (consolidated entities)                    |      |            | (13,860,832 | )
|                                      | Other investments                                                              |      |            |            |  
|                                      | Return of investments  held to maturity  investments                         |      |            | 8,742,909   |  
|                                      | Return of investments  consolidated entities                                  |      |            | 5,302,583   |  
|                                      | Consolidation of majority owned entities                                       |      |            | 8,871,734   |  
|                                      | Cash received from Exponential acquisition                                     |      |            | 106,642     |  
|                                      | Cash received from Commercial Capital Corp. acquisition                        |      |            | 2,367,870   |  
|                                      | Distributions from equity method investees                                     |      |            |            |  
|                                      | Purchase of furniture, fixtures and equipment                                  |      |            | (279,438    | )
|                                      | Proceeds from sale of property                                                 |      |            | 348,770     |  
|                                      |                                                                                |      |            |             |  
|                                      | Net cash provided by (used in) investing activities                            |      |            | 9,265,514   |  
|                                      |                                                                                |      |            |             |  
|                                      |                                                                                |      |            |             |  

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

|                                                                                                                                                    |                                                               | 2002 |            | 2001        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---- | ---------- | ----------- | -
|                                                                                                                                                    |                                                               |      |            |             |  
|Cash flows from financing activities:                                                                                                               |                                                               |      |            |             |  
|                                                                                                                                                    | Proceeds from issuance of long-term debt                      |      | $          | 29,999,543  |  
|                                                                                                                                                    | Payments for defeasance of long-term debt                     |      |            | (14,513,665 | )
|                                                                                                                                                    | Proceeds from issuance of note payable-insurance              |      |            |            |  
|                                                                                                                                                    | Principal payments of note payable-insurance                  |      |            | (7,034,136  | )
|                                                                                                                                                    | Proceeds from (payments of) note payable  bank               |      |            | (125,000    | )
|                                                                                                                                                    | Proceeds from issuance of notes  other                       |      |            | 480,500     |  
|                                                                                                                                                    | Purchase of minority interest from member                     |      |            |            |  
|                                                                                                                                                    | Principal payment of mortgage payable                         |      |            | (306,929    | )
|                                                                                                                                                    | Contributions from minority members                           |      |            | 50,500      |  
|                                                                                                                                                    | Distributions to members                                      |      |            |            |  
|                                                                                                                                                    | Net proceeds from issuance of common stock                    |      |            | 1,371,249   |  
|                                                                                                                                                    | Proceeds from issuance of common stock to certified investors |      |            | 719,957     |  
|                                                                                                                                                    |                                                               |      |            |             |  
|                                                                                                                                                    | Net cash provided by financing activities                     |      |            | 10,642,019  |  
|                                                                                                                                                    |                                                               |      |            |             |  
|Net increase (decrease) in cash and cash equivalents                                                                                                |                                                               |      | 9,999,392  |             |  
|Cash and cash equivalents  beginning of year                                                                                                       |                                                               |      | 31,171,966 |             |  
|                                                                                                                                                    |                                                               |      |            |             |  
|Cash and cash equivalents  end of year                                                                                                             |                                                               | $    | 41,171,358 |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Supplemental disclosure of cash flow activities:                                                                                                    |                                                               |      |            |             |  
|Cash paid for interest                                                                                                                              |                                                               | $    | 953,073    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Issuance of notes in partial payment for insurance                                                                                                  |                                                               | $    | 3,000,000  |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Fixed assets acquired under capital lease obligations                                                                                               |                                                               | $    | 147,738    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Reduction of credits in lieu of cash and interest payable in credits in lieu of cash balances due to
delivery of tax credits to Certified Investors |                                                               | $    | 10,832,872 |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Issuance of common stock in connection with acquisition of Commercial Capital Corp.                                                                 |                                                               | $    | 900,194    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Issuance of common stock in connection with acquisition of  Exponential                                                                             |                                                               | $    | 988,750    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Issuance of warrant in connection with purchase of Coverage A Insurance                                                                             |                                                               | $    | 510,831    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|Consolidation of investments previously accounted for under the equity or cost method                                                               |                                                               | $    | 537,083    |             | $
|                                                                                                                                                    |                                                               |      |            |             |  
|                                                                                                                                                    |                                                               |      |            |             |  

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

|                                                                          |                                                    | 2002 |   | 2001      | 
|------------------------------------------------------------------------- | -------------------------------------------------- | ---- | - | --------- | 
|                                                                          |                                                    |      |   |           | 
|Acquisition of Capcos minority interests resulting in goodwill:           |                                                    |      |   |           | 
|                                                                          | Newtek Business Services common stock issued       |      | $ | 1,951,168 | 
|                                                                          | Less: Deferred tax benefit acquired                |      |   | 14,873    | 
|                                                                          | Less: Minority interests acquired                  |      |   | 887,652   | 
|                                                                          |                                                    |      |   |           | 
|                                                                          | Goodwill recognized                                |      | $ | 1,048,643 | 
|                                                                          |                                                    |      |   |           | 
|Acquisition of Capcos minority interests resulting in extraordinary gain: |                                                    |      |   |           | 
|                                                                          | Minority interests acquired                        |      | $ | 1,369,156 | 
|                                                                          | Add: Deferred tax benefit acquired                 |      |   | 479,404   | 
|                                                                          | Less: Newtek Business Services common stock issued |      |   | 940,794   | 
|                                                                          |                                                    |      |   |           | 
|                                                                          | Extraordinary gain recognized                      |      | $ | 907,766   | 
|                                                                          |                                                    |      |   |           | 
|                                                                          |                                                    |      |   |           | 

See accompanying notes to these consolidated financial statements.

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NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT
ACCOUNTING POLICIES:

Basis of presentation and description of business

Newtek Business Services, Inc. (Newtek), formerly named Newtek Capital, Inc., is a holding company for the entities listed below and accordingly consolidates the
financial statements of these entities with its own: Newtek Small Business Finance, Inc. (NSBF),  DC Media, Inc., Exponential Business Development Corp., BJB Holdings, Inc. (BJB), Wilshire Holdings I, Inc., Wilshire
Holdings II, Inc., REXX Environmental Corp. (REXX), Whitestone Capital Markets, Inc., The Whitestone Group, LLC (TWG); Wilshire Advisers, LLC (WA), Wilshire NY Advisers II (WAII), and Wilshire New York
Partners III (WNY III), certified capital companies (Capcos) in New York, Wilshire Partners, LLC (WP), a capco in Florida, Wilshire Investors, LLC (WI), a capco in Wisconsin, Wilshire Colorado Partners
LLC (WC), a capco in Colorado, and Wilshire Louisiana Advisers, LLC (WLA), a capco in Louisiana (the Capco entities are, collectively, the Capcos and Newtek and all of these aforementioned entities and Capcos are
collectively the Company).  TWG acts as an investment adviser and manager to the aforementioned Capcos as well as a merchant bank and provides investment banking and business development services including general business
consulting services, strategic planning, due diligence, merger and acquisition analysis, technology design and implementation support, joint venture negotiations and litigation support services.  All significant intercompany balances and
transactions are eliminated in consolidation.

The following is a summary of each capco or capco fund, state of certification and date of
certification:

|Capco |         | State of Certification |           | Date of Certification
|----- | ------- | ---------------------- | --------- | ---------------------
|      |         |                        |           |                      
|      | WA      |                        | New York  |                      
|      | WP      |                        | Florida   |                      
|      | WI      |                        | Wisconsin |                      
|      | WLA     |                        | Louisiana |                      
|      | WA II   |                        | New York  |                      
|      | WNY III |                        | New York  |                      
|      | WC      |                        | Colorado  |                      

The State of
Louisiana has three capco funds which are all a part of and consolidated with the WLA capco (the first fund).  The second, Wilshire Louisiana Partners II, LLC (WLPII), and the third, Wilshire Louisiana Partners III, LLC (WLPIII),
were formed in October 2001, and October 2002, respectively.

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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):

In general, the Capcos issue debt and equity instruments, generally warrants (Certified Capital), to insurance company investors (Certified
Investors). The Capcos then make targeted investments (Investments in Qualified Businesses, as defined under the respective state statutes, or, Qualified Businesses), with the Certified Capital raised. Such investments
may be accounted for as either consolidated subsidiaries, under the equity method or cost method of accounting, depending upon the nature of the investment and the Companys and/or the capcos ability to control or otherwise exercise
significant influence over the investee. Each capco has a contractual arrangement with the particular state that legally entitles the capco to receive (or earn) tax credits from the state upon satisfying quantified, defined investment percentage
thresholds and time requirements. In order for the Capcos to maintain their state-issued certifications, the Capcos must make Investments in Qualified Businesses in accordance with these requirements. Each capco also has separate, legal contractual
arrangements with the Certified Investors obligating the capco to pay interest on the aforementioned debt instruments whether or not it meets the statutory requirements for Investments in Qualified Businesses. The capco can satisfy this interest
payment, at the capcos discretion, by delivering tax credits in lieu of paying cash. The Capcos legally have the right to deliver the tax credits to the Certified Investors. The Certified Investors legally have the right to receive and use the
tax credits and would, in turn, use these tax credits to reduce their respective state tax liabilities in an amount usually equal to 100% (WLA and WLPII - 110%) of their certified investment. The tax credits can be utilized over a ten-year period at
a rate of 10% (WLA and WLPII - 11%) per year and in some instances are transferable and can be carried forward.

On December 31, 2002,
the Company acquired a majority stake in a US Small Business Administration (SBA) lender and therefore the acquired assets and liabilities are included in the Companys accounts (see Note 18).  As a nonbank SBA lender, the
Company (originally named Commercial Capital Corp., now named Newtek Small Business Finance (NSBF)) originates, sells (in whole or in part) and services loans for qualifying small businesses, which are partially guaranteed by the
SBA.  The Company sells the SBA guaranteed portion of such loans to third-party investors, retains the unguaranteed portion and continues to service the loans.  The Company has the ability to originate loans throughout the United
States.  Presently, the loans originated by the Company are primarily to customers in the Northeast United States.  The Companys competition for originating SBA loans comes primarily from banking organizations and the other nonbank
entities holding an SBA license.

Cash and cash equivalents

All highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents. The Company has bank balances in
excess of the $100,000 of depository insurance provided by the Federal Deposit Insurance Corporation. Substantially all of the cash and cash equivalents as of December 31, 2002 and 2001, respectively, were restricted for use in managing and
operating the Capcos and qualified investments.

In the Companys Statement of Cash Flows, cash invested in consolidated entities is presented as a cash outflow, and cash in those
entities is presented as an inflow, Consolidation of majority owned entities.

Revenue
Recognition

The Company recognizes consulting revenues as earned. Consulting revenues are earned at the time the related services
are provided and when the right to receive payment is assured. Realized gains on investments are recognized only at the time the investments are sold.  The company also earns revenues from its consolidated entities (partner
companies).

Income from tax credits: Following an application process, a state will notify a company that it has been certified as a
capco. The state then allocates an aggregate dollar amount of tax credits to the capco. However, such amount is neither recognized as income nor otherwise recorded in the financial statements since it has yet to be earned by the capco. As described
in Basis of presentation and description of business, earlier in this note, the capco is legally entitled to earn tax credits upon satisfying defined investment percentage thresholds within specified time requirements and corresponding
non-recapture percentages. At December 31, 2002, as summarized earlier in this note, the Company had Capcos in five states. Each statute requires that the capco invest a threshold percentage of Certified Capital in Qualified Businesses within the
timeframes specified.   As the Capco meets these requirements, it avoids grounds under the statute for its disqualification for continued participation in the Capco

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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):program.  Such a disqualification, or decertification as a Capco results in a recapture of all
or a portion of the allocated tax credits; the proportion of the recapture is reduced over time as the Capco remains in general compliance with the program rules and meets the progressively increasing investment benchmarks.

As the Capco progresses in its investments in Qualified Businesses and, accordingly, places an increasing proportion of the tax credits beyond
recapture, it earns an amount equal to the non-recapturable tax credits and records such amount as income, with a corresponding asset called credits in lieu of cash, in the balance sheet. The amount earned and recorded as income is
determined by multiplying the total amount of tax credits allocated to the Capco by the percentage of tax credits immune from recapture (the earned income percentage) under the state statute. To the extent that the investment requirements are met
ahead of schedule, and the percentage of non-recapturable tax credits is accelerated, the present value of the tax credit earned is recognized currently and the asset, credits in lieu of cash, is accreted up to the amount of tax credits available to
the Certified Investors.   If the tax credits are earned before the state is required to make delivery (i.e., investment requirements are met ahead of schedule, but credits can only be used at a rate of 10% per year), then the present
value of the tax credits earned are recorded upon completion of the requirements, in accordance with Accounting Principles Board Opinion No. 21.  The receivable (called credits in lieu of cash) is accreted to the annual deliverable
amount which can then be delivered to the insurance company investors in lieu of cash interest.

The total amount of tax credits
allocated to each of the aforementioned Capcos, the required investment percentages, recapture percentages and related earned income percentages, and pertinent dates are summarized as follows:

|The First to Occur  | 
|------------------- | 
|                    | 
|State Capco or Fund | 
|                    | 
|FLORIDA             | 
|Wilshire            | 
|Partners(WP)        | 
|                    | 
|                    | 
|NEW YORK            | 
|Wilshire            | 
|N.Y. Partners III   | 
|(WNY III)           | 
|COLORADO            | 
|Statewide Pool      | 
|Wilshire Colorado   | 
|Partners(WC)        | 
|COLORADO            | 
|Rural Pool          | 
|Wilshire Colorado   | 
|Partners (WC)       | 
|LOUISIANA           | 
|Wilshire LA         | 
|Advisers(WLA)       | 
|WISCONSIN           | 
|Wilshire            | 
|Investors(WI)       | 



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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):

|                 | 
|---------------- | 
|LOUISIANA        | 
|Wilshire         | 
|LA Partners III  | 
|(WLPIII)         | 
|NEW YORK         | 
|Wilshire         | 
|N.Y. Advisers II | 
|(WLA II)         | 
|NEW YORK         | 
|Wilshire         | 
|Advisers(WA)     | 
|                 | 
|LOUISIANA        | 
|Wilshire         | 
|LA Advisers II   | 
|(WLA II)         | 

Under the various state Capco
provisions, there is a difference in the amount of qualified investments made and the amount of income recognized by the respective Capcos upon satisfaction of the various benchmarks. The table below relates the investments made, both as percentage
of total funds and in dollar amounts, to the income recognized as each benchmark is achieved. In all of these programs, a majority of Newteks income from the delivery of the tax credits will be recognized no later than five years into the ten
year programs.

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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):

|State  Capco or Fund  |  | Allocated  Tax  Credits |            | Investment  Benchmark  Percentage/Dollars |  | Earned  Income  Percentage/Dollars |  
|--------------------- |  | ----------------------- | ---------- | ----------------------------------------- |  | ---------------------------------- | -
|                      |  |                         |            |                                           |  |                                    |  
|FLORIDA               |  | $                       | 37,384,028 |                                           |  | 20                                 | %
|Wilshire              |  |                         |            |                                           |  | 30                                 | %
|Partners (WP)         |  |                         |            |                                           |  | 40                                 | %
|                      |  |                         |            |                                           |  | 50                                 | %
|NEW YORK.             |  | $                       | 35,160,202 |                                           |  | 25                                 | %
|Wilshire N.Y          |  |                         |            |                                           |  | 40                                 | %
|Partners III(WNY III) |  |                         |            |                                           |  | 50                                 | %
|COLORADO              |  | $                       | 16,175,415 |                                           |  | 30                                 | %
|Wilshire Colorado     |  |                         |            |                                           |  | 50                                 | %
|Partners(WC)          |  |                         |            |                                           |  |                                    |  
|Statewide Pool        |  |                         |            |                                           |  |                                    |  
|COLORADO              |  | $                       | 5,882,352  |                                           |  | 30                                 | %
|Wilshire Colorado     |  |                         |            |                                           |  | 50                                 | %
|Partners(WC)          |  |                         |            |                                           |  |                                    |  
|Rural Pool            |  |                         |            |                                           |  |                                    |  
|LOUISIANA             |  | $                       | 18,040,000 |                                           |  | 30                                 | %
|Wilshire LA           |  |                         |            |                                           |  | 50                                 | %
|Advisers(WLA)         |  |                         |            |                                           |  |                                    |  
|WISCONSIN             |  | $                       | 16,666,667 |                                           |  | 30                                 | %
|Wilshire              |  |                         |            |                                           |  | 50                                 | %
|Investors(WI)         |  |                         |            |                                           |  |                                    |  
|LOUISIANA             |  | $                       | 8,000,000  |                                           |  | 30                                 | %
|Wilshire LA           |  |                         |            |                                           |  | 50                                 | %
|Partners III(WLPIII)  |  |                         |            |                                           |  |                                    |  
|NEW YORK.             |  | $                       | 6,807,866  |                                           |  | 25                                 | %
|Wilshire N.Y          |  |                         |            |                                           |  | 40                                 | %
|Advisers II(WNY II)   |  |                         |            |                                           |  | 50                                 | %
|NEW YORK              |  | $                       | 3,810,161  |                                           |  | 25                                 | %
|Wilshire              |  |                         |            |                                           |  | 40                                 | %
|Advisers(WA)          |  |                         |            |                                           |  | 50                                 | %
|LOUISIANA             |  | $                       | 3,355,000  |                                           |  | 30                                 | %
|Wilshire LA           |  |                         |            |                                           |  | 50                                 | %
|Advisers II(WLA II)   |  |                         |            |                                           |  |                                    |  



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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):

During each of the years ended December 31, 2002 and 2001, certain Capcos satisfied the required investment benchmarks and the related recapture percentages
requirements and, accordingly, earned a portion of the tax credits.

Loan Interest and Loan Fees  SBA
Loans

Interest income on loans is recognized as earned.  When a loan is 90 days past due with respect to principal or
interest and, in the opinion of management, interest or principal on individual loans is not collectible, or at such earlier time as management determines that the collectibility of such principal or interest is unlikely, the accrual of interest is
discontinued and all accrued but uncollected interest income is reversed.  Cash payments subsequently received on nonaccrual loans are recognized as income only where the future collection of the recorded value of the loan is considered by
management to be probable.  Certain related direct costs to originate loans (including fees paid to loan brokers) are deferred and amortized over the contractual life of the loan using a method that approximates the effective interest
method.

Allowance for Possible Loan Losses  SBA Loans

An allowance for possible loan losses is established by a provision for possible loan losses charged to operations.  Actual loan losses or recoveries are charged
or credited directly to this allowance.  The provision for possible loan losses is managements estimate of the amount required to maintain an allowance adequate to reflect the risks in the loan portfolio; however, ultimate losses may vary
from the current estimates.  This estimate is reviewed periodically and any necessary adjustments are made in the period in which they become known.

Sales and Servicing of SBA Loans

NSBF originates loans to customers under the SBA program that generally provides for SBA guarantees of 75% to 80% (85% for loans received by the SBA on or after
December 22, 2001) of each loan, subject to a maximum guarantee amount.  The Company sells the guaranteed portion of each loan to a third party and retains the unguaranteed principal portion in its own portfolio.  A gain is recognized on
these loans through collection on sale of a premium over the adjusted carrying value.  Gain on sale of the guaranteed portion of the loans is recognized at the date of the sales agreement when control of the future economic benefits of the loan
is surrendered.  At December 31, 2002 the Company had no outstanding receivables from the sale of the guaranteed portion of loans sold.

NSBF accounts for its capitalized servicing rights and sales of finance receivables in accordance with Statement of Financial Accounting Standards No. 140 (SFAS No.
140), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement No. 125, which became effective on April 1, 2001.  In accordance with SFAS No. 140, upon sale of the
loans to third parties, the Companys investment in an SBA loan is allocated among the retained portion of the loan (unguaranteed), the sold portion of the loan (guaranteed) and the value of loan servicing retained, based on the relative
estimated fair market values of each at the sale date.  The difference between the proceeds received and the allocated carrying value of the loan sold is recognized as a gain on sale of loans.  In each loan sale, NSBF retains servicing
responsibilities and receives servicing fees of 1% of the outstanding loan balance.  The purchasers of the loans sold have no recourse to NSBF for failure of customers to pay amounts contractually due.

The servicing fees are reflected as an asset which is amortized over an estimated life using a method approximating the effective interest method; in the event future
prepayments are significant or impairments are incurred and future expected cash flows are inadequate to cover the unamortized servicing asset, additional amortization or impairment charges would be recognized.  In the calculation of its
servicing asset, NSBF is required to estimate its adequate servicing compensation.    At December 31, 2002, the balance of the servicing asset was zero.

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Capitalized servicing rights are recorded at the date of sale based on the allocated carrying value (discussed above) and amortized into other revenue in proportion
to, and over the period of, the estimated future net servicing income on the underlying financial assets.  Impairment is recognized through a valuation allowance, to the extent the fair value is less than the capitalized amount.

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. The dilutive effect of
common stock equivalents is included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.

Stock - Based Compensation

The
Company has elected to continue using Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for employee stock options.   No stock-based employee compensation cost is reflected in
net income, as all options granted under this plans had an exercise price equal to the market value of the underlying common stock at the date of grant.  The following table summarizes the pro forma consolidated results of operations of the
Company as though the fair value based accounting method in SFAS 123 Accounting for Stock-based Compensation had been used in accounting for stock options.

|            |                                                                                                                                             |  | Stock Corporation |           
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------
|            |                                                                                                                                             |  |                   |           
|            |                                                                                                                                             |  | 2002              |           
|            |                                                                                                                                             |  |                   |           
|As reported |                                                                                                                                             |  |                   |           
|            | Net income                                                                                                                                  |  | $                 | 8,168,251 
|            | Deduct: Total  stock based employee compensation expense determined under fair value based
method for all awards,net of related tax effects |  |                   | (1,007,371
|            |                                                                                                                                             |  |                   |           
|            | Pro forma net income                                                                                                                        |  | $                 | 7,160,880 
|            |                                                                                                                                             |  |                   |           
|            | Earnings per share:                                                                                                                         |  |                   |           
|            | Basic  as reported                                                                                                                         |  | $                 | .34       
|            |                                                                                                                                             |  |                   |           
|            | Basic  pro forma                                                                                                                           |  | $                 | .30       
|            |                                                                                                                                             |  |                   |           
|            | Diluted - as reported                                                                                                                       |  | $                 | .34       
|            |                                                                                                                                             |  |                   |           
|            | Diluted net income per share                                                                                                                |  | $                 | .29       
|            |                                                                                                                                             |  |                   |           
|            |                                                                                                                                             |  |                   |           

For 2002 and 2001, the weighted average fair value of each option granted is estimated on the date of grant using
the Black Scholes model with the following assumptions: expected volatility of 85%, risk-free interest rate of 3.53% to 6.15%, expected dividends of $0 and expected terms of 1-6 years.

Goodwill

Goodwill represents the
excess of purchase price over the fair value of identifiable net assets of companies acquired.  The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets (SFAS 142) as of
January 1, 2002.  This statement requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually.   Based upon the Companys performance of the
transitional impairment tests using the fair value approach required by the standard, the Company has determined that no impairment existed as of December 31, 2002 and December 31, 2001.

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Furniture, fixtures and equipment

Furniture, fixtures and equipment which is comprised primarily of office equipment, are stated at cost, less accumulated depreciation. Depreciation of furniture,
fixtures and equipment is provided on a straight-line basis using estimated useful lives of the related assets (five years).

Income Taxes

Deferred tax assets
and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted tax rates in effect for the year in which those temporary differences are expected to be
realized or settled. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. The most significant estimates
are with respect to valuation of investments in qualified businesses and loans receivable. Actual results could differ from those estimates.

Fair value of financial instruments

The carrying values of accounts payable and accrued expenses approximate fair value because of the short term maturity of these instruments. The carrying value of
investments in qualified businesses, loans receivable, structured insurance product, notes and loans payable, credits in lieu of cash, interest payable in credits in lieu of cash, bank notes payable, and warrants approximate fair value based on
managements estimates.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 addresses financial accounting and reporting for business combinations and is effective for all business combinations after June 30, 2001. SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and is effective for fiscal years beginning after December 15, 2001. The adoption of these standards did not have a material impact on the Companys financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of  and
the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined). The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15,
2001, with early application encouraged and generally are to be applied prospectively. The adoption of SFAS No. 144 did not have a material impact on the Companys financial position or results of operations.

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (FAS 145). This statement eliminates the requirement that gains and losses from the extinguishments of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. However, an entity would not be prohibited from classifying such gains and losses as extraordinary items so long as they are both unusual in nature and infrequent in occurrence. This
provision of FAS

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145 will be effective for the Company as of the beginning of
fiscal year 2004. This statement also amends FAS 13, Accounting for Leases and certain other authoritative pronouncements to make technical corrections or clarifications. FAS 145 will be effective related to the amendment of FAS 13 for
all transactions occurring after May 15, 2002. All other provisions of FAS 145 will be effective for financial statements issued after May 15, 2002. The Company has determined that this statement will not have a significant impact on its financial
condition and results of operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of an entitys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of SFAS No. 146 will be
adopted for exit or disposal activities that are initiated after December 31, 2002.   The Company is currently evaluating the impact of implementing FAS 146.

In October 2002, the FASB issued Statement No. 147 (SFAS 147), Acquisitions of Certain Financial Institutions. SFAS 147 addresses financial
accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. SFAS 147 also provides guidance on the accounting for the impairment or disposal of acquired
long-term customer-relationship intangible assets of financial institutions, including those acquired in transactions between two or more mutual enterprises. The provisions of the statement will be effective for acquisitions on or after October 1,
2002. The adoption of SFAS No. 147 did not have a material impact on the Companys financial position or results of operations.

In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS No. 123. This Statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 did not
have a material impact on the Companys financial position or results of operations.

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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others, an interpretation of FIN No. 5, 57 and 107, and rescission of FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be made
by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while, the provisions of the
disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties
and provide general indemnifications. The Companys maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. Based on the Companys
experience, the Company expects the risk of loss to be remote.

In January 2003, the FASB issued FIN No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or is entitled to receive a majority of the entitys residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate but
in which a company has a significant variable interest. The consolidation requirements of FIN No. 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities
established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. The Company is currently evaluating the
impact of implementing FIN No. 46.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

NOTE 2 -
INSURANCE:

On November 19, 1998, WA purchased a structured insurance product covering a ten-year period (the Capco
Policy) from an AAA rated international insurance company (the Insurer). This insurance provides for (i) the repayment, on the maturity date, of the note payable issued by WA to the Certified Investors in connection with the
capitalization of WA (Note) (Coverage A) and (ii) the loss or recapture of the state tax credits delivered to the Certified Investors (Coverage B). Notwithstanding the Insurers obligation, WA remains
primarily liable for repayment of the Note. Premiums for the Capco Policy have been paid in full at inception and the Capco Policy is non-cancelable. The Company paid a total of $1,805,599 for the Capco Policy. The costs of Coverages A and B
were $1,647,905 and $157,694, respectively. Under Coverage A, the Insurer is required to pay the principal amount of the Note (Note 4), $2,673,797, on the maturity date in June 2008. Accordingly, the Company has recorded the Coverage A payment as an
asset, called structured insurance product, and has been increasing the recorded amount via an accretion to interest income. For the years ended December 31, 2002 and December 31, 2001 the Company recorded $102,938 for each year, as interest income.
At the June 2008 Note maturity date, the asset balance will be $2,673,797, the Insurer will pay the Certified Investors, and the Company will reverse this asset balance in full with a corresponding reversal of the Note balance.

On May 10, 2000, WA purchased another structured insurance product, or Capco Policy, covering an eight-year period from an AAA rated international insurance
company (the Insurer). This insurance provides for the same terms and conditions as the aforementioned initial insurance product as described above. The Company paid a total of $821,500 for this additional Capco Policy. The costs of
Coverages A and B were $661,432 and $160,068, respectively. Under Coverage A, the Insurer is required to pay the principal amount of the Note (Note 4), $1,136,364, on the maturity date in June 2008. Accordingly, the Company has recorded the
Coverage A payment as an asset, called structured insurance product, and has been increasing the recorded amount via an accretion to interest income. For each of the years ended December 31, 2002 and December 31, 2001, the Company recorded

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NOTE 2 - INSURANCE (Continued):

$58,469 as interest income. At the June 2008 Note maturity date, the asset balance
will be $1,136,364, the Insurer will pay the Certified Investors, and the Company will reverse this asset balance in fall with a corresponding reversal of the Note balance.

The amount paid for Coverage B has been recorded as prepaid insurance and is being amortized to expense over the life of the Capco Policy. The Company has also
purchased (as well as financed) Coverage B insurance in connection with transactions described in the Notes to the Consolidated Financial Statements. Such amounts are accounted for in the same manner as Coverage B insurance referred to in this Note.
The prepaid insurance balance of $14,056,196 at December 31, 2002 and $10,820,841 at December 31, 2001 is comprised solely of the unamortized cost of Coverage B insurance.

The Companys Coverage A and B purchases are summarized as follows (there were no such purchases in the year ended December 31, 2001):

|Capco or Capco Fund |  | Date of Purchase |               | Premium Paid for  Coverage A(3) |   | Premium Paid for Coverage B(3) |    
|------------------- |  | ---------------- | ------------- | ------------------------------- | - | ------------------------------ | ---
|                    |  |                  |               |                                 |   |                                |    
|WA                  |  |                  | November 1998 |                                 | $ | 1,647,905                      | (1)
|Total  1998        |  |                  |               |                                 | $ | 1,647,905                      |    
|                    |  |                  |               |                                 |   |                                |    
|WP                  |  |                  | April 1999    |                                 | $ | 23,127,927                     | (2)
|WLA                 |  |                  | October 1999  |                                 | $ | 9,175,844                      | (2)
|WI                  |  |                  | October 1999  |                                 | $ | 9,086,227                      | (2)
|Total  1999        |  |                  |               |                                 | $ | 41,389,998                     |    
|                    |  |                  |               |                                 |   |                                |    
|WNYII               |  |                  | April 2000    |                                 | $ | 5,019,803                      | (2)
|WA                  |  |                  | May 2000      |                                 | $ | 661,432                        | (1)
|WLPII               |  |                  | October 2000  |                                 | $ | 2,456,565                      | (2)
|WNYIII              |  |                  | December 2000 |                                 | $ | 29,052,790                     | (2)
|Total  2000        |  |                  |               |                                 | $ | 37,190,590                     |    
|                    |  |                  |               |                                 |   |                                |    
|WCOP                |  |                  | April 2002    |                                 | $ | 11,654,021                     | (2)
|WLPIII              |  |                  | October 2002  |                                 | $ | 2,859,644                      | (2)
|Total 2002          |  |                  |               |                                 | $ | 14,513,665                     |    
|                    |  |                  |               |                                 |   |                                |    



|(1)                                                                                    | Coverage A has been accounted for as a structured insurance product as described previously in this Note.                                                                                       
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)                                                                                    | Coverage A has been accounted for as described in Note 8.                                                                                                                                       
|(3)                                                                                    | Coverage B has been accounted for as described previously in this Note. Additionally, a portion of the premiums paid for Coverages A and B were financed by notes and the
issuance of warrants.
|                                                                                       |                                                                                                                                                                                                 
|The Companys Coverage B purchases and related amortization are summarized as follows:
|                                                                                      
|Prepaid Insurance as of 12/31/00                                                       | $12,187,376                                                                                                                                                                                     
|                                                                                       |                                                                                                                                                                                                 
|Prepaid Insurance purchased for the year ended 12/31/01                                | 0                                                                                                                                                                                               
|                                                                                       |                                                                                                                                                                                                 
|Amortization of Prepaid Insurance for the year ended 12/31/01                          | (1,366,535                                                                                                                                                                                      
|                                                                                       |                                                                                                                                                                                                 

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NOTE 2 - INSURANCE (Continued):

|Prepaid Insurance as of 12/31/01                              |  |   | 10,820,841 |  
|------------------------------------------------------------- |  | - | ---------- | -
|Prepaid Insurance purchased for the year ended 12/31/02       |  |   | 4,694,112  |  
|Additional Prepaid Insurance adjustment                       |  |   | 169,284    |  
|Amortization of Prepaid Insurance for the year ended 12/31/02 |  |   | (1,628,041 | )
|                                                              |  |   |            |  
|Prepaid Insurance as of 12/31/02                              |  | $ | 14,056,196 |  
|                                                              |  |   |            |  

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES:

The following table is a summary of such investments as of December 31, 2002, shown separately between their debt and equity components, and all terms of each are
summarized.  There are no expiration dates on any of the financial instruments, unless disclosed.

The various interests that
the Company acquires in its qualified investments are accounted for under three methods: consolidation, equity method and cost method. The applicable accounting method is generally determined based on the Companys voting interest in an
investee.

Consolidation Method.  Investments in which the Company directly or indirectly owns more than 50% of the outstanding
voting securities or those the Company has effective control over are generally accounted for under the consolidation method of accounting. Under this method, an investments financial position and results of operations are reflected within the
Companys Balance Sheet and Consolidated Statements of Income. All significant inter-company accounts and transactions have been eliminated. The results of operations and cash flows of a consolidated Partner Company are included through the
latest interim period in which the Company owned a greater than 50% direct or indirect voting interest for the entire interim period or otherwise exercised control over the Partner Company. Upon dilution of control below 50%, the accounting method
is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

Equity Method.  Investees that are
not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of
several factors including, among others, representation on the Companys Board of Directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Company, including voting rights associated with the
Companys holdings in common, preferred and other convertible instruments in the investee. Under the equity method of accounting, an investees accounts are not reflected within the Companys Consolidated Balance Sheet and
Consolidated Statements of Income; however, the Companys share of the earnings or losses of the investee is reflected in the caption Equity income (loss) in the Consolidated Statements of Income.

Cost Method.  Investees not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under
this method, the Companys share of the earnings or losses of such companies is not included in the Consolidated Balance Sheet and Consolidated Statements of Income. However, cost method impairment charges are recognized, as necessary, in the
Consolidated Statement of Income. If circumstances suggest that the value of the investee has subsequently recovered, such recovery is not recorded until realized.  In some of the entities which we account for under the cost or equity method,
the Company may own warrants that if exercised, would cause the Company to use either the equity or consolidation method.  As of December 31, 2002, the Company does not expect these warrants to be exercised in the near future.

In accordance with the provisions of Statement of Financial Accounting Standards No. 115 Accounting for Certain Investment in Debt and Equity
Securities, the Company classifies its debt investments as held-to-maturity and such investments are initially recorded at amortized cost. On a monthly basis, the Companys Investment Committee meets to evaluate the Companys
investments.  The Company considers several factors in determining whether an impairment exists on the investment, such as the investees net book value, cash flow, revenue growth and net income. In

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued)

addition, the Investment Committee considers other
factors, such as the economy and the investee companys industry, to determine if an other than temporary decline in value exists in the Companys investment.

DEBT
INVESTMENTS

|Investee Investment Date (s) Maturity Date  InterestRate      |  | Newtek IT  Services,  LLC Mar-01  Mar-02 5.75% |            | Direct  Creations,  LLC Sep-01, Nov-01 Jun-04, LIBOR |   | 1-800 Gift  Certificates  Jul-99,  Jul-01  Jul-02 Various |   | Starphire  Technologies, LLC Jun-01 Jun-02 5.75% |           | Merchant  Data  Systems,  Inc. Aug-00  May-04 0.00% |   | Distribution  Video and Audio Corp.  June-00 June02 10.00% |   | 4Gs Truck  Renting  Nov99,Dec 00 Jun02  Aug-03 7.40% |           
|------------------------------------------------------------- |  | ---------------------------------------------- | ---------- | ---------------------------------------------------- | - | --------------------------------------------------------- | - | ------------------------------------------------ | --------- | --------------------------------------------------- | - | ---------------------------------------------------------- | - | ------------------------------------------------------ | ----------
|                                                              |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|Principal outstanding at December 31, 2000                    |  | $                                              | 100,000    |                                                      | $ | 750,000                                                   |   | $                                                | 244,928   |                                                     |   |                                                            |   | $                                                      | 1,698,950 
|Debt investments made in 2001                                 |  |                                                | 3,500,000  |                                                      |   | 1,358,333                                                 |   |                                                  | 950,000   |                                                     | $ | 1,000,000                                                  |   |                                                        | 400,000   
|Return of principal - 2001                                    |  |                                                |            |                                                      |   | (750,000                                                  | ) |                                                  | (135,731  | )                                                   |   |                                                            |   |                                                        | (1,998,950
|Other than temporary decline in value of its investments-2001 |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        | (86,044   
|Converted from debt to equity                                 |  |                                                | (100,000   | )                                                    |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|Converted from equity to debt                                 |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        | 900,000   
|Principal outstanding at December 31, 2001                    |  |                                                | 3,500,000  |                                                      |   | 1,358,333                                                 |   |                                                  | 1,059,197 |                                                     |   | 1,000,000                                                  |   |                                                        | 913,956   
|Debt investments made in 2002                                 |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|Return of principal  2002                                    |  |                                                | (3,500,000 | )                                                    |   |                                                           |   |                                                  | (559,197  | )                                                   |   | (1,000,000                                                 | ) |                                                        |           
|Other than temporary decline in                               |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|value of its investments-2002 (C)                             |  |                                                |            |                                                      |   |                                                           |   |                                                  |           |                                                     |   |                                                            |   |                                                        | 28,635    
|Converted from debt to equity                                 |  |                                                |            |                                                      |   | (735,100                                                  | ) |                                                  | (500,000  | )                                                   |   |                                                            |   |                                                        |           
|Converted from Direct Creations to DC Media equity            |  |                                                |            |                                                      |   | (86,723                                                   | ) |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|Converted from Direct Creations to DC Media sub debt          |  |                                                |            |                                                      |   | (163,277                                                  | ) |                                                  |           |                                                     |   |                                                            |   |                                                        |           
|Principal outstanding at December 31, 2002                    |  |                                                |           |                                                      | $ | 373,233                                                   |   |                                                  |          |                                                     |   |                                                           |   | $                                                      | 942,591   

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):

DEBT INVESTMENTS

|Investee Investment Date (s) Maturity Date(s) Interest Rate       |  | Transworld  Business  Brokers,  LLC  Jun-01  Jun-04 5.00% |          | Buy Seasons,  Inc.  Jun-01  Jun-06 11.00% |   | Hyper-cosm  Apr-01  Apr-06  (original)  10% |   | Newtek  Financial  Info Services  of  FL  Nov-.99  Nov-01  5.25% |          | CB Real  Net, LLC  Feb-00  Dec-01  8.00% |   |            | Down to  Earth,  Inc.  Dec-99  Aug-00  Aug-01  9.00% |   | Autotask  Group  Oct-02  Sep-03  7.75% |   | Lousiana  BIDCO  Loans  Various  Various  Prime +1% |   | Gulf   Coast  Bidco  Dec-02 Various Various |  
|----------------------------------------------------------------- |  | --------------------------------------------------------- | -------- | ----------------------------------------- | - | ------------------------------------------- | - | ---------------------------------------------------------------- | -------- | ---------------------------------------- | - | ---------- | ---------------------------------------------------- | - | -------------------------------------- | - | --------------------------------------------------- | - | ------------------------------------------- | -
|                                                                  |  |                                                           |          |                                           |   |                                             |   |                                                                  |          |                                          |   |            |                                                      |   |                                        |   |                                                     |   |                                             |  
|Principal outstanding at December 31, 2000                        |  |                                                           |          |                                           |   |                                             |   |                                                                  |          |                                          | $ | 3,104,201  |                                                      | $ | 2,500,000                              |   |                                                     | $ | 80,000                                      |  
|Debt investments made in 2001                                     |  | $                                                         | 240,000  |                                           | $ | 200,000                                     |   | $                                                                | 250,000  |                                          |   |            |                                                      |   |                                        |   |                                                     |   |                                             |  
|Return of principal - 2001                                        |  |                                                           |          |                                           |   | (20,000                                     | ) |                                                                  |          |                                          |   | (2,966,959 | )                                                    |   | (2,500,000                             | ) |                                                     |   | (80,000                                     | )
|Other than temporary decline in value of its investments-2001     |  |                                                           |          |                                           |   |                                             |   |                                                                  | (250,000 | )                                        |   | (35,601    | )                                                    |   |                                        |   |                                                     |   |                                             |  
|Principal outstanding at December 31, 2001                        |  |                                                           | 240,000  |                                           |   | 180,000                                     |   |                                                                  |          |                                          |   | 101,641    |                                                      |   |                                        |   |                                                     |   |                                             |  
|Debt investments made in 2002                                     |  |                                                           |          |                                           |   |                                             |   |                                                                  |          |                                          |   |            |                                                      |   |                                        |   |                                                     |   |                                             |  
|Investment consolidated with parent                               |  |                                                           |          |                                           |   |                                             |   |                                                                  |          |                                          |   | (101,641   | )                                                    |   |                                        |   |                                                     |   |                                             |  
|Return of principal  2002                                        |  |                                                           | (100,000 | )                                         |   | (180,000                                    | ) |                                                                  |          |                                          |   |            |                                                      |   |                                        |   |                                                     |   |                                             |  
|Other than temporary decline in value of its investments-2002 (C) |  |                                                           |          |                                           |   |                                             |   |                                                                  |          |                                          |   |            |                                                      |   |                                        |   |                                                     |   |                                             |  
|Principal outstanding at December 31, 2002                        |  | $                                                         | 140,000  |                                           |   |                                            |   |                                                                  |         |                                          |   |           |                                                      |   |                                       |   |                                                     |   |                                            |  

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DEBT INVESTMENTS - Summary

|Investee  Investment Date (s)  Maturity Date  Interest Rate       |  | Total |            
|----------------------------------------------------------------- |  | ----- | -----------
|                                                                  |  |       |            
|Principal outstanding at December 31, 2000                        |  | $     | 11,047,920 
|Debt investments made in 2001                                     |  |       | 12,559,893 
|Return of principal - 2001                                        |  |       | (11,862,284
|Other than temporary decline in value of its investments-2001     |  |       | (371,645   
|Converted from debt to equity                                     |  |       | (100,000   
|Converted from equity to debt                                     |  |       | 900,000    
|Principal outstanding at December 31, 2001                        |  |       | 12,173,884 
|Debt investments made in 2002                                     |  |       | 2,334,724  
|Investment restructured and consolidated with parent              |  |       | (101,641   
|Return of principal  2002                                        |  |       | (8,742,909 
|Other than temporary decline in value of its investments-2002 (C) |  |       | (216,605   
|Converted from debt to equity                                     |  |       | (1,235,100 
|Converted from Direct Creations to DC Media equity                |  |       | (86,723    
|Converted from Direct Creations to DC Media sub debt              |  |       | (163,277   
|Principal outstanding at December 31, 2002                        |  | $     | 3,962,353  

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):

EQUITY INVESTMENTS

|Investee  Investment Date(s) Type of Investment  Ownership Interest as of  December 31, 2002 |  | Direct  Creations,  LLC  Various,  Aug-02  Warrants  <20% |          | 1-800 Gift  Certificates  Jul-99  Common Stock/  Warrants 7.14% |   | Starphire  Technologies  ,LLC  Aug-00  Preferred  Membership  50.00% |   | Merchant  Data   Systems, Inc. . Sep-00  Warrants 0% |           | Distribution Video and Audio  Corp.  Jun-00  Common  Stock  <20.00% |   | Niche  Directories  Sep-00,  Dec-00  Preferred  Membership  37.50% |   | Newtek IT  Services,  LLC Oct-00 Preferred Stock 50% |        
|-------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- | -------- | --------------------------------------------------------------- | - | -------------------------------------------------------------------- | - | ---------------------------------------------------- | --------- | ------------------------------------------------------------------- | - | ------------------------------------------------------------------ | - | ---------------------------------------------------- | -------
|                                                                                             |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Total equity investments at December 31, 2000                                                |  |                                                           |          |                                                                 | $ | 25,000                                                               |   | $                                                    | 1,485,001 |                                                                     | $ | 785,181                                                            |   | $                                                    | 200,000
|Equity investments made  in 2001                                                             |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Equity in income (losses) 2001 (B)                                                           |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      | (757,322  | )                                                                   |   |                                                                    |   |                                                      |        
|Converted from equity to debt                                                                |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   | (785,181                                                           | ) |                                                      |        
|Converted from debt to equity                                                                |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Total equity investments at December 31, 2001 (A)                                            |  |                                                           |          |                                                                 |   | 25,000                                                               |   |                                                      | 727,679   |                                                                     |   |                                                                    |   |                                                      | 200,000
|Equity investments made in 2002                                                              |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Equity in income (losses) 2002                                                               |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Return of Capital                                                                            |  |                                                           |          |                                                                 |   | (25,000                                                              | ) |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Converted from debt to equity                                                                |  | $                                                         | 735,100  |                                                                 |   | 500,000                                                              |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Other than temporary decline in Value of its investments-2002 (C)                            |  |                                                           | (464,277 | )                                                               |   |                                                                      |   |                                                      | (727,679  | )                                                                   |   |                                                                    |   |                                                      |        
|Investment consolidated with parent                                                          |  |                                                           |          |                                                                 |   |                                                                      |   |                                                      |           |                                                                     |   |                                                                    |   |                                                      |        
|Total equity investments at December 31, 2002                                                |  | $                                                         | 270,823  |                                                                 | $ | 500,000                                                              |   |                                                      |          |                                                                     |   |                                                                   |   | $                                                    | 200,000

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):

EQUITY INVESTMENTS

|Investee  Investment Date(s)  Type of Investment Ownership Interest as of December 31, 2002 |   | BuySeasons,  Inc . Jun-01  Common  Stock  <20% |         | Newtek  Financial  Info Services  of FL, LLC  Jun-01  Common   Stock 
87.48% |   | SBA  Holdings,  Inc . Sep-02  Preferred  Stock  90% |   | Transworld  Business  Brokers,  LLC  Jun-01  Preferred  Membership  33.33% |            | Total |  
|------------------------------------------------------------------------------------------- | - | ---------------------------------------------- | ------- | ---------------------------------------------------------------------------- | - | --------------------------------------------------- | - | -------------------------------------------------------------------------- | ---------- | ----- | -
|                                                                                            |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Total equity investments at December 31, 2000                                               |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Equity investments made  In 2001                                                            |   | $                                              | 100,000 |                                                                              | $ | 450,000                                             |   |                                                                            |            |       | $
|Equity in income (losses) 2001 (B)                                                          |   |                                                |         |                                                                              |   | (507,212                                            | ) |                                                                            |            |       |  
|Converted from equity to debt                                                               |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Converted from debt to equity                                                               |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Total equity investments at December 31, 2001 (A)                                           |   |                                                | 100,000 |                                                                              |   | (57,212                                             | ) |                                                                            |            |       |  
|Equity investments made In 2002                                                             |   |                                                |         |                                                                              |   |                                                     |   |                                                                            | 2,000,000  |       |  
|Equity in income (losses) 2002                                                              |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Return of Capital                                                                           |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Converted from debt to equity                                                               |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Investment consolidated with parent                                                         |   |                                                |         |                                                                              |   | 57,212                                              |   |                                                                            | (2,000,000 | )     |  
|Other than temporary decline in value of its investments-2002 (C)                           |   |                                                |         |                                                                              |   |                                                     |   |                                                                            |            |       |  
|Total equity investments at December 31, 2002                                               | $ |                                                | 100,000 |                                                                              |   |                                                    |   |                                                                            |           |       | $



|(A) | For 2001, the total amount per the balance sheet is $2,276,344, which is approximately $57,000 higher than the amount shown on this schedule, due to the Companys decision
to fund the losses in excess of its book value. Such $57,000 is recorded in accounts payable and accrued expenses in the accompanying balance sheet as of December 31, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                         
|(B) | For 2001, the total amount per the Companys Consolidated Statement of Income is approximately $321,000 lower than the amount shown on this schedule, due to the elimination
of the activities between Newtek and these equity related investments                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                         
|(C) | For 2002, the total amount per the Statement of Income (for both equity and debt investments) is approximately $150,000 higher than the amount shown on this schedule, due to the
permanent impairment of a non-Capco related investment which is not shown on the statement.                                                                         

The
Company has not guaranteed any obligation of these investees, and the Company is not otherwise committed to provide further financial support for the investees.  However, from time-to-time, the Company may decide to provide such additional
financial support which, as of December 31, 2002, was not significant.  Should the Company determine that an impairment exists upon its periodic review, and it is deemed to be other than temporary, the company will write down the recorded value
of the asset to its estimated fair value and record a corresponding charge in the Statement of Income.

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):

CONSOLIDATED DEBT
INVESTMENTS

|Investee Investment Date(s) Maturity Date Interest Rate     |  | Newtek  Merchant  Solutions of  NY, LLC  Mar-01  Nov-05  6.00% |            | Newtek  Merchant  Solutions of  WI, LLC  Jun-01 Jun-06 5.00% |   | PPM Link, LLC Mar-01 Sep-02  5.75% |   | Newtek  Strategies,  LLC  Aug-01 Oct-02 5.00% |           | Newtek  Business  Exchange of  NY, LLC  Mar-02Mar-052.50% |   | Newtek  Financial Info  Services of   FL, LLC  Nov-99 Nov-01 5.25% |   | DC  Media Finance  Oct-02 Oct-03  12.00% |        
|----------------------------------------------------------- |  | -------------------------------------------------------------- | ---------- | ------------------------------------------------------------ | - | ---------------------------------- | - | --------------------------------------------- | --------- | --------------------------------------------------------- | - | ------------------------------------------------------------------ | - | ---------------------------------------- | -------
|                                                            |  |                                                                |            |                                                              |   |                                    |   |                                               |           |                                                           |   |                                                                    |   |                                          |        
|Consolidated debt investments  Made in 2001                 |  | $                                                              | 3,400,000  |                                                              | $ | 2,100,000                          |   | $                                             | 1,850,000 |                                                           | $ | 950,000                                                            |   |                                          |        
|Total consolidated debt investments made in 2001            |  |                                                                | 3,400,000  |                                                              |   | 2,100,000                          |   |                                               | 1,850,000 |                                                           |   | 950,000                                                            |   |                                          |        
|Return of principal - 2001                                  |  |                                                                |            |                                                              |   | (210,000                           | ) |                                               |           |                                                           |   | (25,000                                                            | ) |                                          |        
|Total consolidated debt investments as of December 31, 2001 |  |                                                                | 3,400,000  |                                                              |   | 1,890,000                          |   |                                               | 1.850,000 |                                                           |   | 925,000                                                            |   |                                          |        
|Total consolidated debt investments made in 2002            |  |                                                                | 60,000     |                                                              |   |                                    |   |                                               |           |                                                           |   |                                                                    |   |                                          | 325,000
|Investment restructured and consolidated with parent        |  |                                                                |            |                                                              |   |                                    |   |                                               |           |                                                           |   |                                                                    |   |                                          |        
|Return of principal - 2002                                  |  |                                                                | (2,850,000 | )                                                            |   | (385,000                           | ) |                                               |           |                                                           |   | (925,000                                                           | ) |                                          |        
|Converted to equity from  Debt  2002                       |  |                                                                |            |                                                              |   |                                    |   |                                               | (850,000  | )                                                         |   |                                                                    |   |                                          |        
|Converted to debt from Equity  2002                        |  |                                                                | 75,000     |                                                              |   |                                    |   |                                               |           |                                                           |   |                                                                    |   |                                          |        
|Total consolidated debt Investments as of December 31, 2002 |  | $                                                              | 685,000    |                                                              | $ | 1,505,000                          |   | $                                             | 1,000,000 |                                                           |   |                                                                   |   | $                                        | 325,000

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NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):

CONSOLIDATED EQUITY
INVESTMENTS

|Investee Investment Date(s) Type of investment Ownership interest |  | Newtek  Merchant  Solutions of  NY,  LLC  Mar-01  Preferred  Member  90% |         | Newtek  Merchant  Solutions  of  LA,\  LLC Aug-01  Preferred  Member
 95.00% |   | Newtek  Merchant  Solutions  of CO, LLC  Jun 01 95% |  | PPM  Link,  LLC  Mar-01  Preferred  Member  67.00% |           | Newtek  Strategies,  LLC  Aug-01  Preferred  Member  70.00% |   | Newtek  Business  Exchange  of  NY,  LLC  Mar-02  Preferred  Member
 94.14% | 
|----------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ------- | ---------------------------------------------------------------------------- | - | --------------------------------------------------- |  | -------------------------------------------------- | --------- | ----------------------------------------------------------- | - | --------------------------------------------------------------------------- | 
|                                                                  |  |                                                                          |         |                                                                              |   |                                                     |  |                                                    |           |                                                             |   |                                                                             | 
|Consolidated equity investments made in 2001                      |  | $                                                                        | 200,000 |                                                                              | $ | 1,350,000                                           |  |                                                    |           |                                                             | $ | 253,333                                                                     | 
|Investment restructured and consolidated with parent              |  |                                                                          |         |                                                                              |   |                                                     |  |                                                    |           |                                                             |   |                                                                             | 
|Total consolidated equity investments  2001                      |  |                                                                          | 200,000 |                                                                              |   | 1,350,000                                           |  |                                                    |           |                                                             |   | 253,333                                                                     | 
|Total consolidated equity investment made in 2002                 |  |                                                                          |         |                                                                              |   |                                                     |  |                                                    | 3,308,665 |                                                             |   |                                                                             | 
|Converted from debt to equity  -- 2002                           |  |                                                                          |         |                                                                              |   |                                                     |  |                                                    |           |                                                             |   | 850,000                                                                     | 
|Converted from equity to debt --- 2002                            |  |                                                                          | (75,000 | )                                                                            |   |                                                     |  |                                                    |           |                                                             |   |                                                                             | 
|Preferred return-dividends                                        |  |                                                                          |         |                                                                              |   |                                                     |  |                                                    |           |                                                             |   |                                                                             | 
|Total consolidated equity Investments  2002                      |  | $                                                                        | 125,000 |                                                                              | $ | 1,350,000                                           |  | $                                                  | 3,308,665 |                                                             | $ | 1,103,333                                                                   | 



|Investee Investment Date(s) Type of investment Ownership interest |  | SBA  Holdings,  Inc.  Sep-02  Preferred  Stock  90% |           | Newtek  Financial Info  Services  of LA,  LLC  Dec-03  Preferred  Member  80.00% |   | Newtek  Financial  Info  Services  of FL,  LLC  Jun-01  Preferred  Membership 
87.48% |  | Newtek Client  Services,  LLC  Jun 03  Preferred   Member  95.00% |         | Wilshire  Louisiana  Capital   Management  Fund  Dec-02  Preferred  Membership  100.00% |   | Newtek IT  Services, LLC Oct-00 Preferred Stock  90% |  
|----------------------------------------------------------------- |  | --------------------------------------------------- | --------- | -------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------ | ------- | --------------------------------------------------------------------------------------- | - | ---------------------------------------------------- | -
|                                                                  |  |                                                     |           |                                                                                  |   |                                                                                       |  |                                                                    |         |                                                                                         |   |                                                      |  
|Converted from equity method to consolidation                     |  |                                                     |           |                                                                                  |   |                                                                                       |  |                                                                    |         |                                                                                         |   |                                                      |  
|Total consolidated equity investments  2001                      |  |                                                     |           |                                                                                  |   |                                                                                       |  |                                                                    |         |                                                                                         |   |                                                      |  
|Total consolidated equity investment made in 2002                 |  |                                                     |           |                                                                                  | $ | 284,000                                                                               |  | $                                                                  | 185,000 |                                                                                         | $ | 3,550,000                                            |  
|Investment consolidated with parent                               |  | $                                                   | 2,000,000 |                                                                                  |   |                                                                                       |  |                                                                    | (57,212 | )                                                                                       |   |                                                      |  
|Preferred return-dividends                                        |  |                                                     |           |                                                                                  |   |                                                                                       |  |                                                                    | (27,405 | )                                                                                       |   | (27,273                                              | )
|Preferred return- redemption                                      |  |                                                     |           |                                                                                  |   |                                                                                       |  |                                                                    |         |                                                                                         |   | (1,081,271                                           | )
|Total consolidated equity Investments  2002                      |  | $                                                   | 2,000,000 |                                                                                  | $ | 284,000                                                                               |  | $                                                                  | 100,383 |                                                                                         | $ | 2,441,456                                            |  

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NOTE 4 - NOTES PAYABLE - CERTIFIED INVESTORS:

In June
1998 WA issued a note and a warrant to a Certified Investor for a total amount of $2,673,797. The Companys interest obligations under the note are as described in Notes 1 and 8. The warrant entitles the Certified Investor to purchase 13% of
WAs member units at a purchase price of $.01 per unit. The warrant can be exercised at any time after the fifth year of the 10 year term of the note.   In 2002, the warrant was purchased by the Company for Company stock.

Of the total proceeds, the Company allocated $2,608,797 to the note and $65,000 to the warrant. The Company initially recorded the note at
$2,608,797 and has been increasing such amount via an accretion to interest expense. For the year ended December 31, 2002 and 2001, the Company recorded $6,500 of interest expense for such accretion. At the maturity date in June 2008, the note
balance will be $2,673,797 and the Insurer  will pay such amount to the Certified Investor.

In May 2000, WA issued an additional
note to a Certified Investor for total proceeds of $1,251,630. This note has been recorded at its face amount of $1,136,364, which is the amount payable at maturity in 2008. The interest rate on this note is 10%. The excess of the proceeds over the
face amount, or $115,266, will be amortized to income over the term of the note.

Under the terms of the notes, WA is required to
maintain minimum levels of working capital and tangible net worth, as defined. At December 31, 2002 and 2001 WA was in compliance with such requirements.

NOTE 5 - NOTES PAYABLE  INSURANCE
AND OTHER:

In October 1999, WI and WLA each borrowed $2,000,000 ($4,000,000 in total), from a financing company, AI Credit, to
finance a portion of the total premiums due to an insurance company upon the creation of the two Capcos. The notes bear interest at 8.5%, and were payable in three installments beginning on April 1, 2001, with the final payment due on October 24,
2002. WI and WLA made the April 1, 2001 payments in accordance with the terms of the agreements. Accrued interest included in accounts payable and accrued expenses at December 31, 2001 amounted to $162,025.  The entire balance was paid in its
entirety (including any accrued interest) in October 2002.

In April 2000, WNYII borrowed $1,500,000 from a financing company, AI Credit,
to finance a portion of the total premiums due to an insurance company upon the creation of this Capco. The note bears interest at 9.5%, and is payable in three installments beginning on October 13, 2001, with the final payment due on April 13,
2003. WNYII made the October 13, 2001 payment in accordance with the term of the agreement. Accrued interest included in accounts payable and accrued expenses at December 31, 2002 and December 31, 2001 amounted to approximately $86,000 and $100,000,
respectively.

In October 2000, WLPII borrowed $300,000 from a financing company, AI Credit, to finance a portion of the total premiums
due to an insurance company upon the creation of this Capco. The note bears interest at 9.92%, and is payable in three installments beginning on April 13, 2002, with the final payment due on October 13, 2003. Accrued interest included in accounts
payable and accrued expenses at December 31, 2002 and December 31, 2001 amounted to approximately $22,000 and $37,000, respectively.

In
January 2001, WNYPIII borrowed $5,200,000 from a financing company, AI Credit, to finance a portion of the total premiums due to an insurance company upon the creation of this Capco. The notes bear interest at 9.4%, and are payable in three
installments beginning on July 31, 2002, with the final payment due on January 31, 2004. Accrued interest included in accounts payable and accrued expenses at December 31, 2002 and December 31, 2001amounted to approximately $49,000 and $449,000,
respectively

In April 2002, WC borrowed $2,000,000 from a financing company, AI Credit, to finance a portion of the total premiums due
to an insurance company upon the creation of this Capco. The notes bear interest at 7.9%, and are payable in three installments beginning on October 22, 2003, with the final payment due on April 22, 2005. Accrued interest included in accounts
payable and accrued expenses at December 31, 2002 amounted to approximately $115,000.

In October 2002, WLPIII borrowed $1,000,000 from a
financing company, AI Credit, to finance a portion of the total premiums due to an insurance company upon the creation of this Capco. The notes bear interest at 7.4%, and are

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NOTE 5 - NOTES PAYABLE - INSURANCE AND OTHER(Continued):

payable in three installments beginning on April 15, 2003,
with the final payment due on October 15, 2005. Accrued interest included in accounts payable and accrued expenses at December 31, 2002 amounted to approximately $16,000.

These notes are collateralized by the assets of the respective Capcos.

The aggregate amounts of principal payments on existing notes payable  insurance maturing in each of the next three years are as follows (all are as of December
31st):

|2003 |  | $ | 2,080,608 | 
|---- |  | - | --------- | 
|2004 |  |   | 1,806,818 | 
|2005 |  |   | 1,482,470 | 
|     |  |   |           | 
|     |  | $ | 5,369,896 | 
|     |  |   |           | 

In addition, during 2002, one of the Companys consolidated partner companies issued
approximately $481,000 in notes (12% interest per annum) which are due in full in 2003.

NOTE 6  LINES OF CREDIT:

In November 2001, the Company entered into a $1,500,000 one year revolving working capital loan agreement with JP Morgan Chase, bearing interest at the prime rate
plus 0.25% per annum.   The agreement expires in June 2003.  At December 31, 2002 and December 31, 2001, the Company had outstanding borrowings of $450,000 and $575,000, respectively, from the bank at an interest rate of 5.75%. 
All assets of the Company, except for all assets in the Capco entities, collateralize such outstanding borrowings.

Commercial Capital
Corp. (CCC) at the time of its acquisition by the Company had a $10 Million line of credit with a bank. As of December 31, 2002, the amounts outstanding under this line of credit were $3,998,630 and were assumed by the Company in
connection with its acquisition of CCC (included in Bank Notes Payable on the accompanying consolidated balance sheet the aggregate such amount reduced by $1,500,000 due to the conversion of such borrowings into CCC preferred stock immediately prior
to the acquisition). The line of credit is collateralized by loans made by CCC.  The line of credit bears interest at the prime interest rate plus 1% with interest payable monthly. The average rate for the year ended December 31, 2002 was
5.76%. The rate at December 31, 2002 was 5.25%. There was no accrued interest payable under this line of credit as of December 31, 2002. In addition, this line of credit requires that a percentage of all advances made to CCC be deposited into an
account in the name of the bank. The balance in this account as of December 31, 2002 was $198,467 and is included in receivable from bank on the accompanying consolidated balance sheet.

CCC also had a line of credit with another bank for $75,000,000. As of December 31, 2002, the amount outstanding under this line of credit was $51,325,862 and was
assumed by the Company in connection with its acquisition of CCC (included in Bank Notes Payable on the accompanying consolidated balance sheet the aggregate such amount reduced by the aforementioned $1,500,000 preferred stock).  The line of
credit bears interest at the one-month LIBOR rate plus 2.50%, and was collateralized by the loans made by CCC. The average interest rate for the year ended December 31, 2002 was 4.3%. The interest rate at December 31, 2002 was 3.88%. Interest on the
line is payable monthly in arrears.  In addition, this line of credit required that a percentage of all advances made to CCC be deposited into an account in the name of the bank. This line of credit required CCC to meet certain administrative
and financial covenants, including the maintenance of a minimum net worth, ratio of total indebtedness to net worth, limitation on permitted subordinated debt and profitability covenants as defined in the agreement. Under the terms of an agreement
between CCC and both of the banks with which CCC maintains lines of credit, all payments received from CCCs borrowers except for principal and interest on the guaranteed portion of the loans are transferred into a restricted bank account. CCC
cannot use these funds until the end of a calendar month at which time the funds are used to pay required principal and interest to the banks and certain other required payments.

Effective with the Companys acquisition of Commercial Capital, a new line of credit was provided by Deutsche Bank to the successor to Commercial Capital, Newtek
Small Business Finance. The aforementioned CCC credit lines were refinanced, with the aforementioned outstanding loan balances aggregating, after accounting for the $1,500,000 conversion to preferred stock, $53,824,492 at December 31, 2002. The new
line of credit for $75 Million expires March 31, 2004 and is guaranteed by Newtek. Newtek Small Business Finance may request an increase in the line of credit, for which Deutsche Bank, in its sole discretion, may increase in total up to $100
Million.  The new Deutsche Bank line has terms and conditions similar to those contained in the Commercial Capital line, described above.

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NOTE 7 - LOANS RECEIVABLE (NON-CAPCO):

Loans receivable
were generated by CCC prior to its acquisition by the Company.  Such loans are primarily related to entities in the Northeast region of the United States with concentrations in the restaurant, manufacturing, hotel and motel industries.

The unpaid principal amount of loans serviced for others is not included in the accompanying consolidated balance sheet.  The
unpaid principal of loans serviced for others was approximately $141,505,000 at December 31, 2002.

NOTE 8  INTEREST PAYABLE AND DEFEASANCE OF DEBT:

As described in Note 1, each Capco has separate contractual arrangements with the Certified Investors obligating the Capco to pay interest on the aforementioned debt
instruments.

At the time the Capcos obtained the proceeds from the issuance of the debt instruments, Capco warrants or Company common
stock to the Certified Investors, the Capcos also purchased insurance contracts from the Insurer. These insurance contracts are similar to those described in Note 2; however, the Coverage A portion of these contracts fully defeases the Capcos
liability for the full amount of proceeds obtained from the Certified Investors and, as such shifts such liability to the Insurer. The structure of the Capco insurance is, with respect to Coverage A (return of principal), that the insurer assumes
the primary obligation to make the repayment of principal of the Capco notes upon the maturity dates.  The Company believes that the likelihood of the Company becoming primarily liable is remote, because the insurer, a subsidiary of a major
multi-national insurance company, has a claims paying ability having the rating AAA, the highest available.  The Insurer is primarily liable to the Certified Investors for such amounts. The Capcos, however, are secondarily, or
contingently, liable for such payment.  The Capcos remain primarily liable for the interest obligation. The Coverage B portion of these contracts is similar to such coverage described in Notes 2 and 4.  Based upon these events and facts,
each Capco has met the requirements under SFAS 140 to extinguish the principal portion of the debt issued to the insurance company investors.  The Capco, as a secondary obligor, must assess whether it has a SFAS 5 contingency to record on the
date of defeasance and at every reporting date thereafter until the notes are repaid by the Insurer.  At December 31, 2002, management has concluded that the likelihood of the Capcos becoming primarily liable for paying the principal on Notes
is remote (i.e., the Insurer failing to make payment).  SFAS 140 requires, however, that the secondary obligation be recorded at fair value, which the Company has currently assessed at zero at December 31, 2002.

The Company has allocated the initial proceeds received in 2002 from the Certified Investors as follows:

|Notes payable, including premiums |  | $ | 29,999,543 | 
|--------------------------------- |  | - | ---------- | 
|Company common stock              |  |   | 719,957    | 
|                                  |  |   |            | 
|                                  |  | $ | 30,719,500 | 
|                                  |  |   |            | 

The Company purchased Coverage A to defease the principal portion of the Notes payable. The
resulting difference, less the note premiums, represents the excess of the initial liability under the debt instruments over the Coverage A payments, and has been recorded as interest payable in credits in lieu of cash, representing the present
value of the Capcos total liability to pay interest to the Certified Investors. Such amount will be increased by an accretion of interest expense during the 10-year period the Capcos are obligated to pay interest, and will decrease as the
Capcos pay interest by delivering the tax credits, or paying cash.

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NOTE 8 INTEREST PAYABLE AND DEFEASANCE, OF DEBT (Continued):

The following is a summary of the defeasance transactions and reconciliation of interest payable in credits in lieu of cash balances at December 31, 2002 and 2001
(exclusive of proceeds allocated to warrants as noted above):

|                                                 |  | 2002 |             | 2001 |  
|------------------------------------------------ |  | ---- | ----------- | ---- | -
|                                                 |  |      |             |      |  
|Note payable, including premiums                 |  | $    | 29,999,543  |      | $
|Less: purchase of coverage A                     |  |      | (14,513,665 | )    |  
|                                                 |  |      |             |      |  
|Allocated to interest payable                    |  |      | 15,485,878  |      |  
|Plus: interest payable, beginning of year        |  |      | 49,640,846  |      |  
|Less: tax credits delivered-Certified Investors  |  |      | (10,832,872 | )    |  
|Plus: reallocation of coverage A                 |  |      | 169,284     |      |  
|Plus: accretion of interest expense for the year |  |      | 10,732,980  |      |  
|                                                 |  |      |             |      |  
|Interest payable, end of year                    |  | $    | 65,196,116  |      | $
|                                                 |  |      |             |      |  

Under the note agreements, no
interest is paid in cash provided that the Certified Investors receive the uninterrupted use of the tax credits. The Certified Investors acknowledge that the Insurer is primarily responsible for the repayment of the original proceeds on the maturity
dates.

NOTE 9 - WARRANTS:

The warrants entitle the holders to purchase, for a
$.01 exercise price, an interest in a Capco or Capco fund. The values ascribed to the warrants issued to the Certified Investors and the Insurer have been recorded as minority interests. In addition, certain minority interests have already been
acquired by minority shareholders. A portion of the initial proceeds received from the Certified Investors is allocated to the warrants using a discounted cash flow method.  The following is the aggregate percentage interest of the minority
shareholders in each respective Capco or Capco fund as of December 31. 2002.:

|Capco or Capco Fund             |  | % Interest |     
|------------------------------- |  | ---------- | ----
|                                |  |            |     
|WP, Florida                     |  |            | 9.8 
|WI, Wisconsin                   |  |            | 2.8 
|WLA, Louisiana                  |  |            | 14.4
|WNYII, New York                 |  |            | 24  
|WLPII, Louisiana (a Capco fund) |  |            | 4.5 
|WNYIII, New York                |  |            | 8.9 
|WC, Colorado                    |  |            | 15  

NOTE 10 - INCOME FROM TAX CREDITS:

As described in Note 1, each Capco has a contractual arrangement with a particular state that legally entities the Capco to earn and deliver tax credits (ranging from
10% to 11% per year) from the state upon satisfying certain criteria. During the years ended December 31, 2002 and 2001, certain of the Companys Capcos satisfied certain investment benchmarks and the related recapture avoidance percentage
requirements and accordingly, earned a portion of the tax credits. In addition, in both 2002 and 2001, the Companyrecognized income from tax credits resulting from the accretion of the discount
attributable to tax credits earned in prior years. As the tax credits are delivered to the Certified Investors, the asset balance is offset against interest payable in credits in lieu of cash (Note 8).

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NOTE 11 - INCOME TAXES:

Provision for income taxes for
the years ended December 31, 2002 and 2001 is as follows (there was no current provision):

|Deferred provision:        |                 | 2002 |           | 2001      |  
|-------------------------- | --------------- | ---- | --------- | --------- | -
|                           |                 |      |           |           |  
|                           | Federal         |      | $         | 2,442,102 |  
|                           | State and local |      |           | 287,306   |  
|                           | Other           |      |           | (71,998   | )
|                           |                 |      |           |           |  
|Provision for income taxes |                 | $    | 2,657,410 |           | $
|                           |                 |      |           |           |  

A reconciliation of income taxes computed at the U.S. federal statutory income tax rate (34%) to
the provision for income taxes for the years ended December 31, 2002 and 2001 is as follows:

|                                                                 |  | 2002 |           | 2001 |  
|---------------------------------------------------------------- |  | ---- | --------- | ---- | -
|                                                                 |  |      |           |      |  
|                                                                 |  |      | (Benefit) |      |  
|                                                                 |  |      | Provision |      |  
|                                                                 |  |      |           |      |  
|Provision for income taxes at U.S. federal statutory rate of 34% |  | $    | 2,442,102 |      | $
|State and local taxes, net of federal benefit                    |  |      | 287,306   |      |  
|Other                                                            |  |      | (71,998   | )    |  
|                                                                 |  |      |           |      |  
|                                                                 |  | $    | 2,657,410 |      | $
|                                                                 |  |      |           |      |  

Deferred tax assets and liabilities consisted of the following at December 31, 2002 and
2001:

|Deferred tax assets:                        |                         | 2002 |             | 2001        |  
|------------------------------------------- | ----------------------- | ---- | ----------- | ----------- | -
|                                            |                         |      |             |             |  
|Net operating losses                        |                         | $    | 10,397,582  |             | $
|Interest payable in credits in lieu of cash |                         |      | 436,063     |             |  
|Investment losses                           |                         |      | 56,696      |             |  
|                                            |                         |      |             |             |  
|Total deferred tax assets                   |                         |      | 10,890,341  |             |  
|                                            |                         |      |             |             |  
|Deferred tax liabilities:                   |                         |      |             |             |  
|                                            | Credits in lieu of cash |      |             | (14,616,492 | )
|                                            |                         |      |             |             |  
|Total deferred tax liabilities              |                         |      | (14,616,492 | )           |  
|                                            |                         |      |             |             |  
|Net deferred tax liability                  |                         | $    | (3,726,151  | )           | $
|                                            |                         |      |             |             |  

At December 31, 2002, the Company
has net operating losses aggregating approximately $27,552,000 which expire beginning in 2020. Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. Management has determined that a valuation
allowance is not required at December 31, 2002 and 2001 as it believes that it is more likely than not that the deferred tax assets will be realized.   In addition, at December 31, 2002, in connection with its acquisition of CCC, the
Company acquired net operating loss carryforwards of approximately $9,000,000 which begin expiring at the end of 2020.  In connection with the related purchse accounting, the Company established a valuation allowance for the full amount of the
related net deferred tax asset acquired from CCC as management has determined that it its uncertain as to whether such asset will be utilizied in the future.

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NOTE 12 - COMMITMENTS AND CONTINGENCIES:

A Capco or
Capco fund is required to make Investments in Qualified Businesses under a qualified investment schedule, as defined, in order to remain certified as a Capco. If the Company does not make such qualified investments within the statutorily provided
time frame, the Capco is subject to Decertification and Revocation, as defined in the respective Capco agreements, of its certificate and, accordingly, the Certified Investor could be subject to forfeiture or recapture of its previously granted
respective state tax credits. This risk has been insured under Coverage B (Notes 2 and 8). Generally, a Capco or Capco fund must invest at least 50% of its Certified Capital in qualified businesses within five years after the certification
date.  At December 31, 2002 and 2001, the Company had invested the percent of its Certified Capital as follows:

|Capco or Capco Fund      |  | December 31, 2002 |    | December 31, 2001 | 
|------------------------ |  | ----------------- | -- | ----------------- | 
|                         |  |                   |    |                   | 
|WA, New York             |  |                   | 59 | %                 | 
|WP, Florida              |  |                   | 50 | %                 | 
|WI, Wisconsin            |  |                   | 31 | %                 | 
|WLA, Louisiana           |  |                   | 46 | %                 | 
|WNYII, New York          |  |                   | 50 | %                 | 
|WLAPII, Louisiana        |  |                   | 50 | %                 | 
|WNYIII, New York         |  |                   | 49 | %                 | 
|WC, Colorado (statewide) |  |                   | 30 | %                 | 
|WC, Colorado (rural)     |  |                   | 15 | %                 | 
|WLPIII, Louisiana        |  |                   | 0  | %                 | 

The Company has entered into employment
agreements with three officers. At December 31, 2002 the future minimum commitments are $855,000 for each of the years ended December 31, 2003, 2004 and 2005.

The following summarizes the Companys obligations and commitments, as of December 31, 2002, for future minimum cash payments required under lease and employment
agreements:

|Year       |  | Operating  Leases |           | Employment Agreements |   | Total     | 
|---------- |  | ----------------- | --------- | --------------------- | - | --------- | 
|           |  |                   |           |                       |   |           | 
|2003       |  | $                 | 689,669   |                       | $ | 855,000   | 
|2004       |  |                   | 684,642   |                       |   | 855,000   | 
|2005       |  |                   | 335,529   |                       |   | 855,000   | 
|2006       |  |                   | 345,534   |                       |   |          | 
|2007       |  |                   | 258,867   |                       |   |          | 
|Thereafter |  |                   | 1,562,121 |                       |   |          | 
|           |  |                   |           |                       |   |           | 
|Total      |  | $                 | 3,876,362 |                       | $ | 2,565,000 | 
|           |  |                   |           |                       |   |           | 

Rent expense for 2002 and 2001 was
approximately $278,000 and $227,000, respectively.

For certain Capcos, when 100% of the Certified Capital is invested in
qualified businesses as defined, the respective state is entitled to a percentage of all appreciation of assets in excess of the amount required to produce a specific internal rate of return.

From time to time Newtek and its subsidiaries are parties to various legal proceedings in the normal course of business. At December 31, 2002, there were no legal
proceedings which management anticipates would have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.

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NOTE 13 - ASSETS HELD FOR SALE :

The Company owned a
building and land in Mississippi which was held for sale. The note was held by the Bank of Mississippi, and collateralized by the property. At December 31, 2001, the Company determined there was a permanent impairment on the property, and took an
approximately $168,000 charge to earnings. In March, 2002, the property was sold for an approximately $16,000 gain as compared to its book value at December 31, 2001. The Company received payment on this asset held for sale, and the proceeds were
used to fully pay the outstanding mortgage.

NOTE 14 - RELATED PARTY TRANSACTIONS:

For the year ended December 31, 2001, the Company rented office space at $3,000 per month on a month-to-month basis from a related party. In addition, for the years
ended December 31, 2002 and December 31, 2001, the Company incurred financial consulting expenses of approximately $180,000 and approximately $157,000 respectively, from a related party.

NOTE
15 - CONVERSION OF CAPCO MEMBERSHIP INTERESTS INTO NEWTEK STOCK:

In June 2001, the Company issued 534,592 shares of its common stock
to the minority members of WI in exchange for substantially all of such members minority interests.  This has been accounted for as a purchase transaction. The fair value of the Companys common stock was determined based upon the
quoted market price of the Companys common stock, less a 45% discount due to certain restrictions on the sale of the stock.  Such value exceeded the book value of the minority interest by approximately $978,000 and the Company has
recorded such amount as goodwill.

In March, May, September and December 2002, the Company issued 1,028,576, 149,910, 286,270 and 40,582
shares, respectively, of its common stock to the minority members of certain Capcos in exchange for substantially all of such members minority interests. These have been accounted for as purchase transactions. The fair value of the
Companys common stock was determined based upon the quoted market price of the Companys common stock, less a 45% discount due to certain restrictions on the sale of the stock.  Such value exceeded the book value of the minority
interest by approximately $1,049,000 for five of the Capcos, and the Company has recorded such amount as goodwill.  For three other Capcos, the fair value of the Companys common stock was less than the book value of the minority interest
by approximately $908,000, and the Company has recorded such amount as an extraordinary gain.

NOTE 16 - STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES:

As of December 31, 2002, there were vested options outstanding to purchase an aggregate of 801,329 shares of common stock at exercise prices ranging from
$3.05 to $10.00 per share, expiring through 2011.

As of December 31, 2002 the Company has granted a total of 2,456,837 options
(included in this number are options of 224,500 issued to non-employees and net of cancellations) to purchase shares of common stock to certain members of management, employees and directors. The details of option activity since adoption of the plan
is as follows:

|                                 |  | Number  of  Shares |           | Weighted  AverageExercise  Price |  
|-------------------------------- |  | ------------------ | --------- | -------------------------------- | -
|                                 |  |                    |           |                                  |  
|Outstanding at December 31, 2000 |  |                    | 993,000   |                                  | $
|Granted during 2001              |  |                    | 701,000   |                                  | $
|Exercised during year            |  |                    |          |                                  |  
|Cancelled during year            |  |                    | (345,667  | )                                | $
|                                 |  |                    |           |                                  |  
|Outstanding at December 31, 2001 |  |                    | 1,348,333 |                                  | $
|Granted during 2002              |  |                    | 1,262,671 |                                  | $
|Exercised during year            |  |                    |          |                                  |  
|Cancelled during year            |  |                    | (154,167  | )                                | $
|                                 |  |                    |           |                                  |  
|Outstanding, December 31, 2002   |  |                    | 2,456,837 |                                  | $
|                                 |  |                    |           |                                  |  
|Exercisable at December 31, 2002 |  |                    | 801,329   |                                  | $
|                                 |  |                    |           |                                  |  

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The following table summarizes information about stock options exercisable at December 31, 2002:

|                           |  | Options Outstanding |           | Options  Exercisable                                      | 
|-------------------------- |  | ------------------- | --------- | --------------------------------------------------------- | 
|                           |  |                     |           |                                                           | 
|Range of Exercises  Prices |  | Shares Outstanding  |           | Weighted  Average  Remaining Contractual  Remaining 
Life | 
|                           |  |                     |           |                                                           | 
|$3.05 - $4.30              |  |                     | 1,831,003 |                                                           | 
|$7.00 - $10.00             |  |                     | 625,834   |                                                           | 

NOTE 17 - EARNINGS PER SHARE:

Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. The dilutive effect of common stock
equivalents is included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.

The
calculations of Net Income Per Share were:

|                                                     |                                                                                | Year ended December 31, |    
|---------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------- | ---
|                                                     |                                                                                |                         |    
|                                                     |                                                                                | 2001                    |    
|                                                     |                                                                                |                         |    
|Numerator:                                           |                                                                                |                         |    
|                                                     | Numerator for Basic and Diluted EPS  income available to common stock holders |                         | $  
|                                                     | Numerator for basic and diluted EPS  extraordinary item                       |                         | $  
|                                                     | Numerator for basic and diluted EPS-income before extraordinary item           |                         | $  
|Denominator:                                         |                                                                                |                         |    
|                                                     | Denominator for basic EPS  weighted average shares                            |                         |    
|                                                     | Effect of dilutive securities (stock options)                                  |                         |    
|                                                     | Denominator for diluted EPS  weighted average shares                          |                         |    
|Net EPS: Basic                                       |                                                                                | $                       | .34
|Net EPS: Diluted                                     |                                                                                | $                       | .34
|Net EPS: Basic and Diluted before extraordinary gain |                                                                                | $                       | .19

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NOTE 18  ACQUISITIONS:

In January 2002, the
Company acquired 100% of the outstanding common stock of Exponential Business Development Company, Inc. (Exponential), of Syracuse, NY.  Exponentials primary business was to make non-controlling investments in small and start-up
companies.  The purchase price consisted of 500,000 shares of Company common stock issued to the sellers.  Under the terms of the acquisition, an additional 500,000 shares will be issued over a seven year period if acquired assets result
in gains of $2 Million in excess of an initial $1 Million recovery by the Company. The fair value of the 500,000 common shares issued, $989,000, was determined based on the quoted market price of the Companys common stock on the closing date,
less a 35% discount due to certain restrictions on the stock.  Since Company management has determined that the issuance of the additional 500,000 shares is currently unlikely due to managements estimation that the payout provision will
not be met, the Company has not included the additional shares in the determination of the purchase price.  On a quarterly basis, management will assess the payout provision to determine if it is likely it will be met in the future, and if so,
the Company will record the additional 500,000 shares as additional purchase price when issued.  Exponential directors and officers remain with that entity and received a total of 365,000 options pursuant to the Companys stock option plan
to acquire Company common stock in exchange for future services.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.

|Current assets (including cash of $106,642) |  | $ | 138,013 | 
|------------------------------------------- |  | - | ------- | 
|Other Assets                                |  |   | 10,001  | 
|                                            |  |   |         | 
|Total assets acquired                       |  |   | 148,014 | 
|                                            |  |   |         | 
|Current liabilities                         |  |   | 52,350  | 
|                                            |  |   |         | 
|Total liabilities assumed                   |  |   | 52,350  | 
|                                            |  |   |         | 
|Net assets acquired                         |  | $ | 95,664  | 
|                                            |  |   |         | 

The excess of the purchase
consideration of $989,000 over the net assets acquired amounts to approximately $893,000; such amount has been recorded as goodwill.

On
December 31, 2002, the Company acquired the majority of the outstanding common stock of Commercial Capital Corp. (CCC). The purchase price consisted of 380,471 shares of Company common stock issued to the sellers.  Under the terms of the
acquisition, an additional 82,980 shares will be issued in the future if certain hurdles are met. The per share fair value of the 380,471 common shares issued, $3.38, was determined based on the five day average of the quoted market price of the
Companys common stock on the announcement date, less a 30% discount due to certain restrictions on the stock.  Since Company management has determined that the issuance of the additional shares is currently unlikely due to
managements estimation that the payout provision will not be met, the Company has not included the additional shares in the determination of the purchase price, and instead recognized a liability for contingent consideration, amounting to
approximately $196,000 and included in accounts payable and accrued expenses on the balance sheet.  On a quarterly basis, management will assess the payout provision to determine if it is likely it will be met in the future, and if so, the
Company will record the additional shares as additional purchase price when issued.

The transfer from CCC to the
Company of CCCs license to make SBA guaranteed small business loans in all jurisdictions nationwide was approved by SBA on December 19, 2002. As a result of this transaction, all future operations will be conducted under the name of Newtek
Small Business Finance, Inc., which is majority owned by the Company.

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NOTE 18  ACQUISITIONS (Continued):

The allocation of
the purchase price to the fair values of assets and liabilities assumed is summarized below.  The resulting excess of net assets acquired over the consideration was allocated to non-financial assets and the remaining excess was recorded as an
extraordinary gain in accordance with SFAS 141.

|Fair value of assets acquired:                                                                                             |  |   |               |   |  |                    | 
|-------------------------------------------------------------------------------------------------------------------------- |  | - | ------------- | - |  | ------------------ | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Cash                                                                                                                       |  | $ | 2,367,870     |   |  |                    | 
|Loans Receivable, net                                                                                                      |  |   | 56,073,016    |   |  |                    | 
|Receivable from Bank                                                                                                       |  |   | 2,938,309     |   |  |                    | 
|Accrued Interest Receivable                                                                                                |  |   | 285,151       |   |  |                    | 
|Servicing Asset                                                                                                            |  |   | 4,496,774 (c) |   |  |                    | 
|SBA License, net                                                                                                           |  |   | 159,917 (c)   |   |  |                    | 
|Property & Equipment, net                                                                                                  |  |   | 272,925  (c)  |   |  |                    | 
|Other Assets                                                                                                               |  |   | 515,805 (c)   |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Total Assets                                                                                                               |  | $ | 67,109,767    |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Fair value of liabilities assumed:                                                                                         |  |   |               |   |  |                    | 
|Accounts payable and accrual                                                                                               |  | $ | 2,508,086     |   |  |                    | 
|Line of credit                                                                                                             |  |   | 53,824,492    |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Total liabilities                                                                                                          |  |   | 56,332,578    |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Preferred Stock                                                                                                            |  |   | 1,500,000     |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Net assets acquired                                                                                                        |  |   | 9,277,189     |   |  |                    | 
|less purchase price:  Newtek common stock issued as consideration                                                          |  |   | (900,194      | ) |  | (see (A) below)    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Excess of net assets acquired over purchase price                                                                          |  |   | 8,376,995     |   |  |                    | 
|Less, allocation of negative goodwill to non-financial assets                                                              |  |   | (5,445,421)   |   |  | (sum of (c) above) | 
|Less, recognition of liability for contingent consideration                                                                |  |   | (196,331)     |   |  | (see (B )below)    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Extraordinary gain on acquisition of business                                                                              |  | $ | 2,735,243     |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|(A)                                                                                                                        |  |   |               |   |  |                    | 
|Average share price five days before and five days after the acquisition is announced (August 8, 2002)                     |  | $ | 3.38          |   |  |                    | 
|Less, discount factor applied to above share price, based upon restrictions on registration rights and resale
rights (30%) |  |   | 70            | % |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Value per share (rounded) used to compute purchase consideration                                                           |  |   | 2.37          |   |  |                    | 
|Number of shares issued                                                                                                    |  |   | 380,471       |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Newtek common stock issued as consideration                                                                                |  | $ | 900,194       |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|(B)                                                                                                                        |  |   |               |   |  |                    | 
|Average share price five days before and five days after the acquisition is announced (August 8, 2002)                     |  | $ | 3.38          |   |  |                    | 
|Less, discount factor applied to above share price, based upon restrictions on registration rights and resale
rights (30%) |  |   | 70            | % |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Value per share (rounded) used to compute purchase consideration                                                           |  |   | 2.37          |   |  |                    | 
|Number of contingent shares                                                                                                |  |   | 82,980        |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 
|Newtek common stock issued as consideration                                                                                |  | $ | 196,331       |   |  |                    | 
|                                                                                                                           |  |   |               |   |  |                    | 

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NOTE 18  ACQUISITIONS (Continued):

The accompanying consolidated statement of income for the year ended
December 31, 2002 includes the results of operations of Exponential from January 2002 through December 31, 2002 (since CCC was acquired on December 31, 2002, the accompany consolidated statement of income include no activity for that entity). 
The unaudited pro forma financial information set below is based upon the Companys historical consolidated statement of income for the years ended December 31, 2002 and December 31, 2001, adjusted to give effect to the acquisition of
Exponential and CCC as of the beginning of each period presented.   The unaudited pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been
had the acquisition occurred on the dates indicated, nor does it purport to represent the results of operations for future periods.

|Pro forma (unaudited) for the years ended December 31: | 
|------------------------------------------------------ | 
|                                                       | 
|                                                       | 
|Total revenues                                         | 
|Income (loss) from continuing operations               | 
|                                                       | 
|Income (loss) per share - basic                        | 
|                                                       | 
|Income (loss) per share - diluted                      | 
|                                                       | 

NOTE 19 - GOODWILL

Effective January 1, 2002, the Company adopted SFAS No.142.  There was no goodwill amortization expense for the year ended December 31, 2002.  At December
31, 2002, management determined that no write-down was needed based on an evaluation for impairment under SFAS No. 142.   Additions in goodwill in 2002 consist of approximately $893,000 related to the Exponential acquisition, and
approximately 1,049,000 from acquisitions of minority interests.

The Companys net income for the year ended December 31, 2001
would have increased from approximately $930,000 to $987,000, and basic and diluted income per share would have increased from $.04 to $.05, if SFAS No. 142 had been in effect.

NOTE 20 -
SUBSEQUENT EVENTS:

In January, 2003, the Company sold in a private placement 55,718 shares of stock, for net proceeds of
approximately $216,000.

In January, 2003, the Company completed the sale of $2 Million of preferred stock of NSBF to Credit Suisse First
Boston Management Corporation (CSFB).  In addition, CSFB has a right to purchase all of the common stock in NSBF at a significantly higher multiple as compared to the book value of NSBF at December 31, 2002.

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NOTE 21 - QUARTERLY INFORMATION (UNAUDITED):

|                                         |  | Three Months Ended |           |      |  
|---------------------------------------- |  | ------------------ | --------- | ---- | -
|                                         |  |                    |           |      |  
|2001                                     |  | 3/31               |           | 6/30 |  
|                                         |  |                    |           |      |  
|Total Revenue                            |  | $                  | 6,721,551 |      | $
|Operating Income(Loss)                   |  | $                  | 1,535,317 |      | $
|Income (Loss) Before Extraordinary Gains |  | $                  | 760,471   |      | $
|Net Income                               |  | $                  | 760,471   |      | $
|EPS  Basic                              |  | $                  | 0.04      |      | $
|EPS  Diluted                            |  | $                  | 0.04      |      | $



|                                         |  | Three Months Ended |           |      |   |          
|---------------------------------------- |  | ------------------ | --------- | ---- | - | ---------
|                                         |  |                    |           |      |   |          
|2002                                     |  | 3/31               |           | 6/30 |   | 9/30     
|                                         |  |                    |           |      |   |          
|Total Revenue                            |  | $                  | 6,071,701 |      | $ | 5,350,857
|Operating Income (Loss)                  |  | $                  | (260,637  | )    | $ | (281,525 
|Income (Loss) Before Extraordinary Gains |  | $                  | (159,605  | )    | $ | (545,436 
|Net Income                               |  | $                  | 105,979   |      | $ | (545,436 
|EPS - Basic                              |  | $                  | .00       |      | $ | (.02     
|EPS - Diluted                            |  | $                  | .00       |      | $ | (.02     

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NOTE 22 - SUMMARY RESULTS OF QUALIFIED INVESTMENTS (UNAUDITED):

Principles of Accounting for Ownership Interests in Qualified Investments

The various interests that the Company acquires in its qualified investments are accounted for under three methods: consolidation, equity method and cost method. The
applicable accounting method is generally determined based on the Companys voting interest in a Partner Company.

Consolidation
method.  Investments in which the Company directly or indirectly owns more than 50% of the outstanding voting securities or those the Company has effective control over are generally accounted for under the consolidation method of accounting.
Under this method, an investments financial position and results of operations are reflected within the Companys Balance Sheet and Consolidated Statements of Income. All significant inter-company accounts and transactions have been
eliminated. The results of operations and cash flows of a consolidated Partner Company are included through the latest interim period in which the Company owned a greater than 50% direct or indirect voting interest for the entire interim period or
otherwise exercised control over the Partner Company. Upon dilution of control below 50%, the accounting method is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

Equity Method.  Investees that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of
accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the Companys Board of Directors and ownership level,
which is generally a 20% to 50% interest in the voting securities of the Company, including voting rights associated with the Companys holdings in common, preferred and other convertible instruments in the investee. Under the equity method of
accounting, an investees accounts are not reflected within the Companys Consolidated Balance Sheet and Consolidated Statements of Income; however, the Companys share of the earnings or losses of the investee is reflected in the
caption Equity income (loss) in the Consolidated Statements of Income.

Cost Method.  Investees not accounted for
under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Companys share of the earnings or losses of such companies is not included in the Consolidated Balance
Sheet and Consolidated Statements of Income. However, cost method impairment charges are recognized, as necessary, in the Consolidated Statement of Operations. If circumstances suggest that the value of the investee has subsequently recovered, such
recovery is not recorded until realized.

On a monthly basis, the Companys Investment Committee meets to evaluate the
Companys investments.  The Company considers several factors in determining whether an impairment exists on the investment, such as the investees net book value, cash flow, revenue growth and net income.  In addition, the
Investment Committee looks at larger variables, such as the economy and the investee companys industry, to determine if an other than temporary decline in value exists in the Companys investments.

The following table is an unaudited summary of the investments which the Company accounts for under either the equity method or by consolidation.  These
financial statements also reflect the degree to which the Companys partner companies interact with each other to provide and market needed goods or, particularly, services to each other.  Such activity has been quantified within the
accompanying summary within the caption intercompany items included in above.

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NOTE 22 - SUMMARY RESULTS OF QUALIFIED INVESTMENTS (UNAUDITED):

CONSOLIDATED ENTITIES

|                       |  | Newtek  Strategies (Harvest) |         | Newtek  Merchant  Solutions  CO  (UPS-CO) |   | Newtek Merchant Solutions  NY (UPS) | 
|---------------------- |  | ---------------------------- | ------- | ------------------------------------------ | - | ------------------------------------ | 
|                       |  |                              |         |                                            |   |                                      | 
|                       |  | 2002                         |         | 2001                                       |   | 2002                                 | 
|                       |  |                              |         |                                            |   |                                      | 
|Cash                   |  | $                            | 256,233 |                                            | $ | 1,638,703                            | 
|Other Assets           |  | $                            | 207,801 |                                            | $ | 117,588                              | 
|Total Assets           |  | $                            | 464,034 |                                            | $ | 1,756,291                            | 
|Current Liabilities    |  | $                            | 33,006  |                                            | $ | 53,026                               | 
|Total Liabilities      |  | $                            | 33,006  |                                            | $ | 1,002,978                            | 
|Total Equity (Deficit) |  | $                            | 431,028 |                                            | $ | 753,313                              | 



|                       |  | Newtek Merchant Solutions  LA (UPS-LA) |         | Newtek  Merchant Solutions  W I (UPS-WI) |  
|---------------------- |  | --------------------------------------- | ------- | ----------------------------------------- | -
|                       |  |                                         |         |                                           |  
|                       |  | 2002                                    |         | 2001                                      |  
|                       |  |                                         |         |                                           |  
|Cash                   |  | $                                       | 705,617 |                                           | $
|Other Assets           |  | $                                       | 26,485  |                                           | $
|Total Assets           |  | $                                       | 732,102 |                                           | $
|Current Liabilities    |  | $                                       | 29,729  |                                           | $
|Total Liabilities      |  | $                                       | 29,729  |                                           | $
|Total Equity (Deficit) |  | $                                       | 702,373 |                                           | $

CONSOLIDATED ENTITIES

|                       |  | PPM Link |           | Exponential  Business  Development Co., Inc. |   | Newtek Small Business  Finance(NSBF) |  
|---------------------- |  | -------- | --------- | -------------------------------------------- | - | ------------------------------------ | -
|                       |  |          |           |                                              |   |                                      |  
|                       |  | 2002     |           | 2001                                         |   | 2002                                 |  
|                       |  |          |           |                                              |   |                                      |  
|Cash                   |  | $        | 1,254,506 |                                              | $ | 1,700,109                            |  
|Other Assets           |  | $        | 61,686    |                                              | $ | 130,558                              |  
|Total Assets           |  | $        | 1,316,192 |                                              | $ | 1,830,667                            |  
|Current Liabilities    |  | $        | 1,069,144 |                                              | $ | 46,553                               |  
|Total Liabilities      |  | $        | 1,919,144 |                                              | $ | 1,896,553                            |  
|Total Equity (Deficit) |  | $        | (602,952  | )                                            | $ | (65,886                              | )



|                       |  | Newtek  IT Services |         | Newtek  Financial Information  Systems  FL (GMT) | 
|---------------------- |  | ------------------- | ------- | ------------------------------------------------- | 
|                       |  |                     |         |                                                   | 
|                       |  |                     | 2002    |                                                   | 
|                       |  |                     |         |                                                   | 
|Cash                   |  | $                   | 2,372   |                                                   | 
|Other Assets           |  | $                   | 64,910  |                                                   | 
|Total Assets           |  | $                   | 67,282  |                                                   | 
|Current Liabilities    |  | $                   | 103,655 |                                                   | 
|Total Liabilities      |  | $                   | 158,260 |                                                   | 
|Total Equity (Deficit) |  | $                   | (90,978 | )                                                 | 

85



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NOTE 22 - SUMMARY RESULTS OF QUALIFIED INVESTMENTS (UNAUDITED):

CONSOLIDATED ENTITIES

|                       |  | Newtek  Financial Information  Systems  LA (GMT-LA) |         | Newtek  Business Exchange  of NY (Transworld  NY) |  | Newtek Client Services (Global) |  
|---------------------- |  | ---------------------------------------------------- | ------- | -------------------------------------------------- |  | ------------------------------- | -
|                       |  |                                                      |         |                                                    |  |                                 |  
|                       |  |                                                      | 2002    |                                                    |  | 2001                            |  
|                       |  |                                                      |         |                                                    |  |                                 |  
|Cash                   |  | $                                                    | 284,000 |                                                    |  | (a                              | )
|Other Assets           |  | $                                                    | 500     |                                                    |  | (a                              | )
|Total Assets           |  | $                                                    | 284,500 |                                                    |  | (a                              | )
|Current Liabilities    |  | $                                                    | 11,373  |                                                    |  | (a                              | )
|Total Liabilities      |  | $                                                    | 11,373  |                                                    |  | (a                              | )
|Total Equity (Deficit) |  | $                                                    | 273,127 |                                                    |  | (a                              | )



|                       |  | DC Media |         | Totals | 
|---------------------- |  | -------- | ------- | ------ | 
|                       |  |          |         |        | 
|                       |  |          | 2002    |        | 
|                       |  |          |         |        | 
|Cash                   |  | $        | 344,293 |        | 
|Other Assets           |  | $        | 385,063 |        | 
|Total Assets           |  | $        | 729,356 |        | 
|Current Liabilities    |  | $        | 92,226  |        | 
|Total Liabilities      |  | $        | 736,003 |        | 
|Total Equity (Deficit) |  | $        | (6,647  | )      | 



CONSOLIDATED
ENTITIES

|                                     |  | Newtek Strategies |          | Newtek  Merchant  Solutions  CO |   | Newtek Merchant Solutions -- NY |  
|------------------------------------ |  | ----------------- | -------- | -------------------------------- | - | ------------------------------- | -
|                                     |  |                   |          |                                  |   |                                 |  
|                                     |  | 2002              |          | 2001                             |   | 2002                            |  
|                                     |  |                   |          |                                  |   |                                 |  
|Revenue                              |  | $                 | 558,119  |                                  | $ | 167,256                         |  
|SG&A                                 |  |                   | 835,247  |                                  |   | 393,976                         |  
|Depreciation and Amortization        |  |                   | 8,886    |                                  |   | 488                             |  
|Interest  expense                    |  |                   | 35,624   |                                  |   | 19,479                          |  
|Income/Loss                          |  |                   | (321,638 | )                                |   | (246,687                        | )
|INTERCOMPANY ITEMS INCLUDED IN ABOVE
|Revenue                              |  |                   | 404,612  |                                  |   | 78,179                          |  
|SG&A                                 |  |                   | 45,842   |                                  |   | 12,649                          |  
|Interest Expense                     |  |                   | 35,625   |                                  |   | 19,479                          |  
|                                     |  |                   |          |                                  |   |                                 |  



|                                     |  | Newtek Merchant  Solutions -- LA |          | Newtek Merchant  Solutions -- WI | 
|------------------------------------ |  | -------------------------------- | -------- | -------------------------------- | 
|                                     |  |                                  |          |                                  | 
|                                     |  | 2002                             |          | 2001                             | 
|                                     |  |                                  |          |                                  | 
|Revenue                              |  | $                                | 67,967   |                                  | 
|SG&A                                 |  |                                  | 547,589  |                                  | 
|Depreciation and                     |  |                                  |          |                                  | 
|Amortization                         |  |                                  | 2,974    |                                  | 
|Interest  expense                    |  |                                  | 0        |                                  | 
|Income/Loss                          |  |                                  | (482,596 | )                                | 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE
|Revenue                              |  |                                  | 11,984   |                                  | 
|SG&A                                 |  |                                  | 92,399   |                                  | 
|Interest Expense                     |  |                                  | --       |                                  | 



CONSOLIDATED
ENTITIES

|                              |  | PPM  Link |         | Exponential  Business Development Co., Inc. |   | Newtek Small Business Finance | 
|----------------------------- |  | --------- | ------- | ------------------------------------------- | - | ----------------------------- | 
|                              |  |           |         |                                             |   |                               | 
|                              |  | 2002      |         | 2001                                        |   | 2002                          | 
|                              |  |           |         |                                             |   |                               | 
|Revenue                       |  | $         | 367,604 |                                             | $ | 35,000                        | 
|SG&A                          |  |           | 677,601 |                                             |   | 361,449                       | 
|Depreciation and Amortization |  |           | 875     |                                             |   | 159                           | 



|                              |  | Newtek IT  Services |         | Newtek Financial Information Systems  FL |  
|----------------------------- |  | ------------------- | ------- | ----------------------------------------- | -
|                              |  |                     |         |                                           |  
|                              |  | 2002                |         | 2001                                      |  
|                              |  |                     |         |                                           |  
|Revenue                       |  | $                   | 393,679 |                                           | $
|SG&A                          |  |                     | 818,988 |                                           |  
|Depreciation and Amortization |  |                     | 10,152  |                                           |  

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|Interest  expense                    |  |  | 97,510   |   |   | 80,367   |   |  | 0       |   |  | 0      |  |  | 0 |  |  | (a | )
|------------------------------------ |  |  | -------- | - | - | -------- | - |  | ------- | - |  | ------ |  |  | - |  |  | -- | -
|Income/Loss                          |  |  | (408,382 | ) | $ | (406,975 | ) |  | (83,136 | ) |  | 51,387 |  |  | 0 |  |  | (a | )
|INTERCOMPANY ITEMS INCLUDED IN ABOVE
|Revenue                              |  |  | 175,218  |   |   | 15,000   |   |  | --      |   |  | --     |  |  |   |  |  | (a | )
|SG&A                                 |  |  | 36,923   |   |   | 8,690    |   |  | --      |   |  | --     |  |  |   |  |  | (a | )
|Interest Expense                     |  |  | 97,510   |   |   | 80,367   |   |  | --      |   |  | --     |  |  |   |  |  | (a | )
|                                     |  |  |          |   |   |          |   |  |         |   |  |        |  |  |   |  |  |    |  



|Interest  expense                    |  |  | 53,237   |   |  | 151,537  |   |  | 8,076   |   |  | 54,712   |  
|------------------------------------ |  |  | -------- | - |  | -------- | - |  | ------- | - |  | -------- | -
|Income/Loss                          |  |  | (488,698 | ) |  | (443,481 | ) |  | (86,725 | ) |  | (506,019 | )
|INTERCOMPANY ITEMS INCLUDED IN ABOVE
|Revenue                              |  |  | 41,401   |   |  | 41,045   |   |  | 304,872 |   |  | 53,704   |  
|SG&A                                 |  |  | 102,741  |   |  | 42,565   |   |  | 34,352  |   |  | 28,154   |  
|Interest Expense                     |  |  | 53,050   |   |  | 150,937  |   |  | 8,076   |   |  | 54,712   |  



CONSOLIDATED
ENTITIES

|                                     |  | Newtek Financial Information  Systems  LA |         | Newtek  Business Exchange of NY |  | Newtek  Client Services |  
|------------------------------------ |  | ------------------------------------------ | ------- | ------------------------------- |  | ----------------------- | -
|                                     |  |                                            |         |                                 |  |                         |  
|                                     |  | 2002                                       |         | 2001                            |  | 2002                    |  
|                                     |  |                                            |         |                                 |  |                         |  
|Revenue                              |  | $                                          | 0       |                                 |  | (a                      | )
|SG&A                                 |  |                                            | 11,373  |                                 |  | (a                      | )
|Depreciation and                     |  |                                            |         |                                 |  |                         |  
|Amortization                         |  |                                            | 0       |                                 |  | (a                      | )
|Interest expense                     |  |                                            | 0       |                                 |  | (a                      | )
|Income/Loss                          |  |                                            | (11,373 | )                               |  | (a                      | )
|INTERCOMPANY ITEMS INCLUDED IN ABOVE | 
|Revenue                              |  |                                            | 0       |                                 |  | (a                      | )
|SG&A                                 |  |                                            | 0       |                                 |  | (a                      | )
|Interest Expense                     |  |                                            | 0       |                                 |  | (a                      | )



|                                     |  | DC Media Finance |         | Totals | 
|------------------------------------ |  | ---------------- | ------- | ------ | 
|                                     |  |                  |         |        | 
|                                     |  | 2002             |         | 2001   | 
|                                     |  |                  |         |        | 
|Revenue                              |  | $                | 46,668  |        | 
|SG&A                                 |  |                  | 102,893 |        | 
|Depreciation and                     |  |                  |         |        | 
|Amortization                         |  |                  | 14,166  |        | 
|Interest expense                     |  |                  | 18,350  |        | 
|Income/Loss                          |  |                  | (88,741 | )      | 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE | 
|Revenue                              |  |                  |        |        | 
|SG&A                                 |  |                  | 7,717   |        | 
|Interest Expense                     |  |                  | 3,573   |        | 



ENTITIES UNDER THE EQUITY METHOD
(B)

|                       |  | Starphire |         | Nichedirectories |   | Transworld Business Brokers  FL |  | Totals |        
|---------------------- |  | --------- | ------- | ---------------- | - | -------------------------------- |  | ------ | -------
|                       |  |           |         |                  |   |                                  |  |        |        
|                       |  | 2002      |         | 2001             |   | 2002                             |  | 2001   |        
|                       |  |           |         |                  |   |                                  |  |        |        
|Cash                   |  | $         | 14,653  |                  | $ | 1,352,823                        |  | $      | 212,409
|Other Assets           |  |           | 402,874 |                  |   | 460,508                          |  |        | 288,093
|Total Assets           |  | $         | 417,527 |                  | $ | 1,813,331                        |  | $      | 500,502
|Current Liabilities    |  | $         | 34,330  |                  | $ | 85,652                           |  | $      | 438,915
|Total Liabilities      |  | $         | 34,330  |                  | $ | 1,085,652                        |  | $      | 484,850
|Total Equity (Deficit) |  | $         | 383,197 |                  | $ | 727,679                          |  | $      | 15,652 

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NOTE 22 - SUMMARY RESULTS OF QUALIFIED INVESTMENTS (UNAUDITED):

|                                     |  | Starphire |          | Nichedirectories |   | Transworld Business  Brokers  FL |   | Totals |          
|------------------------------------ |  | --------- | -------- | ---------------- | - | --------------------------------- | - | ------ | ---------
|                                     |  |           |          |                  |   |                                   |   |        |          
|                                     |  | 2002      |          | 2001             |   | 2002                              |   | 2001   |          
|                                     |  |           |          |                  |   |                                   |   |        |          
|Revenue                              |  | $         | 122,782  |                  | $ | 359,675                           |   | $      | 754,043  
|SG&A                                 |  |           | 426,476  |                  |   | 1,073,104                         |   |        | 1,123,519
|Depreciation and                     |  |           |          |                  |   |                                   |   |        |          
|Amortization                         |  |           | 28,252   |                  |   | 30,863                            |   |        | 20,214   
|Interest expense                     |  |           | 12,451   |                  |   | 28,156                            |   |        | 1,194    
|Income/Loss                          |  |           | (344,397 | )                |   | (772,448                          | ) |        | (390,884 
|INTERCOMPANY ITEMS INCLUDED IN ABOVE | 
|Revenue                              |  |           | (17,127  | )                |   | 73,397                            |   |        |         
|SG&A                                 |  |           | 28,578   |                  |   | 46,107                            |   |        | 66,908   
|Interest Expense                     |  |           | 12,451   |                  |   | 28,750                            |   |        |         

(a)          No activity under Newteks ownership during this time
period.

(b)          The company also owns 20% of Copia
Technology, which had no operating activity and no assets.

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

Not applicable

PART III

Item
9.               DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The information required by this item as to Newtek Business Services, Inc.s directors, executive officers and control persons is contained in the Companys
proxy statement to be filed prior to April 30, 2003, under the captions, Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance, and is incorporated herein by reference.

Item 10.              EXECUTIVE COMPENSATION

The information required by this item as to Newtek Business Services, Inc.s executive compensation is contained in the Companys proxy statement to be
filed prior to April 30, 2003, under the caption Executive Compensation and is incorporated herein by reference.

Item
11.               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
                              RELATED STOCK HOLDER MATTERS

The information required by this item is contained in the Companys proxy statement to be filed prior to April 1, 2002, under the caption, Voting
Securities and Principal Stockholders and is incorporated herein by reference.

Item 12.                CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is contained in the Companys proxy statement to
be filed prior to April 30, 2003, under the captions, Compensation Committee Interlocks and Insider Participation and Executive Compensation, and is incorporated herein by reference.

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Item 13.                EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|2.1    |  | Agreement and Plan of Merger between REXX Environmental Corporation and Newtek Business Services, Inc.(formerly known as TWG, Inc.) dated December 9, 1999. (Incorporated by
Reference to Exhibit 2.1 to Registration Statement No. 333-43550).                                                                                                                                                             
|2.2    |  | Plan of Merger between BJB Holdings and Whitestone Acquisition Corp. dated January 14, 2000. (Incorporated by reference to Exhibit No. 2.2 to Registration Statement No.
333-43550).                                                                                                                                                                                                                        
|2.3    |  | Stock Purchase Agreement among Greg S. Watkins, Daren J. Barone and REXX Environmental Corporation dated June 10, 1999. (Incorporated by reference to Exhibit No. 2.3 to
Registration Statement No. 333-43550).                                                                                                                                                                                             
|2.4    |  | Letter Agreements amending the term of the Stock Purchase Agreement dated November 29, 1999, January 6, 2000, April 27, 2000 and June 28, 2000. (Incorporated by reference to
Exhibit No. 2.4 to Registration Statement No. 333-43550).                                                                                                                                                                     
|2.5    |  | Agreement and Plan of Merger among Newtek Capital, Inc., Exponential Business Development Company, Inc. and the Stockholders of Exponential Business Development Company, Inc.,
January 9, 2002 (Incorporated by reference to Exhibit 99.1 to the Companys Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002.)                                                                          
|2.6    |  | Agreement and Plan of Merger among Newtek Capital, Inc., Wilshire New York Partners III, LLC, Comcap Holdings Corp., Charles Freeman, Craig Reynolds, the Majority Stockholders
of Comcap Holdings Corp., and the Green Family Entities, and to be Joined in by SBA Holdings, Inc., August 8, 2002 (Incorporated by reference to Exhibit 2.1 to Newteks Current Report on Form 8-K, filed October 2, 2002.)
|2.7    |  | Guaranty Agreement of Newtek Business Services, Inc. with DB Structured Products, Inc., December 31, 2002.                                                                                                                                                                                                                                                                                                  
|3.1    |  | Certificate of Incorporation of Newtek Business Services, Inc., as revised through November 25, 2002                                                                                                                                                                                                                                                                                                        
|3.2    |  | Bylaws of Newtek Business Services, Inc. (Incorporated by reference to Exhibit No. 3.2 to Registration Statement No. 3.2).                                                                                                                                                                                                                                                                                  
|10.1   |  | Employment Agreement with Jeffrey G. Rubin, March , 2003.                                                                                                                                                                                                                                                                                                                                                   
|10.2   |  | Employment Agreement with Barry Sloane, March , 2003.                                                                                                                                                                                                                                                                                                                                                       
|10.3   |  | Employment Agreement with Brian A. Wasserman, March , 2003.                                                                                                                                                                                                                                                                                                                                                 
|21     |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                             
|23.1   |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                      

(b)  Reports on Form 8-K:

On October 2, 2002, Registrant file a Report on Form 8-K to report the execution of a definitive Agreement and Plan of Merger for the acquisition of Comcap
Holdings Corp. and its subsidiary Commercial Capital Corporation.  Included therein were audited financial statements for Comcap for the years ending December 31, 1999, 2000 and 2001, unaudited financial statements for Comcap for the period
ending June 30, 2002 and unaudited pro forma financial statements showing the pro forma effects of the proposed acquisition as of said date.

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ITEM 14.                    CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, Newtek Business Services, Inc. carried out an evaluation, under the supervision and with the
participation of the Newteks management, including the Newteks Chief Executive Officer and the Newteks Chief Financial Officer, of the effectiveness of the design and operation of Newteks disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation, Newteks Chief Executive Officer and Newteks Chief Financial Officer concluded that Newteks disclosure controls and procedures are effective in alerting them in
a timely manner to material information relating to Newtek (including its consolidated subsidiaries) required to be included in Newteks periodic SEC filings.  There have been no significant changes in Newteks internal controls or in
other factors that could significantly affect these controls subsequent to the date Newtek conducted its evaluation.

Disclosure controls
and procedures are designed to ensure that information required to be disclosed in reports filed by Newtek under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and
forms.  Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to Newteks management, including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures.  Disclosure controls include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against
unauthorized or improper use and transactions are properly recorded and reported.

Any control system, no matter how well conceived and
operated, can provide only reasonable assurance that its objectives are achieved.  The design of a control system inherently has limitations, including the controls cost relative to their benefits.  Additionally, controls can be
circumvented.  No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

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SIGNATURES

In accordance with Section 13
of 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|.                    | NEWTEK BUSINESS SERVICES, INC.
|-------------------- | ------------------------------
|                     |                               
|Date: March 31, 2003 | By: /s/ BARRY SLOANE          
|                     |                               
|                     |                               
|                     |                               
|                     |                               

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

|Signature                   |  | Title                                                           |  | Date          
|--------------------------- |  | --------------------------------------------------------------- |  | --------------
|                            |  |                                                                 |  |               
|/s/ BARRY SLOANE            |  | Chairman of the Board and Chief Executive Officer and Secretary |  | March 31, 2003
|                            |  |                                                                 |  |               
|Barry Sloane                |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ JEFFREY G. RUBIN        |  | President, Chief Investment Officer and Director                |  | March 31, 2003
|                            |  |                                                                 |  |               
|Jeffrey G. Rubin            |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ BRIAN A. WASSERMAN      |  | Treasurer, Chief Financial Officer and Director                 |  | March 31, 2003
|                            |  |                                                                 |  |               
|Brian A. Wasserman          |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ DAVID BECK              |  | Director                                                        |  | March 31, 2003
|                            |  |                                                                 |  |               
|David Beck                  |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ STEVEN A. SHENFELD      |  | Director                                                        |  | March 31, 2003
|                            |  |                                                                 |  |               
|Steven A. Shenfeld          |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ JEFFREYM. SCHOTTENSTEIN |  | Director                                                        |  | March 31, 2003
|                            |  |                                                                 |  |               
|Jeffrey M. Schottenstein    |  |                                                                 |  |               
|                            |  |                                                                 |  |               
|/s/ GIUSEPPE SOCCODATO      |  | Controller and Chief Accounting Officer                         |  | March 31, 2003
|                            |  |                                                                 |  |               
|Giuseppe Soccodato          |  |                                                                 |  |               

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CERTIFICATION

|I, Barry Sloane, Chief Executive Officer of Newtek Business Services, Inc.,  certify that:                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                             
|1     .I have reviewed this annual report on Form 10-KSB of Newtek Business
Services, Inc..                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                             
|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 registrant as of, and for, the periods presented in this annual report;                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                             
|4     .The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|5      .The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|6.     The registrants other certifying officers 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: March 31, 2003 | By:                       /s/ BARRY SLOANE
|-------------------- | ------------------------------------------
|                     |                                           
|                     | Barry Sloane                              
|                     | Chief Executive Officer                   

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CERTIFICATION

|I, Brian A. Wasserman, Chief Financial Officer of Newtek Business Services, Inc.,  certify that:                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                             
|1.     I have reviewed this annual report on Form 10-KSB of Newtek Business Services,
Inc..                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                             
|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 registrant as of, and for, the periods presented in this annual report;                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                             
|4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|5.     The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|6.     The registrants other certifying officers 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: March 31, 2003                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                             

94