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, 2000
                                       OR
[ ]    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 CAPITAL, INC.

            New York                                  11-3504638
            --------                               -----------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

1500 Hempstead Turnpike, East Meadow, New York                 11554
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(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 _

     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. [X]

     State the issuer's revenues for its most recent fiscal year: $8,710,242

     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 February 28, 2001, was approximately $20,176,800.

     As of February 28, 2001 there were 21,373,460 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 AND BUSINESS  STRATEGY.  Newtek  Capital,  Inc.  resulted from the
combination of the businesses  previously  owned by BJB Holdings,  Inc. and REXX
Environmental Corporation. This combination was closed on September 19, 2000 and
followed the approval of the transaction by the  shareholders of both companies.
Prior to the combination, the principal operating business of REXX was sold, and
the Company is the BJB  businesses  under its own name. For ease of reference in
this  document,  we refer to "Newtek" the "Company" to include both the business
of BJB prior to September 19, 2000 and of Newtek  Capital,  Inc.  following that
date.

     The Company's business originated in 1998 in the organization and operation
of what are now seven certified capital com7panies, or "capcos". Since 1998, the
business  of Newtek has focused on the  deployment  of these capco funds and the
receipt of related tax credit  income  described  below.  In this  process,  has
determined that the capcos provide a base for the  structuring,  development and
acquisition of further businesses, particularly early-stage, technology-oriented
companies focused on Internet related commerce,  or "e-commerce." Since the last
quarter of 1999, the Company has been working to expand its business development
activities, and its goal is to be a premier business partner for its acquired or
affiliated  companies by helping them implement  their business  strategies in a
manner  consistent  with  Newtek's  objectives.  Through the capco  programs and
otherwise,  the  Company  is  operating  as a holding  company  for a network of
partner  companies  in  a  collaborative  and  coordinated   effort  to  develop
successful businesses in a number of existing as well as emerging, technological
business lines.

     The  management  of the  Company  believes  that there will be  substantial
long-term  growth in  business-to-business  e-commerce that creates  significant
market opportunities for well positioned, managed and funded emerging companies.
Many  new  companies,  including  spin-offs  from  traditional  businesses,  are
currently  being  formed and funded to develop  technologies  and  solutions  to
support the new  business-to-business  e-commerce  market.  Business-to-business
solutions are being rapidly  adopted to facilitate  the  continuous  exchange of
information among business partners,  to large customer audiences,  and to allow
businesses  to interact  more  efficiently  with  suppliers,  distributors,  and
service providers.  The Company,  through its network of partner  companies,  is
participating in this industry.

     In addition,  the Company seeks to identify business  opportunities in less
technologically-oriented  areas with  strong  fundamentals  in  products  and or
markets.  Particularly,   those  as  to  which  the  application  of  e-commerce
technology,  or the other business  development services which could be provided
by the Company, would provide a material improvement in results.

     To  date,  the  majority  of  Newtek's   acquisitions  and  other  business
development  efforts  have been  undertaken  through the capcos that the Company
controls.  As of December 31, 2000,  Newtek had  provided  business  development
services,  including in some cases funding, for 13 companies,  of which nine are
majority owned or primarily  controlled and represent  $12,613,734 or 80% of its
investments other than Government securities.

CERTIFIED CAPITAL COMPANIES - CAPCOS

     OVERVIEW.  A capco is either a corporation or a limited liability  company,
established  in  and  chartered  by  one  of  the  five  states  currently  with
authorizing legislation (Florida, Louisiana,  Missouri, New York and Wisconsin).
Aside from seed capital  provided by on  organizer,  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,  which may or may not be in
conjunction with loans to such companies.

     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 the  holding

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company  for a  network  of  collaborative  businesses.  In  most  cases,  these
businesses  will be either  focused  principally  upon  e-commerce  or a similar
technology  or otherwise  fundamentally  strong small  businesses  that have the
potential to be  materially  improved by the  Company's  technological  or other
business development services. The authorizing statutes in each of the states in
which the Newtek  capcos  operate  explicitly  allow and encourage the capcos to
take equity interests,  which may include majority or controlling interests,  in
companies pursuant to the programs.  Consequently,  Newtek may,  consistent with
its business  objectives,  acquire interests in companies through its capcos and
provide  management  and  other  services  to  these  companies  as parts of its
collaborative  network.  Newtek  intends the  interests of each of its capcos to
consist  mainly of interests in majority owned or primarily  controlled  partner
companies, as it does currently with a substantial majority of its placed funds.

     THE CAPCO PROGRAMS;  TAX CREDITS.  In return for 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.  The  Company'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 credit.

     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  benchmarks.  For example,  in the state of New York,  the 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  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.  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 terms of the investments in the recipients. All of the capco programs permit
the capcos to take  majority or  controlling  interests  in  companies  or joint
ventures,  as Newtek  has done and  intends  to  continue  to do in  appropriate
situations  consistent with its strategy to invest in or acquire  companies that
add to its  collaborative  network.  Capcos are  required to  maintain  detailed
records so as to demonstrate to state  examiners  compliance with all applicable
requirements.

     Capco  Insurance.  Under  the  terms  of  the  insurance  purchased  by the
Company's capcos for the benefit of their insurance company investors, the capco
insurer  assumes the  obligation to repay the insurance  companies the principal
amount of their debt as well as to make compensatory  payments in the event of a
loss of the  availability  of the related tax  credits.  The capco  insurer,  an
international  insurance company with a AAA credit rating,  would be authorized,
in the  event of a threat  of or final  decertification  by a state,  to  assume
partial  or  complete  control  of the  business  of the  capco so as to  ensure
compliance with investment or other requirements.  This would likely avoid final
decertification  and the necessity of insurance or interest  payments.  However,
control  by the  insurer  would also  result in  significant  disruption  of the
capco's  business and likely result in significant  financial loss to the capco.
Decertification   would  also   likely   impair   Newtek's   ability  to  obtain
certification  for capcos in additional  states as new  legislation  makes other
opportunities available. In order to address this risk of decertification, which
may be eliminated  entirely by meeting a 100% of capital  investment  threshold,
the Company's capcos have structured their investment program as aggressively as
is consistent with safe and sound  operations to meet the investment  benchmarks
as early as possible.  As of December 31, 2000,  the two capcos with the longest
operating histories,  were approximately 18 months and 12 months,  respectively,
ahead of schedule in meeting the five-year  minimum  investment  schedules.  See
Note 2 of Notes to Consolidated Financial Statements.

     During  2000,  Newtek  established  three  new  capcos,  Wilshire  New York
Advisors  II, LLC,  Wilshire  Louisiana  Partners  II, LLC and Wilshire New York
Partners III, LLC. These companies received total funding of $56,490,000 million
from 13 insurance companies.

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     Newtek's  Ability to Compete.  The Company's  capcos have competed in their
offerings  with the four or five other  capcos  sponsored  by  various  national
financial  organizations,  as  well as  locally  sponsored  companies  in one or
another  state.  The  Company'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;

     *    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 these securities as debt instruments and warrants for
participation in the equity of the particular capco. The warrants issued by each
capco entitle the holders to between 4% and 20% of the equity of the  particular
capco at a nominal  exercise price. The warrants have a 10-year term but are not
exercisable  for 5 years from issue and presently are not  exchangeable  for any
securities other than the particular capcos. The warrants do not provide for any
control over the capcos'  operations;  any such control by an insurance  company
would be in violation of the state capco statutes.

     These capco programs are, in the view of Newtek's management,  a complement
to Newtek's  long-term  strategy  to develop and hold a majority  position in or
control of early-stage companies principally focused on technology, particularly
the  Internet and  e-commerce.  A  significant  factor in  evaluating  potential
acquisition  opportunities  is a  candidate's  ability to support and help other
partner company operations.  All current capco statutes permit equity as well as
debt investments, and seek to have the capco management provide more than simply
investment  capital to the  emerging  businesses  in the  state.  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 the
Company  provided in structuring and building the  businesses.  All three of the
principal  shareholders  of Newtek  have  direct and  in-depth  experience  with
early-stage  businesses.  This  hands-on  management  approach  facilitates  the
general objectives of the capco programs of economic  development,  while at the
same  time  permitting  the  Company  to  develop  a network  of  long-term  and
synergistic investments in related, partner companies.

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  the  company  than  any  other
shareholder,  or "primarily  controlled partner companies." The Company provides
its  partner  companies  business  development  services,   funding  and  active
participation  in management.  However,  the Company does not act as an agent or
legal  representative  for any of its partner  companies,  the Company  have the
power or authority to bind them legally,  and does not  generally  does not have
the types of liabilities  for its partner  companies that a general partner of a
partnership  would  have.  Currently,  all of  the  investments  in the  partner
companies are accounted for under the equity method of accounting. See Note 1 of
Notes to Consolidated Financial Statements.

     At  December  31,  2000,  the  Company  had  eight  majority-owned  partner
companies,  all of which  were as a result  of  investments  through  the  capco
programs.  The majority-owned  companies were  BizBrokerNet,  LLC, Merchant Data
Systems Sales & Marketing,  LLC, DTE  Technologies,  LLC, Merchant Data Systems,
Starphire, LLC, NicheDirectories,  LLC, AIDA, LLC, and Direct Creations, LLC and
represent a total  investment as of December 31, 2000 of $10,113,734,  or 65% of
its capco qualified investments. In addition, the Company considers its interest
in CB Real Net, LLC to be a primarily  controlled partner company. The Company's
capco contributed  $2,500,000 to CB Real Net, LLC during the quarter ended March
31, 2000. In addition to these partner  companies,  at December 31, 2000, Newtek
had 14 other capco-qualified investments,  which were not partner companies, and

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which  represented  a  total  investment  of  $3,030,781,  or 20%  of its  capco
qualified  investments.  All qualified  capco  investments  at December 31, 2000
totaled $15,644,515.

     For majority-owned partner companies, Newtek will generally actively direct
much of their operating activities. 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.  For those  companies in which Newtek's  equity  ownership and voting
power is less than 25%,  Newtek is  generally  not  actively  involved  in their
management  or  day-to-day  operations,  but offers  them  advisory  services or
assistance with particular  projects,  as well as the collaborative  services of
its network of 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%.

     BELOW IS A DESCRIPTION  OF THE COMPANY'S  PARTNER  COMPANIES AND THE MANNER
WHICH NEWTEK, ITS MANAGEMENT AND ADVISORS HAVE ASSISTED THEM.

     BizBrokerNet,  LLC is based in south Florida and is a joint venture between
the Company's  Florida capco and a business  broker with 10 years  experience in
providing  acquisition and marketing  assistance to small businesses.  Organized
and  funded in  November  1999 in part with a $3.5  million  loan from  Newtek's
Florida  capco to  Transworld  Business  Brokers,  Inc., a co-joint  venturer of
BizBrokerNet,  it is in the  process of  developing  a number of  services to be
marketed to business brokers and their small business clients nationwide,  which
will bring  e-commerce  technology to an industry notably without access to this
technology,  and providing  direct services in the development and deployment of
e-commerce  tools  to  support  the  business  broker   industry.   The  Company
participates  directly in the  day-to-day  management  of this partner  company,
having appointed two of the four managers and actively assisted in the screening
and  selection of key  personnel.  Newtek and its  associates  in this  business
intend to  participate  in the  operation of the  business  for the  foreseeable
future to assist other  partner  companies in  appropriate  areas and to benefit
from the collaborative network.

     Merchant Data Systems Sales & Marketing, LLC is also based in south Florida
and is a joint venture  between the Company's  Florida capco and an  established
company  providing  credit card  processing  services to small  businesses.  The
company  was  funded in  October  1999 with $3.5  million  from the capco and is
focused  on  developing  a means  for  the  secure  processing  of  credit  card
transactions  using  e-commerce.  The Company has provided  assistance  with the
management of the technology development and the negotiations with the financial
institutions that will provide significant related services. In addition, it has
provided  material  support  for the  development  of a new  marketing  strategy
focusing on e-commerce  and in  recruiting  personnel to implement the strategy.
Newtek is assisting in the  development  of a  long-term,  nationwide  marketing
program for this company.

     DTE  Technologies,  LLC, is an investment of $500,000 made in December 1999
and January  2000 by the  Company's  capco in Florida.  This  company,  in which
Newtek  personnel  actively  participate in assisting  management,  is marketing
organic agricultural products to large-scale  agricultural and other landowners.
Newtek has  provided  significant  support in the design and  implementation  of
financial  management  services,  product  development,  and the  design  of the
marketing  program,  and Newtek is currently  assisting in the identification of
additional financing to support the growth of the company.

     CB Real Net, LLC is an  investment of $2.5 million made in February 2000 by
Newtek's  Wisconsin  capco.  This company is  considered a primarily  controlled
partner  company due to Newtek's  ownership of 40% of the equity and  day-to-day
participation  in the  management of the company.  This company with  assistance
from  Newtek  and  another   partner   company   provides   all  "back   office'
administrative  and technological  support to the franchiser of a multi-national
real estate brokerage,  as well as, related services to the franchisees.  Newtek
is  providing   significant   support  in  administrative   systems,   financial
management,  executive  recruitment and  technological  design for CB Real Net's
design and other areas, as well as implementation of a major package of services
for the franchiser that will rely heavily on Internet technology.

     Starphire Technologies, LLC, Located in Clearwater, Florida, Starphire is a
provider  of  information  technology  and  e-business  solutions  to small  and
mid-sized companies. Its major software product,  SiteSage(R), is a

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suite of web  development,  deployment and management  software  consisting of a
back office editing  environment and a "run time" interpreter to present visible
pagers to web  browsers.  SiteSage(R)  provides  a common  architecture  for the
development of enhanced web functionality in a modular,  object-oriented manner.
The software  provides a  development  platform from which  technical  users can
build  custom  applications  and  a  back-office  editing  environment  allowing
non-technical users to manage site content quickly and efficiently. Starphire is
a start-up company which the Company has assisted in developing and implementing
its marketing strategy, by providing extensive internal financial management and
budgeting assistance and in locating potential  value-added  resellers to handle
its  products.  The Company  has  invested  $1.4  million in  Starphire  and has
representatives on the Board of Directors.

     Advanced  Internet  Design and  Applications,  LLC,  or  "AIDA",  is a full
service   marketing  and  Internet   company  whose  focus  is  the  management,
development  and  integration of Internet  technology,  software  systems,  site
design, networking and connectivity of middle market businesses. The Company has
assisted  AIDA in its  marketing  strategy,  internal  budgeting  and  financial
management, the development of its business plan and have representatives on the
Board of Directors. AIDA creates a seamless system for planning and implementing
a company's successful venture into cyber space. AIDA will guide the development
of a "Strategic  Information  Technology Plan, the creation of the company's web
presence  and their online  marketing  systems.  Additionally,  AIDA will create
collateral   advertising   materials,   insure  the  functionality  of  Internet
connectivity,  support  the  company's  internal  network  and  provide  design,
manufacturing and marketing support for specific new product  roll-outs.  AIDA's
services  are further  enhanced by its  Internet  based  training  system and by
providing the client with direct  control of their online  content.  The company
has  invested  $1,000,000  in  AIDA  and  has  representation  on the  board  of
directors.

     NicheDirectories,   LLC  was   founded   in  1995  and   publishes   online
family-oriented  information directories.  The company's first online directory,
KidsCamps.com,  is a prominent destination portal in the summer camp industry. A
wholly-owned  subsidiary,  PayforCamp.com,  has been  formed  to market a credit
facility for payment of camp  charges.  Newtek's  Florida  capco has funded this
investment and has provided  assistance in such areas as budgeting and financial
management, direct assistance in the negotiation of the credit facility for camp
payments with a major,  national  consumer credit provider,  other joint venture
opportunities,  and holds 3 board seats. The company has invested  $1,344,000 in
the company and has representation on the board of directors.

     Direct  Creations,  LLC is 25%  owned by  Newtek's  New York  capco  and is
engaged in the development and marketing,  primarily direct  marketing,  through
television "infomercials",  and traditional retail distribution channels various
consumer products. The company focuses on unique products to solve a common need
of a large  target  market and which have the  potential  to create an  on-going
brand for multiple follow-on offerings. Newtek is providing financial management
assistance and  development of an  infrastructure  for operation of the company,
assisting  in  developing  a  business  plan for  further  capital  raising  for
expansion,  assistance in the  negotiation  of various joint venture  agreements
and,  through another Newtek partner  company,  the development of the company's
entire  e-commerce  platform.  The  company  has  invested  $750,000  in  Direct
Creations and has representation on the board of directors.

     Merchant Data Systems,  Inc. is a processor of credit card transactions for
retail merchants and similar businesses.  Newtek's Florida capco has invested $1
million and have representatives on the board of directors.  Assistance has been
provided in such areas as the development of a business plan, financial modeling
and a system for the evaluating of credit risk in this phase of finance.

     SELECTION PHILOSOPHY. There are two prevailing themes in philosophy for the
selection of partner  companies.  First, is to focus on those companies that are
integrating  technology  into  new  areas of  business  that  have  thus far not
benefited  in  any  meaningful  fashion  from  the  explosive  growth  of  these
technologies over the past decade. The key to the Company's selection process is
an  effort  to  create   opportunities   for  companies  that  embrace  the  new
technologies  as well as companies that are innovators of the new  technologies.
Second, and of equal importance,  is the selection of companies that can provide
goods or services required for the success of the existing network of companies.
Consistent  with these  themes,  there are two  principles  that  often  dictate
avoidance of an investment.  The Company generally  attempts to avoid investment
in companies  that do not already have an existing,

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defined  customer  base. It also will generally  avoid  investments in companies
that clearly  require yet  additional  financing to survive due in most cases to
severely negative cash flow.

     All of the Company's  partner  companies either are in very early stages of
development  or are small  businesses.  These  companies  will require  material
resources,  managerial strength and time to develop into profitable  businesses.
Newtek does not now  receive,  nor does it expect to receive in the near future,
material  revenue  or profit  from the  operations  of these  companies.  If the
companies  succeed,  it will take appreciable time, at least 18 to 36 months, or
more, for their shareholders and the Company's shareholders to see results.

     OTHER  INVESTMENTS.  Investments  by Newtek  that are not  qualified  capco
investments  are  classified  as "other  investments."  At  December  31,  2000,
Newtek's other investments were carried at their cost basis of $195,000.

     As Newtek pursues its business  strategy and focuses on the  acquisition of
majority or controlling  positions in additional partner  companies,  it expects
other  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."

     1-800 Gift  Certificate is a company that,  while not a partner  company as
Newtek  holds  8.5% of its  equity,  is a  significant  component  of the Newtek
network of collaborative  companies.  This company designs and markets corporate
incentive  and  related  gift  programs,  with  particular  focus  on  sales  to
businesses,  employee groups  associated with these  businesses,  as well as the
general e-commerce market. Newtek views the company as a potential key component
of the marketing strategies of its current and future partner companies.

EXECUTION; REGIONAL BUSINESS DEVELOPMENT CENTERS

     A key to the  implementation  of Newtek's  strategy is its  emphasis on the
selection  and  developmental  efforts of its existing  five  Regional  Business
Development  Centers,  and three  additional  Centers Newtek  currently plans to
establish within the next 18 months. These Regional Business Development Centers
have been and will continue to be placed in areas  traditionally  underserved by
business  development  firms,  in areas away from  "Silicon  Valley" on the west
coast and "Silicon Alley" on the east coast. By focusing on these areas,  Newtek
believes that it will locate the most favorable  opportunities to create new and
innovative  businesses.  These offices are believed to be valuable  because they
are staffed or associated with individuals with experience in working with small
businesses who are able to identify and evaluate potential partner companies and
other  investments or acquisitions.  In many cases,  these individuals have made
substantial  investments  in the  equity of the  capcos  associated  with  their
required center and are committed to the success of the Newtek program.

     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 synergistic business  relationships among the other Newtek partner
companies,  as well as 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 early stage  companies,  including those in the
fields of technology, the Internet and e-commerce.

     The  Company's  regional  management  consists,  in addition to the current
senior management based in New York, of the following six individuals.

     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,

                                       7
<PAGE>

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 firms 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 been the  investment  advisor and
consultant to a private  investment  trust with assets in excess of $30,000,000.
Under Mr. Zink's management,  the trust has invested in and operated a number of
early stage  operating  businesses,  including  start-ups such as Nautilus Group
Japan,  Ltd.,  Heuristic  Development  Corp.  (NASDAQ  Symbol "IFIT") and Nekton
Diving Cruises,  Inc. Mr. Zinc currently  serves as Chief Operating  Officer and
Director of Nautilus  Group  Japan,  Ltd.,  President  and Director of Heuristic
Development  Corp. and previously  served as the Chairman of the Board and Chief
Financial  Officer of Nekton Diving Cruises,  Inc. From April 1986 through March
1988,  Mr.  Zink  was the  Chief  Financial  Officer  of  Forway  Industries,  a
manufacturer  of military  spare  parts.  Mr. Zink was a Senior  Consultant  for
Touche Ross Consulting, providing various financial and "turn around" consulting
services from July 1983 through March 1986. From June 1979 through July 1981, he
participated in and completed the General Electric Company Financial  Management
Program and held various finance and accounting positions.

     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  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.

     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 registered  representative,  he
has advised  individuals and institutions in the formation and implementation of
portfolio strategies.

     RUSSELL  SOLOMON,  LOUISIANA - Mr.  Solomon is the founder and President of
Solomon and Associates  which  concentrates on complex and unique  litigation in
the areas of law including corporate,  maritime,  insurance, personal injury and
general  business.  Mr.  Solomon was  previously a founding  member and managing
director of the law firm of Mcquaig and Solomon  which  exclusively  represented
institutions such as K-Mart, Home Depot, General Motors Acceptance  Corporation,
Orleans  Lever Board,  and numerous  insurance  companies  such as  Continental,
Boston Old Colony and Travelers. Mr. Solomon currently serves at the pleasure of
the Honorable Harry Connick,  District Attorney For New Orleans,  as a member of
the Board of  Directors  of the Voters  Information  League which is a political
organization  and its stated  purpose is to support any  political  measure that
will fight violent crime.  Mr. Solomon is also a member of the Regional Board of
Directors of the  Anti-Defamation  League. Mr. Solomon is a

                                       8
<PAGE>

member of the Tulane  University Law School  faculty as an adjunct  Professor of
Law teaching trial  advocacy to third year law students.  Born and raised in New
Orleans,  Louisiana,  Mr. Solomon went to Boston University School of Management
and returned to receive his law degree from Tulane University School of Law.

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

         *        Wisconsin                       *        New York
                  ---------                                --------

         1330 West Towne Square Road              845 Third Avenue, 8th Floor
         Mequon, Wisconsin  53092                 New York, New York  10022

         *        Florida                         *        New York II
                  -------                                  -----------

         1000 Brickell Avenue                     1500 Hempstead Turnpike
         Miami, Florida  33131                    East Meadow, New York  11554

         *        Louisiana

         1 Canal Place
         New Orleans, Louisiana  70130

Newtek anticipates opening 3 new Regional Business Development Centers, probably
in conjunction with capcos in the states of Colorado and Arizona and in Buffalo,
New York, prior to the end of 2001.

ADVISORY COMMITTEE

     The  Advisory  Committee  has been used as a direct  extension  of  Newtek.
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,  technology and the Internet. Of the
eight current Advisory Committee members,  four have been involved in e-commerce
business  development and two are involved in the  identification  of management
needs and resources. The individuals include:

* David Simon - Director/Vice President, Business Development of e-Citi/Citibank
N.A.

     *    Hugh Crean - Vice President, Product Development of Priceline.com

     *    Michael Balboni - New York State Senator

     *    Bruce  Richards - President  and Chief  Executive  Officer of Marathon
          Asset Management Company

     *    Barry  Simon  - Vice  President,  Content  Development  -  G.E.  Small
          Business.com

     *    Josh Grotstein - Former Division Executive/Vice President,  Commerce -
          e-Citi/Citibank N.A.

     *    Peter Fitzpatrick - Partner in Gunderson Partners,  a global executive
          search firm.

     *    Gary  Goldstein - Chairman of The Whitney  Group,  a global  executive
          search firm.

     These  individuals  were chosen because of their hands-on,  line management
responsibility for the implementation of new business  development in e-commerce
or their ability to provide advice or assistance in areas of significant need to
emerging  businesses.  Members of the Newtek Advisory Committee have provided or
are currently  providing  assistance in areas such as the negotiation of a joint
venture between a potential partner company

                                       9
<PAGE>

and an established  Internet service provider,  marketing analysis and advice to
CB  Real  Net,  LLC and  1-800  Gift  Certificate,  and  management  recruitment
assistance.  They have also  provided  assistance  to a Niche  Directories,  LLC
company  in  negotiating  a  consumer  credit  facility  with a  major  national
financial  service provider and have assisted in the solicitation of credit care
processing  businesses for another partner  company.  Because of the significant
resources available among the members of the Advisory  Committee,  management is
currently evaluating changes that could be made as so to improve.

BUSINESS DEVELOPMENT SERVICES

     Essential to the success of any  business  venture is the  formulation  and
implementation  of  a  sound  business  strategy.   Newtek,  through  it  senior
management,  regional management,  advisors and associated professionals,  works
directly with its partner  companies  and other  companies for which it provides
management, strategic planning, marketing and financing in order:

     *    to create and implement their business model;
     *    to recruit and locate key members for their senior  management,  board
          of directors and board of advisors;
     *    to establish and coordinate  strategic joint ventures in distribution,
          marketing and finance;
     *    to reposition or augment existing  platform  companies with e-commerce
          strategies;
     *    to  coordinate  and  grow  strategic  relationships  among  all of its
          partner companies;
     *    to offer its hands-on  experience  in all aspects of joint venture and
          contract negotiation;
     *    to help secure additional financing;
     *    to identify and  implement  new  technologies  relying on the Internet
          which can enhance the  development of existing  businesses,  including
          web site development; and
     *    to identify and implement  marketing  strategies  that will enable the
          developers of new  technologies  find  acceptance  for their  services
          among the partner companies or on a broader basis.

     Since its  inception  in 1998,  and in  addition  to the  resources  in the
Regional  Business  Development  Centers,  Newtek has added personnel in various
employee or independent  contractor capacities in order to meet the requirements
of serving its partner  companies and other  investments.  At December 31, 2000,
Newtek had  secured,  in addition to its senior  management,  the services of 22
individuals  in  the  areas  of  computer  and  Internet  technology,  financial
management,  business  management  and analysis,  contract  finance and business
operations. Management of Newtek believes it has sufficient resources, including
the resources available through the Advisory  Committee,  for its present needs.
If Newtek is successful in adding a number of  additional  partner  companies to
its network of companies,  additional resources are expected to be available for
use by the  network,  but  there  may  also be a need to  supplement  the  staff
services that Newtek must provide.  The partner companies have developed into an
important source of business  development support for each other, either through
the  "cross-marketing"  of  essential  goods  or  services,  or  through  making
available  the  benefit of their  experiences  in  addressing  similar  business
problems.

SELECTION STRATEGIES

     In the selection of partner  companies,  the Company  relies on the contact
base and reputation of its management team and key  professionals  who represent
an aggregate of approximately 50 years providing  various forms of assistance to
early stage  businesses.  The contacts and knowledge of the key personnel in the
Regional  Business  Development  Centers are also  valuable in  identifying  and
evaluating businesses with growth and profit potential. Management believes that
very attractive risk/reward ratios are found in partnering with very early stage
or start-up  opportunities,  which typically require investments in the range of
$300,000  to  $5,000,000  increments,  and which  fit well  with the  investment
limitations  of the capco  programs.  The Company seeks to apply its services at
this point in the development of the businesses and is able to assist in raising
additional  financing as the companies  meet or exceed their  business plans and
expand  their  business  goals and  strategies.  The Company has  developed  and
refined a business  selection  strategy that  emphasizes  the following  general
principles:

     *    focusing  on  opportunities  where  companies  show the  potential  to
          develop into market leaders in rapidly growing industries;

                                       10
<PAGE>

     *    seeking to work with  operations-oriented  managers with experience in
          industries in which they operate, and who have previously succeeded in
          similar business endeavors, thereby reducing the execution risk;

     *    emphasizing   low  entry   valuations   and   attractive   acquisition
          structures; and

     *    taking a pro-active  approach to supporting the strategic  initiative,
          corporate  development  activities and financial strategies of partner
          companies in order to maximize shareholder value in both the short and
          long term. This enables management of these companies to focus on what
          they do best -- running the business with Newtek's support.

     An important part of Newtek's  strategy in selecting its partner  companies
and in  structuring  investments in them is to rely on the skill and judgment of
its senior management. In particular, Newtek 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. Newtek believes that this unanimity requirement ensures that
its decisions will continue to be well developed, sound and consensus oriented.

GOVERNMENT REGULATION; INVESTMENT COMPANY ACT OF 1940

     OVERVIEW.  Because  of the  nature of the  business  of  Newtek  and of the
activities of Newtek's  principal  operating company other than the capcos,  The
Whitestone  Group,  LLC,  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.

     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 an
Securities and Exchange  Commission  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 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.

                                       11
<PAGE>

     ASSET AND INCOME  COMPOSITION.  Newtek has determined that as of the end of
its last  fiscal  year,  no more  than  40% of the  value  of its  total  assets
(adjusted  to  exclude  U.S.  government   securities  and  cash)  consisted  of
investment  securities.  The value of Newtek's  holding of  securities as of the
date, for purposes of the definition of investment  company under the Investment
Company Act, consisted mainly of its interests in partner  companies,  which are
majority owned or primarily controlled  subsidiaries of Newtek or its affiliated
companies. In addition, Newtek has determined that as of that date, no more than
45% of the  value of its total  assets  (adjusted  to  exclude  U.S.  government
securities  and cash)  consisted of  securities  other than its interests in its
partner companies, and that for its most recent fiscal quarters,  Newtek has not
derived more than 45% of its net income combined from securities  other than its
interests  in  its  partner  companies.   Consistent  with  Newtek's  investment
strategy,  Newtek  intends  to  hold  its  interests  in its  partner  companies
generally  for the  long-term,  not with a view mainly to realize  profits  from
subsequent sales of interests in these companies.

     Newtek's  Board of  Directors  has  determined  to monitor the value of the
Company's  assets and the sources of its income on at least a quarterly basis to
ensure  compliance  with the  requirements  of the  Investment  Company  Act and
related rules.

     To maintain  compliance  with Rule 3a-1, or otherwise to ensure that Newtek
does not fall within the definition of investment company,  Newtek may be unable
to sell assets which Newtek  would  otherwise  want to sell and may need to sell
assets which Newtek would otherwise want to retain. In addition, Newtek may have
to acquire  additional  income or loss  generating  assets that Newtek might not
otherwise  have  acquired  and  may  need to  forego  opportunities  to  acquire
interests  in  attractive  companies  that might be  important  to its  business
strategy. In addition, although Newtek's partner companies may be majority owned
subsidiaries or primarily controlled companies when Newtek acquires interests in
them,  changes in the value of Newtek's  interests in its partner  companies and
the income/loss and revenue  attributable to its partner  companies could result
in these assets being treated as investment company assets.

     "HOLDING OUT" AS AN INVESTMENT COMPANY.  Notwithstanding the composition of
Newtek's  assets or income,  Newtek or any other  company may be deemed to be an
investment company for purposes of the Investment Company Act as a result of the
manner  in which it  presents  itself to the  public  and its  shareholders.  In
particular,  public  statements,  securities  filings or other actions may cause
Newtek or any other company to be perceived as an investment  company regardless
of its asset and  income  composition.  Because  of the  manner in which  Newtek
originated,  the  structure  of the capco  funding,  and the  reduced  but still
present  activities  related to  previous  venture  capital  approach  of one of
Newtek's subsidiaries,  management of Newtek has determined that the need exists
for a clear  statement of the  company's  intent with respect to the  Investment
Company Act. In June 2000,  the Newtek  Board of Directors  adopted a resolution
stating,  in part, that it is the  determination of the Board that Newtek not be
engaged primarily in the business of investing,  reinvesting, owning, holding or
trading in  securities,  and that these  activities  may only be undertaken in a
manner  consistent  with the business  strategy of Newtek to make its  principal
business that of holding majority or primary controlling  interests in a network
of early stage and emerging  businesses  focused on technology  and  e-commerce.
Management  was  directed  to make  periodic  reports  no less  frequently  than
quarterly as to the status of Newtek's operations and continued conformance with
the asset and income tests under the Investment Company Act and to determine and
take or recommend for Board approval actions  necessary to maintain  compliance,
including the acquisition or disposition of assets. A statement of intent by the
Board of Directors is not,  however,  dispositive  of whether Newtek is "holding
out" as an 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,  Newtek
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.

                                       12
<PAGE>

     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,  Newtek  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 Newtek from executing its business model.

SHAREHOLDER VALUE

     Newtek's principal business objective is to promote longer-term shareholder
value for its  shareholders  and those of its partner  companies.  An  important
component of the  selection of each partner  company by Newtek is an analysis of
the potential shareholder value that ultimately could be realized, in most cases
through a public offering of their stock. This enables  management and employees
of the partner  companies to realize the value they have created and continue to
create in the company,  obtains an  independent  source of financing for further
growth  and  creates a valuable  currency  for  making  strategic  acquisitions.
Following an initial  public  offering by a partner  company,  Newtek  generally
expects to retain a majority  or  controlling  interest  in the  company  and to
benefit as a shareholder from the increased  public company value.  While Newtek
will continue to acquire  interests in its partner companies for long-term gain,
and does not anticipate  selling the interests in them in the ordinary course of
business,  other than as part of the merger or sale of an entire company, Newtek
may, from time to time,  undertake  sales of its interests  when it believes the
action to be in Newtek's and the shareholders' overall best interests.  Newtek's
management has the  experience and has taken an active role in advising  partner
companies and others on strategies to maximize shareholder value, including:

     *    a public offering;
     *    joint ventures or merges with strategic partners;
     *    sales to financial buyers;
     *    recapitalization of the business;
     *    merger with a public company;
     *    private sale of an equity interest to investors; or
     *    a spin-off or sale of the company or individual business segments.

Newtek's  management has extensive  experience with each of these techniques and
believes it will be of material assistance to its partner companies in selecting
and implementing the appropriate strategy.

SOURCES OF FUNDING AND REVENUE

     FUNDING.  Since its inception,  Newtek's  source of funding and revenue has
been  primarily  derived from the creation  and  operation of certified  capital
companies and, in particular,  income  generated by the tax credit aspect of the
capco programs.  For the foreseeable  future,  Newtek anticipates that its funds
for investment in partner companies will come from:

                                       13
<PAGE>

     *    its own capital (including retained earnings);
     *    funding  provided  by  the  U.S.  Small  Business   Administration  in
          conjunction  with the  Company's  establishment  of one or more  small
          business investment companies ("SBIC");
     *    additional capital market financings; and
     *    funds  provided  through  the  capcos  and other  possible  sources of
          managed funds, including other state or federal governmental programs.

     Newtek anticipates that, as a percentage of total funding,  and relative to
current sources of funds including capcos,  the amounts it invests  representing
its own direct  capital,  will grow over time.  In addition,  Newtek  management
anticipate  likely  approval and  organization  of at least one SBIC during 2001
which could make  available to the SBIC up to $23 million in additional  funding
for investment purposes.

     REVENUE.  Revenues to be derived from sources other than the capco programs
will be minimal until the partner  company  network has the time to develop into
profitable  businesses.  Newtek  anticipates  that  additional  revenue  will be
derived from:

     *    retained  earnings from its direct  interests in partner  companies as
          well as the interests of partner companies held by Newtek's capcos;
     *    gains from sales of investments in partner companies,  the disposition
          of which  are not  anticipated  to be made in the  ordinary  course of
          Newtek's business; and
     *    fees and  incentive  participations  from funds which are invested for
          other institutions,  such as investment advisory fees paid to managers
          of private equity funds.

     Newtek  may  determine  to  retain  its  interest  in  a  partner  company,
particularly  one with publicly  traded stock,  despite an opportunity to make a
shorter-term  gain if doing so would  contribute to achievement of the company's
long-term strategy to develop its partner  companies.  The Company does not view
such gains as a reliable or likely source of material revenue.

EXPANDED PRODUCT AND SERVICE OFFERINGS

     The Company intends to build on its  demonstrated  ability to introduce new
financial  products  and other  services  to meet  partner  company  demands and
capitalize on market  opportunities.  For example,  the Company has responded to
solicitations for venture capital co-investment services by various governmental
agencies or pension fund  management  authorities and it intends to continue its
efforts  to build  its pool of  investment  capital  and  profit  participations
income. Similarly, the organization of one or more SBICs by the Company's capcos
will materially  increase the funds available for investment.  These  additional
activities are  anticipated to enhance the core strategy of capco funding in the
acquisition of partner companies by increasing capital, exposure, experience and
fee income.

EMPLOYEES

     As of December 31, 2000,  Newtek employed a total of 25 people, 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 845 Third Avenue,  8th Floor, New
York,  New  York,  10022  and  leases an  additional  office  at 1500  Hempstead
Turnpike,  East  Meadow,  New York.  As of December  31, 2000 Newtek also leased
offices  for the  certified  capital  companies  and other  subsidiaries  in the
following locations:

     *    Louisiana (1);
     *    Florida (1); and
     *    Wisconsin (1).

     All office leases are on a month-to-month  basis.  Newtek believes that its
office space is satisfactory for its current needs.

                                       14
<PAGE>

     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.  The
Company is actively seeking a buyer for the property.  See, also, Note 12 to the
Notes to Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, the Company and its  subsidiaries are parties to various
legal proceedings incident to its business.  At December 31, 2000, there were no
legal  proceedings  which management  anticipates  would have a material adverse
effect on the Company.

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2000.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (A) MARKET  INFORMATION  The  following  table sets  forth,  for the period
indicated,  the range of high and low  closing  sale  prices  for the  Company's
common stock on the American Stock Exchange ("AMEX"). The Company's common stock
trades under the symbol "NKC".  The stock began trading on the AMEX on September
20, 2000.

                                                                  CLOSING PRICE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000                       HIGH      LOW
-------------------------------------------                       ----      ---
Third Quarter (September 20, 2000 through September 30, 2000)     $6.38   $6.00
Fourth Quarter (October 1, 2000 through December 31, 2000)        $5.75   $2.88

HOLDERS

     On February 28, 2001, as reported by the Company'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.

DIVIDENDS

     To date,  the Company has not paid any cash  dividends on our common stock.
Any  determination  to pay dividends in the future will be at the  discretion of
the  Company's  Board of  Directors.  The Board's  determination  whether to pay
dividends  in the future will be at the  discretion  of the  Company's  Board of
Directors.  The Board's  determination whether to pay dividends will depend upon
the Company'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 the Company's business operations.

     (B) SALES OF  UNREGISTERED  SECURITIES  The following sets forth all of the
Company's sales of unregistered securities during 1999 and 2000.

                                    Brief description of the purchaser and
Date                  Securities    consideration therefore
---------             ----------    ------------------------------------------

September 8-12, 2000  Warrants to   All sales were to accredited investors known
                      purchase      to  the  company.  Warrants  were  sold  for
                      common stock  $4.99 and had an exercise price of $0.01 per
                                    share. The Warrants were all exercised prior
                                    to  October 21, 2000 and  a total of 309,000
                                    shares of Newtek Common Stock were issued.

                                       15
<PAGE>

     The Company  believes that reasonable  steps were taken to ensure that each
of the offerees in this  transactions was an accredited  investor under Rule 501
of the Securities  Act of 1933, as amended,  and the Company  claimed  exemption
from registration under Section 4(2) of said Act.

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

     The following  discussion  should be read in  conjunction  with the audited
financial  statements of Newtek  Capital,  Inc.  ("Newtek")  for the years ended
December 31, 1999 and December 31, 2000 and notes thereto included  elsewhere in
this Annual Report on Form 10-KSB.

                           DECEMBER 31, 2000 AND 1999

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 2000

     Revenues  decreased by  approximately  $3,172,000 to $8,710,000  for the 12
months  ended  December  31,  2000,  from  $11,882,000  for the 12 months  ended
December 31, 1999. Income from tax credits decreased by approximately $4,430,000
due to the  statutory  timing  variations  in the capco  statutes.  Interest and
dividend income increased by approximately  $1,328,000, to $2,118,000 for the 12
months ended  December 31, 2000,  from $790,000 for the 12 months ended December
31, 1999.  This increase was primarily  due to additional  investments  made and
additional cash balances over the comparable prior period. Consulting fee income
decreased by  approximately  $94,000 due to the decrease in  consulting  related
activity.

     General and administrative expenses increased by approximately  $3,495,000,
to $4,916,000 for the 12 months ended December 31, 2000, from $1,421,000 for the
12 months ended  December 31, 1999, due to increased  staffing and  professional
fees  (approximately  $600,000 in legal and accounting fees) attributable to the
increased  size and  number  of capcos  and the  acquisition  of REXX.  Interest
expense increased by approximately  $4,841,000,  to $7,280,000 for the 12 months
ended  December 31, 2000,  from  $2,439,000 for the 12 months ended December 31,
1999,  which was  attributable  to the issuance of notes to certified  investors
relating  to the  formation  of capcos  during the prior 12  months,  as well as
additional such activity in 2000.

     The other than temporary decline in the value of the Company's  investments
as of December  31, 2000 of  $1,232,000,  comprised  $500,000  for Down To Earth
Technologies,  $336,050  for  Merchant  Data Systems  Sales and  Marketing,  and
$395,000  for  Transworld  Business  Brokers.  After  its  evaluation  of  these
investments,  Newtek management concluded that it is unlikely it will be able to
recover these amounts.

     Net income decreased by approximately  $8,851,000,  to a loss of $3,425,000
for the 12 months ended December 31, 2000,  compared to net income of $5,426,000
for the 12 months ended  December  31,  1999,  due to the changes in revenue and
general  and  administrative  expenses  discussed  above,  other than  temporary
decline  in   investments  of   $1,232,000,   increased   equity  in  losses  of
approximately   $163,000,   an  increase  in  minority  interest  in  losses  of
$5,755,000, and increased taxes of $1,381,000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has funded its  operations  primarily  through the  issuance of
notes to insurance  companies  through the capco program.  Through  December 31,
2000, the Company has received  approximately  $135,468,000 in proceeds from the
issuance  of  long-term  debt and  warrants  through  the  capco  programs.  The
Company's principal capital requirements have been to fund the defeasance of the
principal amount of notes issued to the insurance companies,  the acquisition of
capco  insurance  policies,  the  acquisition  of partner  companies  interests,
funding of other investments, and working capital needs resulting from operating
and business development activities of its partner companies.

                                       16
<PAGE>

     Net cash used in operating  activities for the 12 months ended December 31,
2000 of  approximately  $6,502,000  resulted  primarily  from cash  revenues  of
$2,018,000,  offset by cash used for  general  and  administrative  expenses  of
$3,624,000, and cash used for prepaid insurance of $5,210,000.

     Net cash used in investing  activities for the 12 months ended December 31,
2000  of  approximately   $9,650,000   resulted   primarily  from  approximately
$14,287,000 in additional qualified  investments made during the year and offset
by repayments on the debt instruments of approximately  $5,523,000.  The Company
also funded $320,000 in other investments, and paid approximately $661,000 for a
structured insurance product.

     Net cash provided by financing  activities for the 12 months ended December
31,  2000  was  approximately   $25,395,000,   primarily   attributable  to  the
approximately  $20,729,000  in net proceeds  from the issuance of long term debt
net of defeasance  and  approximately  $3,556,000 in private  placement of stock
during the 12 months ended December 31, 2000.

     The Company  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  credit
agreements  will  provide  it with  sufficient  liquidity  to meet its short and
long-term capital needs.

INCOME FROM CAPCO TAX CREDITS

     In  general,  the  capcos  issue  debt and  equity  instruments,  generally
warrants,  to  insurance  company  investors.  For a  description  of  the  debt
instruments  and warrants  issued by the Newtek capcos,  see Notes 1, 7 and 8 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
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 targeted  investments  in accordance  with
these  requirements,  which  requirements  are consistent with Newtek's  overall
business strategy of acquiring  controlling  positions in a group of early stage
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 capcos  have the right to
deliver  the tax  credits to the  insurance  company  investors.  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 10%
per year and in some instances are transferable and can be carried forward.

     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,  this  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 legally entitled to earn income related to the
tax credits upon satisfying  defined  investment  percentage  thresholds  within
specified time requirements and corresponding  non-recapture  percentages.  Each
statute  requires  that the capco invest a threshold  percentage  of its initial
funding 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  program.   A
disqualification, or "decertification," of 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  this amount as income,
with a  corresponding  asset  called  "credits in lieu of cash",  on the balance
sheet.

     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.  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 insurance company investors.

                                       17
<PAGE>

     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:
<TABLE>
<CAPTION>
                                               THE FIRST TO OCCUR
                                               ------------------
                                                            INVESTMENT       DECERTIFICATION                       EARNED
       STATE             TOTAL TAX        INVESTMENT        BENCHMARK           RECAPTURE          RECAPTURE       INCOME
       CAPCO         CREDITS ALLOCATED    BENCHMARK            DATE             THRESHOLDS        PERCENTAGE     PERCENTAGE
       -----         -----------------    ---------        -----------          ----------        ----------     ----------
<S>                    <C>                   <C>             <C>          <C>                        <C>             <C>
FLORIDA                $37,384,028                                        Prior to 20%               100%              0%
Wilshire                                     20%             12/31/00     After 20% before 30%        70%             30%
Partners (WP)                                30%             12/31/01     After 30% before 40%        60%             40%
                                             40%             12/31/02     After 40% before 50%        50%             50%
                                             50%             12/31/03     After 50%                    0%            100%


LOUISIANA              $18,040,000                                        Prior to 30%               100%              0%
Wilshire LA                                  30%             10/14/02     After 30% before 50%        70%             30%
Advisers (WLA)                               50%             10/14/04     After 50%                    0%            100%


NEW YORK               $ 3,810,161                                        Prior to 25%               100%              0%
Wilshire                                     25%             6/22/00      After 25% before 40%        85%             15%
Advisers (WA)                                40%             6/22/01      After 40% before 50%        70%             30%
                                             50%             6/22/02      After 50%                    0%            100%


LOUISIANA               $3,050,000                                        Prior to 30%               100%              0%
Wilshire                                     30%             10/13/03     After 30% before 50%        70%             30%
LA Advisors II                               50%             10/13/05     After 50%                    0%            100%
(WLA II)


NEW YORK                $6,800,000                                        Prior to 25%               100%              0%
Wilshire                                     25%              4/7/02      After 25% before 40%        85%             15%
N.Y. Advisers II                             40%              4/7/03      After 40% before 50%        70%             30%
(WNY II)                                     50%              4/7/04      After 50%                    0%            100%


NEW YORK               $35,160,202                                        Prior to 25%               100%              0%
Wilshire                                     25%             12/21/02     After 25% before 40%        85%             15%
N.Y. Partners III                            40%             12/21/03     After 40% before 50%        70%             30%
(WNY III)                                    50%             12/21/04     After 50%                    0%            100%


WISCONSIN              $16,666,667                                        Prior to 30%               100%              0%
Wilshire                                     30%             10/25/02     After 30% before 50%        70%             30%
Investors (WI)                               50%             10/25/04     After 50%                    0%            100%
</TABLE>
                                       18

<PAGE>

     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.
<TABLE>
<CAPTION>
                       ALLOCATED               INVESTMENT                        EARNED
     STATE                TAX                  BENCHMARK                         INCOME
     CAPCO              CREDITS             PERCENT/DOLLARS                 PERCENT/DOLLARS
     -----              -------             ---------------                 ---------------
<S>                   <C>                  <C>       <C>                <C>        <C>
FLORIDA
Wilshire              $37,384,028          20%        $7,476,806         30%       $11,215,208
Partners (WP)                              30%       $11,215,208         40%       $14,953,611
                                           40%       $14,953,611         50%       $18,692,014
                                           50%       $18,692,014        100%       $37,384,028

LOUISIANA
Wilshire  LA          $18,040,000          30%        $5,412,000         30%        $5,412,000
Advisers (WLA)                             50%        $9,020,000        100%       $18,040,000

NEW YORK
Wilshire               $3,810,161          25%          $952,540         15%          $571,524
Advisers (WA)                              40%        $1,524,064         30%        $1,143,048
                                           50%        $1,905,081        100%        $3,810,161
WISCONSIN
Wilshire              $16,666,667          30%        $5,000,000         30%        $5,000,000
Investors (WI)                             50%        $8,333,334        100%       $16,666,667

LOUISIANA
Wilshire  LA           $3,050,000          30%          $915,000         30%          $915,000
Advisers     II                            50%        $1,525,000        100%        $3,050,000
(WLA II)

NEW YORK
Wilshire N.Y.          $6,800,000          25%        $1,700,000         15%        $1,020,000
Advisers II                                40%        $2,720,000         30%        $2,040,000
(WNY II)                                   50%        $3,400,000        100%        $6,800,000

NEW YORK
Wilshire N.Y.         $35,160,202          25%        $8,790,051         15%        $5,274,030
Partners III                               40%        $1,406,408         30%       $10,548,060
(WNY III)                                  50%       $17,580,101        100%       $35,160,202
</TABLE>

     During the year ended December 31, 1999,  two capcos  satisfied the initial
investment  benchmark and the related  recapture  percentage  requirements  and,
accordingly,  earned a portion  of the tax  credits,  aggregating  approximately
$10,964,000 after applying a time value discount of $652,000 to the total earned
income amount of $11,616,000.  During the year ended December 31, 2000, the same
Capcos satisfied the investment  benchmarks and the related recapture percentage
requirements  (WA satisfied its final  investment  benchmark)  and  accordingly,
earned a portion of the tax credits,  aggregating approximately $6,114,000 after
applying a time value discount of $844,000.

                                       19
<PAGE>

In addition,  the Company recognized  approximately  $419,000 of income from tax
credits in prior years resulting from the accretion of the discount attributable
to tax  credits  earned  in prior  years.  See  Note 9 of Notes to  Consolidated
Financial Statements.

     During  2000,  Newtek  established  three  new  capcos,  Wilshire  New York
Advisors  II, LLC,  Wilshire  Louisiana  Partners  II, LLC and Wilshire New York
Partners III, LLC. In addition,  the Company received  additional funding for an
already   existing  Capco,   Wilshire   Advisers.   These   companies   received
approximately $57,741,000 of funding from 13 insurance companies during 2000.

LIQUIDITY AND CAPITAL RESOURCES

     During  the year  ended  December  31,  2000  Newtek  generated  cash  flow
primarily from the following sources:

     *    the  issuance of debt and equity  securities  (warrants)  to insurance
          company investors of approximately $57,741,000 in conjunction with the
          capitalization of three Capcos;
     *    private placement of common stock, netting $3,556,000;
     *    return of investments of $5,522,000;
     *    investment income of approximately $1,960,000; and
     *    consulting fees of approximately $35,000.

     The cash was primarily used to:

     *    purchase insurance  coverage for the four new Capcos'  obligations for
          approximately $34,941,000;
     *    fund  distributions  to owners of the  predecessors  of the Company in
          lieu of compensation and related to passed-through  tax liabilities of
          $903,000
     *    invest $14,287,000 in small or early stage businesses; and
     *    repay a bank loan of approximately $725,000.

     During  the year  ended  December  31,  1999,  Newtek  generated  cash flow
primarily from the following sources:

     *    the  issuance of debt and equity  securities  (warrants)  to insurance
          company investors of approximately $75,118,000 in conjunction with the
          capitalization of three capcos.
     *    investment  income of  approximately  $790,000 and investment  banking
          fees of approximately $129,000;
     *    bank borrowing of approximately $725,000;
     *    loans from consultants of $250,000;
     *    return of principal on investments of $250,000; and
     *    contributions from minority interest of $175,000.

     This cash was primarily used to:

     *    purchase  insurance  coverage for the  obligations of three capcos for
          approximately $41,390,000;
     *    invest $8,125,000 in small or early stage businesses;
     *    fund debt issuance costs of  approximately  $469,000,  which consisted
          primarily of professional fees; and
     *    fund  distributions  to owners of the  predecessors  of the Company in
          lieu of compensation and related to passed-through  tax liabilities of
          approximately $245,000.

     As of December 31, 2000,  Newtek had  approximately  $34,697,000 in cash of
which substantially all was restricted for use for capco activities.

     The Company 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 capcos programs

                                       20
<PAGE>

and  through   acquisitions  made  by  Newtek.  The  Company's  working  capital
requirements  may  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 future bank facilities; and/or
     *    the sale of equity, equity-related or debt securities.

     However,  financing  may not be available in amounts,  at rates or on terms
and conditions acceptable to Newtek.

IMPACT OF INFLATION

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

                                       21
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

                 INDEX TO NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                              FINANCIAL STATEMENTS

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


                                                                        PAGE NO.
                                                                        --------

Report of Independent Accountants                                             23
Consolidated Balance Sheets as of December 31, 2000 and 1999                  24
Consolidated Statements of Operations for the years ended
  December 31, 2000 and December 31, 1999                                     25
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2000 and December 31, 1999                 26
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000 and December 31, 1999                                     27
Notes to Consolidated Financial Statements                                    29

                                       22
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS



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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Newtek
Capital,  Inc.  and its  subsidiaries  at December  31,  2000 and 1999,  and the
results of their  operations  and their cash flows for the years ended  December
31, 2000 and 1999 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



New York, New York
February 22, 2001

                                       23
<PAGE>

                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                           DECEMBER 31, 2000 AND 1999
                           --------------------------


                                                        2000            1999
                                                  ---------------   ------------
        A S S E T S
        -----------
Cash and cash equivalents                           $ 34,697,081    $ 25,454,016
Credits in lieu of cash                               17,496,810      10,963,593
Investments in qualified businesses                   15,644,515       8,275,000
Structured insurance product                           2,570,487       1,759,493
Prepaid insurance                                     12,187,376       7,971,411
Prepaid expenses and other assets                        411,195         212,802
Furniture, fixtures and equipment, net                    31,462           8,714
Asset held for sale                                      500,000              --
                                                    ------------    ------------

        Total assets                                $ 83,538,926    $ 54,645,029
                                                    ============    ============

        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------

Liabilities:
  Accounts payable and accrued expenses             $  2,546,800    $  1,220,479
  Notes payable - certified investors                  3,861,220       2,618,716
  Notes payable - insurance                            5,800,000       4,000,000
  Note payable - bank                                         --         725,358
  Notes payable - other                                       --         250,000
  Mortgage payable                                       369,339              --
  Interest payable                                    56,147,907      31,583,438
  Deferred tax liability                               1,381,258              --
                                                    ------------    ------------

        Total liabilities                           $ 70,106,524    $ 40,397,991
                                                    ------------    ------------

Minority interest                                      4,163,053       5,938,111
                                                    ------------    ------------

Commitments and contingencies                                                 --

Stockholders' equity:
        Common stock (par value $0.02 per share:
            authorized 39,000,000 shares,
            issued and outstanding 21,373,460)           427,469              --
        Additional paid-in capital                    12,267,052              --
        Accumulated deficit                           (3,425,172)             --
        Members' equity                                       --       8,308,927
                                                    ------------    ------------
        Total stockholders' equity                     9,269,349       8,308,927
                                                    ------------    ------------

        Total liabilities and stockholders'equity   $ 83,538,926    $ 54,645,029
                                                    ============    ============

       See accompanying notes to these consolidated financial statements.

                                       24

<PAGE>
                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
           -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                2000                  1999
                                                                          ---------------        -------------
Revenue:
<S>                                                                        <C>                   <C>
   Income from tax credits                                                 $  6,533,217          $ 10,963,593
   Consulting fee income                                                         34,660               128,818
   Interest and dividend income                                               2,118,365               789,715
   Other Income                                                                  24,000                    --
                                                                           ------------          ------------
        Total revenue                                                         8,710,242            11,882,126
                                                                           ------------          ------------
Expenses:
   General and administrative                                                 4,915,681             1,420,735
   Interest                                                                   7,280,240             2,438,908
                                                                           ------------          ------------
        Total expenses                                                       12,195,921             3,859,643
                                                                           ------------          ------------
(Loss) income before other than temporary decline
in value of investments, equity in losses of affiliates,
provision for taxes, extraordinary gain on defeasance of debt
and minority interest                                                        (3,485,679)            8,022,483

Other than temporary decline in value of
investments                                                                  (1,231,849)                   --

Equity in net losses of affiliates                                             (163,416)                   --
                                                                           ------------          ------------

(Loss) income before provision for taxes, extraordinary gain on
defeasance of debt and minority interest                                     (4,880,944)            8,022,483

Provision for taxes                                                           1,140,092                    --
                                                                           ------------          ------------
(Loss) income before extraordinary gain on
defeasance of debt and minority interest                                     (6,021,036)            8,022,483

Extraordinary gain on defeasance of debt, net of taxes of $241,166,             361,750               924,120
for 2000

Minority interest in loss (income)                                            2,234,114            (3,520,809)
                                                                           ------------          ------------

Net (loss) income                                                          $ (3,425,172)         $  5,425,794
                                                                           ============          ============

Weighted average common shares outstanding
   Basic                                                                     19,309,840            18,250,000
   Diluted                                                                   19,309,840            18,250,000

(Loss) income per share after extraordinary gain on defeasance of debt
         Basic                                                             $       (.18)         $        .30
         Diluted                                                           $       (.18)         $        .30
(Loss) income per share before extraordinary gain on defeasance of debt
         Basic                                                             $       (.20)         $        .25
         Diluted                                                           $       (.20)         $        .25
</TABLE>
              See accompanying notes to these financial statements.

                                       25
<PAGE>

                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           ----------------------------------------------------------
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
           -----------------------------------------------------------
<TABLE>
<CAPTION>
                                         COMMON        ADDITIONAL       ACCUMULATED     MEMBERS'
                                          STOCK      PAID-IN-CAPITAL      DEFICIT        EQUITY         TOTAL
                                          -----      ---------------      -------        ------         -----

<S>                                        <C>              <C>              <C>         <C>          <C>
Balance at January 1, 1999                 -                -                -              $840,555     $840,555

Contributions:                                                                                 5,000        5,000
    Members                                                                                  180,000      180,000
    Minority interest

Issuance of warrants                                                                       4,369,696    4,369,696

Distributions                                                                               (279,067)    (279,067)

Net income                                                                                 8,946,603    8,946,603

Minority interest                                                                         (5,753,860)  (5,753,860)
                                      ----------------------------------------------------------------------------

Balance at December 31, 1999               -                -                -             8,308,927    8,308,927

Distributions                                                                               (903,475)    (903,475)

Issuance of common stock                                                                   3,805,670    3,805,670

Recapitalization of Company                427,469         10,783,653                    (11,211,122)          --

Acquisition of REXX                                            16,157                                      16,157

Issuance of warrants                                        1,931,298                                   1,931,298

Loss before minority interest                                             (5,659,286)                  (5,659,286)

Additional minority interest                                 (464,056)                                  (464,056)

Minority interests in loss                                                 2,234,114                   2,234,114
                                      ----------------------------------------------------------------------------

Balance at December 31, 2000              $427,469        $12,267,052    $(3,425,172)            --   $9,269,349
                                      ============================================================================
</TABLE>
       See accompanying notes to these consolidated financial statements.

                                       26
<PAGE>
                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
           -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                                          2000            1999
           `                                                              ----            ----
<S>                                                                  <C>              <C>
Cash flows from operating activities:
   Net income                                                        $ (3,425,172)    $  5,425,794
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
       Other than temporary decline
        in value of investments                                         1,231,849               --
        Equity in losses of affiliates                                    163,416               --
        Extraordinary gain on defeasance of debt                         (361,750)        (924,120)
        Income from tax credits                                        (6,533,217)     (10,963,593)
        Deferred income taxes                                           1,140,092               --
        Depreciation                                                        6,151            2,273
        Accretion of interest income                                     (158,688)        (102,938)
        Accretion of interest expense                                   6,793,193        2,368,813
        Minority interest included in income (loss)                    (2,234,114)       3,520,809
        Changes in assets and liabilities:
          Prepaid insurance                                            (4,204,746)      (2,726,287)
          Prepaid expenses and other assets                                (8,388)         (76,535)
          Accounts payable and accrued expenses                         1,089,800        1,073,583
                                                                     ------------     ------------
            Net cash used in operating activities                      (6,501,574)      (2,402,201)
                                                                     ------------     ------------

Cash flows from investing activities:
   Qualified investments                                              (14,287,442)      (8,125,000)
   Other investments                                                     (320,000)              --
   Return of principal - qualified investments                          5,522,663          250,000
   Return of principal - other investments                                125,000               --
   Purchase of structured insurance product                              (661,432)              --
   Purchase of furniture, fixtures and equipment                          (28,898)              --
                                                                     ------------     ------------
            Net cash used in investing activities                      (9,650,109)      (7,875,000)
                                                                     ------------     ------------

Cash flows from financing activities:
   Proceeds from issuance of long-term debt                            55,008,122       71,844,056
   Payments for defeasance of long-term debt                          (34,279,454)     (41,389,998)
   Proceeds from Notes payable - Certified Investors                    1,251,630               --
   (Payment of) proceeds from Note payable - bank                        (725,358)         725,358
   Payment of loan payable - members                                      (21,000)              --
   Proceeds from loan payable - other                                          --          250,000
   Cash received from REXX merger                                         143,790               --
   Net proceeds from issuance of common stock                           3,555,670               --
   Payment of mortgage payable                                            (12,000)              --
   Contributions from minority interest                                        --          175,000
   Distributions to members                                              (903,475)        (245,067)
   Issuance of warrants                                                 1,481,594        3,273,971
   Payments for deferred financing costs                                 (104,771)        (469,241)
                                                                     ------------     ------------
            Net cash provided by financing activities                  25,394,748       34,164,079
                                                                     ------------     ------------
</TABLE>
(cont.)

                                       27
<PAGE>
                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                -------------------------------------------------
           FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
           -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                                          2000            1999
           `                                                              ----            ----
<S>                                                                   <C>            <C>
Net increase in cash and cash equivalents                               9,243,065     23,886,878

Cash and cash equivalents - beginning of period                        25,454,016      1,567,138
                                                                     ------------    -----------

Cash and cash equivalents - end of period                             $34,697,081    $25,454,016
                                                                     ============    ===========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
------------------------------------------------

   Cash paid for interest                                             $    47,685    $     9,168
                                                                     ============    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
---------------------------------------------------------

   Issuance of the following in partial payment for insurance:
     Notes                                                            $ 1,800,000    $ 4,000,000
     Warrants                                                             449,704      1,095,725
                                                                     ------------    -----------

                                                                      $ 2,249,704    $ 5,095,725
                                                                     ============    ===========

   Conversion of Notes payable - other than to common stock           $   250,000             --
                                                                     ============

   Acquisition of REXX (net assets)                                   $    16,157             --
                                                                     ============    ===========

   Non-cash distribution of investments in limited
      partnerships to members                                                  --    $    34,000
                                                                     ============    ===========
</TABLE>
       See accompanying notes to these consolidated financial statements.

                                       28
<PAGE>
                      NEWTEK CAPITAL, INC. AND SUBSIDIARIES
                      -------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
-------------------------------------------------

     On  September  20,  2000,  Newtek  Capital,   Inc.  (Newtek)  acquired  the
controlling  interests in the underlying  entities  listed below and accordingly
consolidates   the  financial   statements  of  these  entities  with  its  own.
Additionally,  on September 20, 2000, Newtek's common stock began trading on the
American Stock  Exchange  under the symbol "NKC".  Newtek was formed on June 29,
1999 under the name  Whitestone  Holdings,  Inc.  and changed its name to Newtek
Capital,  Inc. on January 18, 2000, and the underlying  entities  comprise:  BJB
Holdings,  Inc. ("BJB"),  Wilshire Holdings I, Inc., Wilshire Holdings II, Inc.,
Newtek Securities,  LLC, 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 ("WNYIII"),
certified  capital  companies  ("Capcos") in New York,  Wilshire  Partners,  LLC
("WP"),  a Capco  in  Florida,  Wilshire  Investors,  LLC  ("WI"),  a  Capco  in
Wisconsin,  Wilshire  Louisiana  Advisers,  LLC ("WLA"),  and Wilshire Louisiana
Partners  II   ("WLPII"),   capcos  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.

     As  described  above,  Newtek  acquired  the  controlling  interests in the
underlying  entities.  In this connection,  Newtek issued  18,823,285  shares of
common stock in exchange  for 100% of BJB's  shares and the member  interests in
the underlying entities. The principal shareholders of Newtek were the principal
owners of BJB and the underlying entities.  As a result, Newtek has recorded the
assets acquired and liabilities assumed at their historical values, with the net
asset value recorded as a credit to stockholders' equity.

     Additionally,  on September 19, 2000,  Newtek  completed its acquisition of
REXX.  Pursuant to the  acquisition,  REXX  stockholders  received  one share of
Newtek  common stock in exchange  for each share of REXX common stock held.  The
Company issued  2,467,576 shares of common stock in exchange for 100% (2,467,576
shares)  of  REXX  stock.   This   transaction  has  been  accounted  for  as  a
recapitalization,   whereby   Newtek  has  recorded  the  monetary   assets  and
liabilities of REXX at their  historical  values (which were not material to the
Company), with the net asset value recorded as a credit to stockholders' equity.

     The following is a summary of each Capco,  state of certification  and date
of certification:

      Capco                    State of Certification     Date of Certification

      WA                       New York                   May 1998
      WP                       Florida                    December 1998
      WI                       Wisconsin                  October 1999
      WLA                      Louisiana                  October 1999
      WA II                    New York                   April 2000
      WLAII                    Louisiana                  October 2000
      WNYIII                   New York                   December 2000

     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), with the
Certified  Capital  raised.  Such  investments  may be  accounted  for as either
consolidated  subsidiaries,  under the equity  method or cost method of

                                       29
<PAGE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

accounting, or as notes receivable,  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% of their  certified  investment.
The tax credits can be utilized over a ten-year period at a rate of 10% per year
and in some instances are transferable and can be carried forward.

     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. Approximately $34,312,000 and $25,452,000
of the cash and cash equivalents as of December 31, 2000 and 1999, respectively,
were  restricted  for  managing  and  operating  the  Capcos,  including  making
qualified investments.

     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 earned at the time
the investments are sold.

     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,  2000,  and  December  31, 1999 as
summarized  earlier in this note,  the Company had Capcos in four  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  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.

                                       30
<PAGE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     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:
<TABLE>
<CAPTION>
                                                  THE FIRST TO OCCUR
                                          -----------------------------------
                                                               INVESTMENT        DECERTIFICATION                       EARNED
       STATE              TOTAL TAX          INVESTMENT        BENCHMARK            RECAPTURE         RECAPTURE        INCOME
       CAPCO          CREDITS ALLOCATED      BENCHMARK            DATE             THRESHOLDS         PERCENTAGE     PERCENTAGE
       -----          -----------------      ---------      ----------------    ----------------      ----------     ----------
<S>                      <C>                   <C>              <C>           <C>                       <C>             <C>
FLORIDA                  $37,384,028                                          Prior to 20%              100%              0%
Wilshire                                        20%             12/31/00      After 20% before 30%       70%             30%
Partners (WP)                                   30%             12/31/01      After 30% before 40%       60%             40%
                                                40%             12/31/02      After 40% before 50%       50%             50%
                                                50%             12/31/03      After 50%                   0%            100%

LOUISIANA                $18,040,000                                          Prior to 30%               100%             0%
Wilshire LA                                     30%             10/14/02      After 30% before 50%        70%            30%
Advisers (WLA)                                  50%             10/14/04      After 50%                    0%           100%

NEW YORK                 $ 3,810,161                                          Prior to 25%               100%             0%
Wilshire                                        25%             6/22/00       After 25% before 40%        85%            15%
Advisers (WA)                                   40%             6/22/01       After 40% before 50%        70%            30%
                                                50%             6/22/02       After 50%                    0%           100%

LOUISIANA                $ 3,050,000                                          Prior to 30%               100%             0%
Wilshire                                        30%             10/13/03      After 30% before 50%        70%            30%
LA Advisors II                                  50%             10/13/05      After 50%                    0%           100%
(WLA II)

NEW YORK                 $ 6,807,866                                          Prior to 25%               100%             0%
Wilshire                                        25%              4/7/02       After 25% before 40%        85%            15%
N.Y. Advisers II                                40%              4/7/03       After 40% before 50%        70%            30%
(WNY II)                                        50%              4/7/04       After 50%                    0%           100%

NEW YORK                 $35,160,202                                          Prior to 25%               100%             0%
Wilshire                                        25%             12/21/02      After 25% before 40%        85%            15%
N.Y. Partners III                               40%             12/21/03      After 40% before 50%        70%            30%
(WNY III)                                       50%             12/21/04      After 50%                    0%           100%

WISCONSIN                $16,666,667                                          Prior to 30%               100%             0%
Wilshire                                        30%             10/25/02      After 30% before 50%        70%            30%
Investors (WI)                                  50%             10/25/04      After 50%                    0%           100%
</TABLE>
                                       31
<PAGE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     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.
<TABLE>
<CAPTION>
                        ALLOCATED                   INVESTMENT                      EARNED
     STATE                 TAX                      BENCHMARK                       INCOME
     CAPCO               CREDITS                 PERCENT/DOLLARS               PERCENT/DOLLARS
     -----               -------                 ---------------               ---------------
<S>                    <C>                    <C>       <C>                 <C>        <C>
FLORIDA
Wilshire               $37,384,028            20%        $7,476,806          30%       $11,215,208
Partners (WP)                                 30%       $11,215,208          40%       $14,953,611
                                              40%       $14,953,611          50%       $18,692,014
                                              50%       $18,692,014         100%       $37,384,028


LOUISIANA
Wilshire  LA           $18,040,000            30%        $4,920,000          30%        $5,412,000
Advisers (WLA)                                50%        $8,200,000         100%       $18,040,000


NEW YORK
Wilshire                $3,810,161            25%          $952,540          15%          $571,524
Advisers (WA)                                 40%        $1,524,064          30%        $1,143,048
                                              50%        $1,905,081         100%        $3,810,161

WISCONSIN
Wilshire               $16,666,667            30%        $5,000,000          30%        $5,000,000
Investors (WI)                                50%        $8,333,334         100%       $16,666,667


LOUISIANA
Wilshire  LA            $3,050,000            30%          $915,000          30%          $915,000
Advisers  II                                  50%        $1,525,000         100%        $3,050,000
(WLA II)


NEW YORK
Wilshire N.Y.           $6,807,866            25%        $1,701,967          15%        $1,021,180
Advisers II                                   40%        $2,723,146          30%        $2,042,360
(WNY II)                                      50%        $3,403,933         100%        $6,807,866


NEW YORK
Wilshire N.Y.          $35,160,202            25%        $8,790,051          15%        $5,274,030
Partners III                                  40%        $1,406,408          30%       $10,548,060
(WNY III)                                     50%       $17,580,101         100%       $35,160,202
</TABLE>
                                       32
<PAGE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     During each of the years ended  December 31, 2000 and 1999,  certain capcos
satisfied  the  initial   investment   benchmarks  and  the  related   recapture
percentages requirements and, accordingly,  earned a portion of the tax credits.
See Note 9.

     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
     ------------

     For  1999,  each of the  aforementioned  underlying  entities  is a Limited
Liability Company ("LLC"). In lieu of corporate taxes, the members of an LLC are
taxed on their proportionate share of the entity's taxable income.  Accordingly,
no liability for federal,  state and local income taxes has been recorded in the
accompanying  consolidated  financial  statements  as of and for the year  ended
December 31, 1999.

     In  accordance  with  Financial  Accounting  Standards  Board  Statement on
Financial  Accounting  Standards  ("SFAS")  Statement No. 109,  "Accounting  for
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.  In  connection  with  Newtek's  acquiring  the  interests  in the
underlying  entities  as  described  earlier in this note,  Newtek has  recorded
deferred tax assets and  liabilities  resulting  from the  cumulative  temporary
book/tax  differences from the underlying CAPCO  subsidiaries'  activities.  See
Note 10.

     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 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,  credits in lieu of
cash,, and amounts ascribed to warrants.  Actual results could differ from those
estimates.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     -----------------------------------

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

     EARNINGS PER SHARE
     ------------------

     For the year ended  December 31,  2000,  net loss per share is based on the
weighted average number of shares of common stock outstanding.  Since the effect
of common stock equivalents in 2000 was anti-dilutive, all such equivalents were
excluded from the  calculation of net loss per share.  There was no common stock
outstanding  or common stock  equivalents  for the year ended December 31, 1999;
however, a computation has been provided for comparative purposes. See Note 16.

     RECLASSIFICATIONS
     -----------------

     Certain  1999  amounts  have been  reclassified  to conform to current year
presentation.

                                       33
<PAGE>

NOTE 2 - INSURANCE:

     On November 19, 1998, WA purchased a structured  insurance product covering
a ten-year period (the "Capco Policy") from a 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") (see Note 4) ("Coverage A")
and (ii)  the loss or  recapture  of the  state  tax  credits  delivered  to the
Certified  Investors (see Note 1) ("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 Coverages 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, 2000 and December 31, 1999
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 covering
an  eight-year  period  (the  "Capco  Policy")  from a 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 Coverages 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 the year ended December 31, 2000, the Company recorded
$46,627 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 full 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,  see Note 5)  Coverage  B  insurance  in
connection with transactions described in Note 7. Such amounts are accounted for
in the same manner as Coverage B insurance referred to in this Note. The prepaid
insurance balance of $12,187,376 at December 31, 2000 and $7,971,411 at December
31, 1999 is comprised solely of the unamortized cost of Coverage B insurance.

                                       34
<PAGE>

NOTE 2 - INSURANCE (CONTINUED):

         The Company's Coverage A and B purchases are summarized as follows:

-------------------------------------------------------------------------------
                                            PREMIUM PAID FOR  PREMIUM PAID FOR
     CAPCO            DATE OF PURCHASE        COVERAGE A(3)    COVERAGE B (3)
-------------------------------------------------------------------------------
       WA               November 1998      $ 1,647,905 (1)       $   157,694
-------------------------------------------------------------------------------
  TOTAL - 1998                             $ 1,647,905           $   157,694
                                             =========               =======
-------------------------------------------------------------------------------
       WP                April 1999        $23,127,927 (2)       $ 3,998,948
-------------------------------------------------------------------------------
      WLA               October 1999       $ 9,175,844 (2)       $ 2,193,741
-------------------------------------------------------------------------------
       WI               October 1999       $ 9,086,227 (2)       $ 2,352,786
-------------------------------------------------------------------------------
  TOTAL - 1999                             $41,389,998           $ 8,545,475
                                            ==========             =========
-------------------------------------------------------------------------------
     WNYII              April 2000         $ 5,019,803 (2)       $   504,745
-------------------------------------------------------------------------------
       WA                May 2000          $   661,432 (1)       $   160,068
-------------------------------------------------------------------------------
     WLPII             October 2000        $ 2,456,565 (2)       $   319,958
-------------------------------------------------------------------------------
     WNYIII            December 2000       $29,052,790 (2)       $ 4,137,438
-------------------------------------------------------------------------------
  TOTAL - 2000                             $37,190,590           $ 5,122,209
                                            ==========             =========
-------------------------------------------------------------------------------

(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 7.
(3)  Coverage B has been  accounted  for as described  previously  in this Note.
     Additionally, a portion of the premiums paid in 1999 and 2000 for Coverages
     A and B were  financed by notes  ($5,800,000)  and the issuance of warrants
     ($1,545,429).

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES:

     Investments in Qualified  Businesses  (Note 1) represent  notes  receivable
(debt investments) and investments in the equity of non-public  companies;  such
investments  are accounted for under the cost method.  The following  table is a
summary of such investments as of December 31, 1999,  shown  separately  between
their  debt   ($8,250,000)  and  equity   ($25,000)   components  (for  a  total
non-consolidated  Investment  in Qualified  Businesses of  $8,275,000),  and all
terms  of each  are  summarized.  There  are no  expiration  dates on any of the
financial instruments, unless disclosed.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
DEBT                                                Date of       Maturity      Principal       Stated        Principal Amount
               Investee                   Type     Investment       Date         Amount      Interest Rate    December 31, 1999
================================================================================================================================
<S>                                       <C>       <C>           <C>            <C>             <C>               <C>
Merchant Data Systems Sales and           Debt      10/25/99      04/15/01       $3,500,000      7.00% -           $3,500,000
Marketing                                                                                        9.00%
--------------------------------------------------------------------------------------------------------------------------------
Transworld Business Brokers, Inc.         Debt      11/23/99      11/23/01       $3,150,000      5.25%             $3,150,000
--------------------------------------------------------------------------------------------------------------------------------
Down to Earth Technologies                Debt      12/15/99      02/16/01       $  500,000      9.00%             $  500,000
--------------------------------------------------------------------------------------------------------------------------------
Transworld Business Brokers, Inc.         Debt      11/23/99      11/23/01       $  350,000      6.00%             $  350,000
--------------------------------------------------------------------------------------------------------------------------------
1 800 GiftCertificate                     Debt      07/15/99      09/15/00       $  300,000      8.75%             $  300,000
--------------------------------------------------------------------------------------------------------------------------------
4G's Truck Renting Co., Inc.              Debt      01/15/99      07/15/00       $  300,000      6.50%             $  300,000
--------------------------------------------------------------------------------------------------------------------------------
Cedric Kushner Boxing, Inc.               Debt      11/17/98      01/31/00       $  150,000      9.00%             $  150,000
--------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT INVESTMENTS                                                           $8,250,000                        $8,250,000
                                                                                 ==========                        ==========
</TABLE>
                                       35
<PAGE>

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (CONTINUED):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
EQUITY                                                                              Limited
                                                                                   Liability
                                                                                    Company           Original         Cost Basis
                              Date of          Type of         Common Stock        Membership        Investment       December 31,
        Investee             Investment      Investment      Equivalents (1)      Share Ratio          Amount             1999
        --------             ----------      ----------      ---------------      -----------          ------             ----
----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>               <C>                   <C>          <C>               <C>
1 800 GiftCertificate         07/15/99         Class B        113,140                  NA           $22,396           $22,396
                                              Preferred
                                              Stock(3)
----------------------------------------------------------------------------------------------------------------------------------
                              07/15/99         Class A         13,159                  NA           $2,604            $2,604
1 800 GiftCertificate                      Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
                                             Membership
Merchant Data Systems         10/21/99      Interests in         NA                  50.00%           $0                $0
Sales and Marketing                              LLC
----------------------------------------------------------------------------------------------------------------------------------
                                             Membership
                              11/23/99      Interests in         NA                  50.00%           $0                $0
BizBroker Net                                    LLC
----------------------------------------------------------------------------------------------------------------------------------
Cedric Kushner Boxing,        11/17/98       Options for         3                     NA             $0                $0
Inc.                                       Common Stock(2)
----------------------------------------------------------------------------------------------------------------------------------
Down to Earth                 12/15/99       Membership          NA                  50.00%           $0                $0
Technologies                                Interests in
                                                LLC
----------------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY INVESTMENTS                                                                         $   25,000        $   25,000
                                                                                                 ==========        ==========

TOTAL DEBT AND EQUITY INVESTMENTS DECEMBER 31, 1999                                              $8,275,000        $8,275,000
                                                                                                 ==========        ==========
</TABLE>
                                       36

<PAGE>

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (CONTINUED):

The following  table is a summary of such  investments  as of December 31, 2000,
shown  separately  between  their debt  ($11,038,932)  and  equity  ($4,605,583)
components (for a total  non-consolidated  Investment in Qualified Businesses of
$15,644,515),  and all terms of each are  summarized.  There  are no  expiration
dates on any of the financial instruments, unless disclosed.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                                Principal
DEBT                                                                           Original                           Amount
                                                Date of         Maturity       Principal          Stated        December 31,
Investee                          Type         Investment         Date           Amount       Interest Rate        2000
============================================================================================================================
<S>                                <C>        <C>               <C>            <C>               <C>             <C>
 Transworld Business Brokers,      Debt           11/99          11/23/01      $ 3,150,000         5.25%         $ 2,854,201
             Inc.
----------------------------------------------------------------------------------------------------------------------------
       CB Real Net, LLC            Debt          02/01/00         Various      $ 2,500,000        Various        $ 2,500,000
----------------------------------------------------------------------------------------------------------------------------
  Merchant Data Systems Sales      Debt           10/99          04/15/01      $ 3,500,000         9.00%         $ 1,598,950
         and Marketing
----------------------------------------------------------------------------------------------------------------------------
Multi-Media Distribution Corp.     Debt           06/00          06/14/02      $ 1,000,000        10.00%         $ 1,000,000
----------------------------------------------------------------------------------------------------------------------------
      4G's Truck Renting           Debt           12/00          On demand     $   900,000        10.00%         $   900,000
----------------------------------------------------------------------------------------------------------------------------
     Direct Creations, LLC         Debt            9/00           3/9/02       $   750,000        10.00%         $   750,000
----------------------------------------------------------------------------------------------------------------------------
 Transworld Business Brokers,      Debt           11/99          11/23/01      $   350,000         6.00%         $   250,000
             Inc.
----------------------------------------------------------------------------------------------------------------------------
     1 800GiftCertificate          Debt           07/99          09/15/01      $   300,000         8.75%         $   244,928
----------------------------------------------------------------------------------------------------------------------------
    Steve Kent Trucking(4)         Debt         3/00, 5/00        Various      $   747,000         Prime +       $   122,309
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
     Gerace Auto Parts(4)          Debt            4/00           Various      $   810,000         Prime +       $   131,276
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
  Merchant Data Systems, Inc.      Debt            8/00           1/11/02      $   100,000        10.00%         $   100,000
----------------------------------------------------------------------------------------------------------------------------
           AIDA, LLC               Debt            8/00          On demand     $   100,000        10.00%         $   100,000
----------------------------------------------------------------------------------------------------------------------------
       Gino's Seafood(4)           Debt         3/00, 4/00        Various      $   517,942         Prime +       $    86,692
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
Down to Earth Technologies, LLC    Debt        12/99, 8/00       08/16/01      $   580,000         9.00%         $    80,000
----------------------------------------------------------------------------------------------------------------------------
Embosser's Sales and Service(4)    Debt            8/00           Various      $   495,000         Prime +       $    80,144
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
    St. Gabriel Hardware(4)        Debt           11/00           Various      $   477,000         Prime +       $    79,500
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
   Data-Tel of Louisiana(4)        Debt           03/00           Various      $   513,000         Prime +       $    75,326
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
        Raising Cain(4)            Debt      3/00, 4/00, 5/00     Various      $   315,000         Prime +       $    48,606
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
   Tari's School of Dance(4)       Debt            5/00           Various      $   189,000         Prime +       $    31,500
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
          BBQ West(4)              Debt        10/00, 11/00       Various      $    49,500         Prime +       $     5,500
                                                                                                   1.00%
----------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT INVESTMENTS                                                         $17,343,442                       $11,038,932
                                                                               ===========                       ===========
</TABLE>
                                       37
<PAGE>

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (CONTINUED):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
EQUITY
                                                                                                   Original        Cost Basis
                              Date of          Type of         Common Stock     Percentage of     Investment     December 31,
Investee                    Investment       Investment      Equivalents (1)      Ownership         Amount            2000
--------                    ----------       ----------      ---------------      ---------         ------            ----
---------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                   <C>                <C>              <C>               <C>
Starphire Technologies,      08/25/00        Preferred             N/A              50.00%          $1,400,000        $1,485,001
LLC                                          Membership
                                            Interest w/
                                            voting rights
---------------------------------------------------------------------------------------------------------------------------------
                                              Preferred
                             09/25/00,       Membership
Niche Directories, LLC        12/1/00        Interest w/           N/A              37.50%          $1,344,000        $1,317,357
                                            voting rights
---------------------------------------------------------------------------------------------------------------------------------
AIDA, LLC                      10/00      Preferred Stock/         N/A               50%              $900,000          $793,044
                                            Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems,        9/13/00     Preferred Stock/         N/A               35%              $900,000          $785,181
Inc.                                        Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Multi-Media Distribution      6/14/00       Common Stock          66,000              3%              $200,000          $200,000
Corp.
---------------------------------------------------------------------------------------------------------------------------------
1800GiftCertificate          07/15/99          Class B           113,140             N/A               $22,396           $22,396
                                           Preferred Stock
---------------------------------------------------------------------------------------------------------------------------------
1800GiftCertificate          07/15/99          Class A            3,159              N/A                $2,604            $2,604
                                           Preferred Stock
---------------------------------------------------------------------------------------------------------------------------------
BizBroker Net, LLC           11/23/99        Membership            N/A              50.00%                  $0                $0
                                              Interest
---------------------------------------------------------------------------------------------------------------------------------
Cedric Kushner Boxing,       11/17/98        Options for            3                N/A                    $0                $0
Inc.                                       Common Stock(2)
---------------------------------------------------------------------------------------------------------------------------------
                                            Warrants for
CB Real Net, LLC             02/01/00        Membership            N/A              40.00%                  $0                $0
                                             Interest(3)
---------------------------------------------------------------------------------------------------------------------------------
Direct Creations               12/00         Membership            N/A               25%                    $0                $0
                                              Interest
---------------------------------------------------------------------------------------------------------------------------------
Down to Earth                12/15/99        Membership            N/A              50.00%                  $0                $0
Technologies, LLC                             Interest
---------------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems        10/21/99        Membership            N/A              50.00%                  $0                $0
Sales and Marketing, LLC                      Interest
---------------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY INVESTMENTS                                                                            $4,769,000       $ 4,605,583
                                                                                                    ==========       ===========
TOTAL DEBT AND EQUITY INVESTMENTS DECEMBER 31, 2000                                                $22,112,442       $15,644,515
                                                                                                   ===========       ===========
</TABLE>

(1)  Common Stock Equivalents  reflect  conversion of all financial  instruments
     into common stock.
(2)  Expires four years from date of investment, and has a $.01 exercise price.
(3)  Expires six years from date of investment, and has a $.01 exercise price.
(4)  Represents Louisiana Small Business  Administration  (SBA) loans.  Wilshire
     Louisiana's  investment total for these types of loans was $4,113,472 as of
     December 31, 2000. Of this amount,  approximately 80% was guaranteed by the
     SBA and was sold in the secondary  market,  while the remaining  balance is
     amortized  over  5  to  20  years.  Accordingly,  the  CAPCO  had  $660,853
     outstanding and received  approximately  $2,262,000 (55%) of credits toward
     the  investment  hurdle,  based  upon  its  agreement  with  the  State  of
     Louisiana.

                                       38
<PAGE>

NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (CONTINUED):

     Investments in equity  interests of and notes  receivable  from  affiliated
companies  accounted for under the equity  method  amounted to  $12,613,734  and
$7,500,000  at  December  31,  2000 and 1999,  respectively.  Additionally,  the
Company's  investment  balance  in the  equity  of each of  these  investees  is
$4,580,583  and zero at December 31, 2000 and  December 31, 1999,  respectively.
The  Company  did not record its share of the losses in these  investees  in the
twelve months ended December 31, 1999 because its  investment  account was zero.
During 2000, the Company made investments  accounted for under the equity method
aggregating  $4,544,000.  In the twelve  months ended  December  31,  2000,  the
Company  recorded  approximately  $163,416  in net  losses  of these  investees,
pre-minority interest.

     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.   Periodically,   the  Company   evaluates  each  of  its  individual
investments for potential impairment in value. Should the Company determine that
an impairment  exists and it is deemed to be other than  temporary,  the Company
will  write down the  recorded  value of the asset to its  estimated  realizable
value and record a  corresponding  charge in the  statement  of  operations.  At
December  31,  2000,  the  Company  has  determined  that there is an other than
temporary  decline  in the  value  of its  investments  in debt  instruments  of
$1,231,849,   which  represented   approximately  $500,000  for  Down  To  Earth
Technologies,  $336,050  for  Merchant  Data Systems  Sales and  Marketing,  and
$395,950  for  Transworld   Business  Brokers.   After  its  evaluation  of  the
aforementioned investments,  management concluded that it is unlikely it will be
able to recover  these  amounts.  Accordingly,  at December 31, 2000 and for the
year then ended, the Company has written down the value of these investments and
recorded a corresponding charge of $1,231,849.

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 7. 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 during the 10-year term of the Note.

     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,  2000 and 1999,  the Company  recorded  $6,500 and
$6,500,  respectively,  of interest expense for such accretion.  At the maturity
date in June 2008,  the Note balance will be $2,673,797 and the Insurer (Note 2)
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, 1999 and
2000 WA was in compliance with such requirements.

NOTE 5 - NOTES PAYABLE - INSURANCE:

     In October 1999, WI and WLA each borrowed $2,000,000 ($4,000,000 in total),
from a financing  company to finance a portion of the total  premiums  due to an
insurance  company.  The notes bear  interest at 8.5%,  and are payable in three
installments  beginning on April 1, 2001,  with the final payment due on October
24, 2002.  Accrued  interest at December 31, 2000 and December 31, 1999 amounted
to $403,000 and $50,922.

                                       39
<PAGE>

NOTE 5 - NOTES PAYABLE - INSURANCE (CONTINUED):

     In April  2000,  WNYII  borrowed  $1,500,000  from a  financing  company to
finance a portion of the total  premiums due to an insurance  company.  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. Accrued interest
at December 31, 2000 amounted to $79,130.

     In October  2000,  WLPII  borrowed  $300,000  from a  financing  company to
finance a portion of the total  premiums due to an insurance  company.  The note
bears interest at 9.92%, and is payable in three installments beginning on April
13, 2001,  with the final payment due on October 13, 2003.  Accrued  interest at
December 31, 2000 amounted to $7,876.

NOTE 6- NOTES PAYABLE - BANK:

     In August 1999,  the Company  entered  into a $750,000  one year  revolving
working  capital  loan  with a bank  bearing  interest  at 8.75% per  annum.  At
December  31,  1999,  the Company had  borrowed  $725,358  from the bank.  As of
December  31,  2000,  the  Company  had repaid  the loan along with any  accrued
interest.

NOTE 7 - 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.

     During 2000 and 1999, at the time the Capcos obtained the proceeds from the
issuance of the debt  instruments and warrants 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.  The  Insurer  is
primarily  liable to the  Certified  Investors  for such  amounts.  The  Capcos,
however, are secondarily,  or contingently,  liable for such payment, and 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.

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

                                                         2000           1999
                                                          ----           ----

           Notes payable, including premiums          $55,008,122   $71,844,056
           Warrants                                     1,481,594     3,273,971
                                                      -----------   -----------
                                                      $56,489,716   $75,118,027

     Concurrently, in 2000 and 1999, the Company purchased Coverage A to defease
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,  representing  the present value of the Capco's total  liability to pay
interest  to the  Certified  Investors.  Such amount  will be  increased  via 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 via delivering the
tax credits, or paying cash (Note 9).

                                       40
<PAGE>


NOTE 7 - INTEREST PAYABLE AND DEFEASANCE OF DEBT (CONTINUED):


     The   following   is  a  summary  of  the   defeasance   transactions   and
reconciliation  of  interest  payable  balances  at  December  31, 2000 and 1999
(exclusive of proceeds allocated to warrants as noted above):

                                                      2000              1999
                                                 ---------------   -------------
   Note payable, including premiums              $  55,008,122     $ 71,844,056
   Less: purchase of coverage A                     (36,529,158)    (41,389,998)
   Less: note premiums allocated to defeasance        (707,688)      (1,393,361)
                                                      ---------    ------------
   Allocated to interest payable                    17,771,276       29,060,697
   Plus: interest payable, beginning of year        31,583,438          160,428
   Plus: accretion of interest expense for the
   year                                              6,793,193        2,362,313
                                                 ---------------  -------------
         Interest payable, end of year           $  56,147,907    $  31,583,438


The total amount of interest payable to the Certified  Investors through the ten
year period is approximately $117,414,000.

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

NOTE 8 - WARRANTS:

     The warrants entitle the holders to purchase, for a $.01 exercise price, an
interest in each respective Capco. The values ascribed to the warrants issued to
the Certified  Investors (Note 7) and the Insurer have been recorded as minority
interests. In addition, certain minority interests have already been acquired by
minority shareholders. The following is the aggregate percentage interest of the
minority shareholders in each respective Capco:

                     Capco                   % Interest
                     -----                   ----------

                 WA, New York                    13%

                 WP, Florida                     43%

                 WI, Wisconsin                   53%

                 WLA, Louisiana                  24%

                 WNYII, New York                 36%

                 WLPII, Louisiana                10.5%

                 WNYIII, New York                18.9%

                                       41
<PAGE>

NOTE 9 - INCOME FROM TAX CREDITS:

     As described  in Note 1, each Capco has a  contractual  arrangement  with a
particular state that legally  entitles the Capco to earn tax credits  (normally
ranging  from  10% to 11% per  year)  from the  state  upon  satisfying  certain
criteria.  During the year ended  December 31, 1999,  two Capcos  satisfied  the
initial investment benchmark and the related recapture  percentage  requirements
and, accordingly, earned a portion of the tax credits, aggregating approximately
$10,964,000 after applying a time value discount of $652,000 to the total earned
income amount of $11,616,000.  During the year ended December 31, 2000, the same
two  Capcos  satisfied  the  investment  benchmarks  and the  related  recapture
percentage  requirements  (WA satisfied  its final  investment  benchmark)  and,
accordingly,  earned a portion  of the tax  credits,  aggregating  approximately
$6,114,000 after applying a time value discount of  approximately  $844,000 (the
full amount of such  portion is  approximately  $6,958,000).  In  addition,  the
Company  recognized  approximately  $419,000 of income from the accretion of the
discount  attributable  to tax  credits  earned in 1999.  As the tax credits are
utilized  by the  Certified  Investors,  the asset  balance  are offset  against
interest payable (Note 7).

NOTE 10 - INCOME TAXES:

Provision  for income  taxes for the year ended  December 31, 2000 is as follows
(there was no current provision):

Deferred provision:
   Federal                          $1,070,475
   State and local                     310,783
                                    ----------

Provision for income taxes          $1,381,258
                                    ==========

A reconciliation  of income taxes computed at the U.S. federal  statutory income
tax rate (34%) to the provision for income taxes for the year ended December 31,
2000 is as follows:
                                                        (Benefit)
                                                        Provision
                                                        ---------
           Benefit for income taxes at U.S.
           federal statutory rate of 34%             ($1,454,530)

           State  and  local  taxes,  net  of
           federal benefit                              (256,681)
           Non-deductible items                          161,168

           Cumulative true-up (Note 1)                 2,931,301
                                                       ---------
                                                      $1,381,258

Deferred tax assets and  liabilities  consisted of the following at December 31,
2000:

           Deferred tax assets:
                 Net operating losses                        $2,149,464
                 Interest payable                               635,237
           Total deferred tax assets                          2,784,701
                                                              ---------
           Deferred tax liabilities:
                 Credits in lieu of cash                    (4,165,959)
                                                            -----------
           Total deferred tax liabilities                   (4,165,959)
                                                            -----------
           Net deferred tax liability                     $ (1,381,258)
                                                          =============

                                       42
<PAGE>

NOTE 10 - INCOME TAXES (CONTINUED):

At  December  31,  2000  the  Company  has  net  operating  losses   aggregating
approximately  $5,374,000 which expire 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, 2000 as it believes  that it is more likely than not that the  deferred  tax
asset will be realized.

NOTE 11 - COMMITMENTS AND CONTINGENNCIES:

     A Capco 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 7). Generally, a Capco must invest at
least 50% of its  Certified  Capital in qualified  businesses  within five years
after the  certification  date.  At December 31, 2000 and 1999,  the Company had
invested the percent of its certified capital as follows:

                  Capco            December 31, 2000        December 31, 1999
          -------------------      -----------------        -----------------

         WA, New York                        65%                    38%
         WP, Florida                         34%                    20%
         WI, Wisconsin                       15%                     0%
         WLA, Louisiana                      23%                     0%
         WNYII, New York                      6%                    N/A
         WLAPII, Louisiana                    0%                    N/A
         WNYIII, New York                     0%                    N/A

     The Company has entered into employment  agreements with certain  officers.
Each employment  agreement provides for a two year term at an annual base salary
of $300,000,  an automatic  one-year  extension on the agreement's  commencement
anniversary date, unless either party provides written notice 90 days before the
expiration  date, an annual 10% increase in base salary and certain other terms.
At December 31, 2000 the future minimum commitments are $900,000 for each of the
years ended December 31, 2001 and 2002.

     From time to time Newtek and its  subsidiaries are parties to various legal
proceedings in the normal course of business.  At December 31, 2000,  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.

NOTE 12 - ASSETS HELD FOR SALE:

     The Company owns a building and land in Mississippi  which is currently for
sale.  The  note  held by the Bank of  Mississippi,  and  collateralized  by the
property, was due on February 10, 2001. The Company and the bank have negotiated
a three-year extension of the due date of the mortgage under the existing terms.

NOTE 13 - RELATED PARTY TRANSACTIONS:

     For the years ended  December 31, 2000 and  December 31, 1999,  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, 2000 and December 31, 1999,
the Company incurred financial consulting expenses of approximately $144,000 and
$16,000, respectively, from a related party. At December 31, 1999, the Company's
members had advanced a total of $21,000 to the  Company.  Such amount was repaid
in 2000.

                                       43
<PAGE>

NOTE 14 -      EXTRAORDINARY GAIN ON DEFEASANCE OF DEBT:

     As a  result  of the  debt  defeasance  described  in  Note  7 the  Company
recognized  a pre-tax  net gain of  $602,916  and  $924,120  for the years ended
December 31, 2000 and December  31,  1999,  respectively.  These gains have been
classified  as  an  extraordinary   item  in  the  consolidated   statements  of
operations.

NOTE 15:  STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES

     As of December 31, 1999, there were no stock options granted.

     As of December 31, 2000, there were vested options  outstanding to purchase
an aggregate of 29,708  shares of common  stock at the exercise  prices  ranging
from $7.00 to $10.00 per share, expiring in 2010.

     The Company has  granted a total of 993,000  options to purchase  shares of
Common Stock to management,  employees and directors.  Detail of option activity
is as follows:

                                                                     Weighted
                                                   Number             Average
                                                     of              Exercise
                                                   Shares              Price

Balance, December 31, 1999                                 0        $        0
Expired during year                                       --                --
Granted during year                                  993,000        $     7.08
Exercised during year                                      0        $        0
                                                    --------        ----------

Balance, December 31, 2000                           993,000        $     7.08
                                                    ========        ==========

Exercisable at December 31, 2000                      29,708        $     7.08
                                                    ========        ==========


     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.

     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.

                                                                  2000
         Pro forma results of operations:
               Net loss                                     $ (4,867,008)
               Basic and diluted net loss per share                $(.25)

     The weighted average fair value ($7.26) of each option granted is estimated
on  the  date  of  grant  using  the  Black-Scholes  model  with  the  following
assumptions:  expected  volatility of 120.0%,  risk-free interest rate of 5.69%,
expected dividends of $0 and expected terms of 3 years.

                                       44
<PAGE>

NOTE 16 - 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. There were no common stock
equivalents  in 1999.  The  dilutive  effect of common  stock  equivalents  were
anti-dilutive  for the year ended  December 31, 2000 and,  therefore,  have been
excluded from the calculation of diluted earnings per share.

     The calculations of Net Income (Loss) Per Share were:

                                                       Year ended
                                                      December 31,
                                          -------------------------------------
                                               2000                 1999
                                          ----------------    -----------------
Basic
     Net income (loss)                      $(3,425,122)        $ 5,425,794
     Weighted average shares                 19,309,840          18,250,000
     Basic and Diluted                            $(.18)               $.30


NOTE 17 -      DERIVATIVES AND HEDGING ACTIVITIES

     In  June  1998,  Statement  of  Financial  Accounting  Standards  No.  133,
"Accounting for Derivative  Instruments and Hedging Activities" ("SFAS 133") was
issued.  In June 2000,  Statement of  Financial  Accounting  Standards  No. 138,
"Accounting  for  Certain  Derivative  Instruments  and Hedging  Activities,  an
Amendment of FASB Statement No. 133" ("SFAS 138") was issued.  SFAS 133 and SFAS
138  address  the  accounting  for  derivative  instruments,  including  certain
derivative instruments embedded in other contracts, and hedging activities.  The
Company is required to adopt SFAS 133 and SFAS 138 in the first quarter of 2001.
The Company anticipates that the adoption of SFAS 133 and SFAS 138 as of January
1, 2001 will not have a material effect on its financial  position or results of
operations.

NOTE 18 -      SUBSEQUENT EVENT:

     In February 2001,  WNYIII borrowed  $5,200,000 from a financing  company to
finance a portion of the total  premiums due to an insurance  company.  The note
bears interest at 8.92%, and is payable in three installments beginning in 2002.

                                       45

<PAGE>

NOTE 19 - QUARTERLY INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
                                                             Three Months Ended
                                   ---------------------------------------------------------------------
        2000                            3/31               6/30               9/30               12/31           Full Year
<S>                                <C>                <C>                <C>                <C>               <C>
Total Revenue                      $   600,988        $   667,898        $ 3,970,522        $ 3,470,834       $ 8,710,242
--------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)             (1,357,043)        (1,969,972)        (2,727,481)         2,568,817        (3,485,679)
--------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before
Extraordinary Gains                   (812,429)        (1,820,445)        (1,799,773)           404,559        (4,028,088)
--------------------------------------------------------------------------------------------------------------------------
Net Income                            (812,429)        (1,388,564)        (1,799,773)           575,594        (3,425,172)
--------------------------------------------------------------------------------------------------------------------------
Income (Loss) per share after extraordinary gain on defeasance of debt
--------------------------------------------------------------------------------------------------------------------------
                                        ($0.04)           ($0.08)             ($0.10)             $0.03            ($0.18)
--------------------------------------------------------------------------------------------------------------------------
                                        ($0.04)           ($0.08)             ($0.10)             $0.03            ($0.18)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                   ---------------------------------------------------------------------
        1999                            3/31               6/30               9/30               12/31           Full Year
<S>                                <C>                <C>                <C>                <C>               <C>
Total Revenue                      $   437,427        $   180,587         $   249,125         $11,014,987        $11,882,126
-----------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                247,178           (715,553)           (725,230)          9,216,088          8,022,483
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before
Extraordinary Gains                    215,628           (341,285)           (368,850)          4,996,181          4,501,674
-----------------------------------------------------------------------------------------------------------------------------
Net Income                             215,628           (358,104)           (368,850)          5,937,120          5,425,794
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) per share after extraordinary gain on defeasance of debt
-----------------------------------------------------------------------------------------------------------------------------
                                         $0.01            ($0.02)              ($0.02)              $0.33              $0.30
-----------------------------------------------------------------------------------------------------------------------------
                                         $0.01            ($0.02)              ($0.02)              $0.33              $0.30
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       46
<PAGE>

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  Capital,  Inc.'s
directors,  executive officers and control persons is contained in the Company's
proxy  statement  to be  filed  prior  to April 1,  2001,  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  Capital,  Inc.'s
executive compensation is contained in the Company's proxy statement to be filed
prior to April 1,  2001,  under  the  caption  "Executive  Compensation"  and is
incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this item is contained in the Company's proxy
statement  to be filed  prior  to April 1,  2001,  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 1, 2001, under the captions,  "Compensation
Committee  Interlocks and Insider  Participation" and "Executive  Compensation,"
and is incorporated herein by reference.

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 Capital,  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).
3.1  Certificate of  Incorporation  of Newtek  Capital,  Inc.  (Incorporated  by
     reference to Exhibit No. 3.1 to Registration Statement No. 333-43550).

                                       47
<PAGE>

3.2  Bylaws of Newtek  Capital,  Inc. ( Incorporated by reference to Exhibit No.
     3.2 to Registration Statement No. 3.2).
10.1 Form of  Employment  Agreement  with  Jeffrey  G.  Rubin  (Incorporated  by
     reference to Exhibit No. 10.1 to Registration Statement No. 333-43550).
10.2 Form of Employment Agreement with Barry Sloane  ((Incorporated by reference
     to Exhibit No. 10.2 to Registration Statement No. 333-43550).
10.3 Form of  Employment  Agreement  with Brian A.  Wasserman  (Incorporated  by
     reference to Exhibit No. 10.3 to Registration Statement No. 333-43550).
10.4 Management Services Agreement with JR Group, LLC (Incorporated by reference
     to Exhibit No. 10.4 to Registration Statement No. 333-43550).
10.5 Management   Services   Agreement   with  The  Sloane   Organization,   LLC
     (Incorporated  by reference to Exhibit No. 10.5 to  Registration  Statement
     No. 333-43550).
10.6 Management  Services Agreement with Sharp Management,  LLC (Incorporated by
     reference to Exhibit No. 10.6 to Registration Statement No. 333-43550).
21   Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP

(b) Reports on Form 8-K:

     On October 4, 2000,  Newtek  reported the completion of its  acquisition of
REXX on September 19, 2000 and the related issuance of 20,981,861  shares of its
common stock.

                                       48
<PAGE>
                                   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 CAPITAL, INC.

Date: March  1,  2001                 By: /s/ Barry Sloane
                                          ----------------------------------
                                          Barry Sloane
                                          (Chairman and Chief Executive Officer)

     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
---------------------------
     Barry Sloane           Chairman of the Board and Chief       March 1, 2001
                            Executive Officer and Secretary

/S/ Jeffrey G. Rubin
---------------------------
     Jeffrey G. Rubin       President, Chief Investment           March 1, 2001
                            Officer and Director

/S/ BRIAN A. WASSERMAN
---------------------------
     Brian A. Wasserman     Treasurer, Chief Financial            March 1, 2001
                            Officer and Director

/S/ JOHN COX
---------------------------
     John Cox               Director                              March 1, 2001


/S/ STEVEN A. SHENFELD
---------------------------
     Steven A. Shenfeld     Director                              March 1, 2001


/S/ MATTHEW BURNS
---------------------------
     Matthew Burns          Director                              March 1, 2001


/S/ GIUSEPPE SOCCODATO
---------------------------
     Giuseppe Soccodato     Controller and Chief Accounting       March 1, 2001
                            Officer

                                       49