10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004

OR

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

For the transition period from                      to                     

Commission file number 0-27812

MEDALLION FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

DELAWARE	04-3291176
(State of Incorporation)	(IRS Employer Identification No.)

437 MADISON AVENUE, NEW YORK, NEW YORK 10022

(Address of principal executive offices) (Zip Code)

(212) 328-2100

(Registrant’s telephone number, including area code)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No. ¨

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of August 6, 2004 was 18,154,790.

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45
ITEM 4.	CONTROLS AND PROCEDURES	45
PART II – OTHER INFORMATION		45
ITEM 1.	LEGAL PROCEEDINGS	45
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	45
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	45
SIGNATURES		47
CERTIFICATIONS

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company operates a taxicab rooftop advertising business through two subsidiaries, the primary operator being Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (Japan), (together MTM).

The financial information is divided into two sections. The first section, Item 1, includes the unaudited consolidated financial statements of the Company including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2004.

The consolidated balance sheet of the Company as of June 30, 2004, the related consolidated statements of operations for the three and six months ended June 30, 2004, and the consolidated statements of cash flows for the six months ended June 30, 2004 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three and six months ended June 30, 2004 or for any other interim period may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

3

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Interest and dividend income on investments	$	10,191,928		$	6,421,811		$	16,476,863		$	12,883,004
Medallion lease income		105,000			—			210,000			—
Interest income on short-term investments		103,960			46,286			199,274			113,378
Total investment income		10,400,888			6,468,097			16,886,137			12,996,382
Interest on floating rate borrowings		1,955,355			2,037,425			3,665,355			4,234,204
Interest on fixed rate borrowings		1,701,040			1,160,390			2,888,733			2,292,783
Total interest expense		3,656,395			3,197,815			6,554,088			6,526,987
Net interest income		6,744,493			3,270,282			10,332,049			6,469,395
Gain on sales of loans		185,163			526,769			398,441			715,699
Other income		671,371			739,232			1,221,635			1,860,346
Total noninterest income		856,534			1,266,001			1,620,076			2,576,045
Salaries and benefits		2,302,759			2,438,868			4,704,481			4,873,256
Professional fees		549,073			268,346			1,003,605			388,325
Other operating expenses		2,175,953			1,517,382			3,687,560			3,167,091
Total operating expenses		5,027,785			4,224,596			9,395,646			8,428,672
Net investment income before income taxes		2,573,242			311,687			2,556,479			616,768
Income tax provision		1,062,997			9,304			1,108,097			19,303
Net investment income after income taxes		1,510,245			302,383			1,448,382			597,465
Net realized gains (losses) on investments		(315,328	)		8,214,032			(514,562	)		7,652,467
Net change in unrealized depreciation on investments		(946,054	)		(7,761,295	)		(2,064,646	)		(7,064,792	)
Net realized/unrealized gain (loss) on investments		(1,261,382	)		452,737			(2,579,208	)		587,675
Net increase (decrease) in net assets resulting from operations	$	248,863		$	755,120			($1,130,826	)	$	1,185,140
Net increase (decrease) in net assets resulting from operations per common share
Basic	$	0.01		$	0.04			($0.06	)	$	0.06
Diluted		0.01			0.04			(0.06	)		0.06
Dividends declared per share	$	0.08		$	0.03		$	0.16		$	0.04
Weighted average common shares outstanding
Basic		18,141,427			18,242,728			18,179,524			18,242,728
Diluted		18,540,419			18,378,685			18,179,524			18,283,919

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

4

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2004			December 31, 2003
Assets
Medallion loans, at fair value	$	328,616,457		$	288,211,557
Commercial loans, at fair value		122,405,715			85,970,205
Consumer loans, at fair value		72,438,909			—
Investment securities, at fair value		6,190,937			—
Equity investments, at fair value		5,026,303			4,976,763
Net investments ($238,081,000 at June 30, 2004 and $251,880,000 at December 31, 2003 pledged as collateral under borrowing arrangements)		534,678,321			379,158,525
Investment in and loans to MTM		2,660,883			3,614,485
Total investments		537,339,204			382,773,010
Cash ($638,000 at June 30, 2004 and $605,000 at December 31, 2003 restricted as to use by lender)		40,463,935			47,675,537
Accrued interest receivable		2,924,600			1,727,719
Servicing fee receivable		2,460,629			2,663,468
Fixed assets, net		1,104,639			1,351,887
Goodwill, net		5,007,583			5,007,583
Other assets, net		19,408,459			15,295,253
Total assets	$	608,709,049		$	456,494,457
Liabilities
Accounts payable and accrued expenses	$	7,429,244		$	5,726,830
Accrued interest payable		1,333,045			1,197,248
Floating rate borrowings		218,394,740			230,519,057
Fixed rate borrowings		224,134,268			56,935,000
Total liabilities		451,291,297			294,378,135
Shareholders’ equity
Preferred Stock (1,000,000 shares of $0.01 par value stock authorized - none outstanding)		—			—
Common stock (50,000,000 shares of $0.01 par value stock authorized)		182,786			182,524
Treasury stock at cost (116,451 shares at June 30, 2004 and 30,934 shares at December 31, 2003)		(1,444,391	)		(431,584	)
Capital in excess of par value		173,950,686			173,831,049
Cumulative effect of foreign currency translation		(22,085	)		(72,861	)
Accumulated net investment losses		(15,249,244	)		(11,392,806	)
Total shareholders’ equity		157,417,752			162,116,322
Total liabilities and shareholders’ equity	$	608,709,049		$	456,494,457
Number of common shares outstanding		18,145,793			18,242,178
Net asset value per share	$	8.68		$	8.89

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

5

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations		($1,130,826	)	$	1,185,140
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Depreciation and amortization		330,441			319,633
Amortization of origination costs		817,646			595,724
Increase in net unrealized (appreciation) depreciation on investments		(248,713	)		4,790,071
Net realized (gains) losses on investments		514,562			(7,652,467	)
Gains on sales of loans		(398,441	)		(715,699	)
Increase in unrealized depreciation on MTM		2,313,359			2,274,721
(Increase) decrease in accrued interest receivable		(292,325	)		379,871
(Increase) decrease in servicing fee receivable		202,839			(110,811	)
(Increase) decrease in other assets, net		(172,953	)		526,205
Increase (decrease) in accounts payable and accrued expenses		1,702,421			(754,620	)
Increase (decrease) in accrued interest payable		135,798			(4,202,731	)
Net cash provided by (used for) operating activities		3,773,808			(3,364,963	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments originated		(145,667,454	)		(137,968,993	)
Purchase of RV/Marine loan portfolio		(87,213,656	)		—
Proceeds from principal receipts, sales, and maturities of investments		71,831,448			123,440,851
Investments in and loans to MTM, net		(1,304,175	)		(1,525,943	)
Capital expenditures		(87,999	)		(140,919	)
Net cash used for investing activities		(162,441,836	)		(16,195,004	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from floating rate borrowings		80,757,736			111,204,423
Repayments of floating rate borrowings		(92,882,054	)		(93,645,409	)
Proceeds from fixed rate borrowings		167,199,268			—
Repayments of fixed rate borrowings		—			(9,790,000	)
Proceeds from exercise of stock options		119,900			—
Payments of declared dividends		(2,725,617	)		(182,629	)
Purchase of treasury stock at cost		(1,012,607	)		—
Net cash provided by financing activities		151,456,426			7,586,385
NET DECREASE IN CASH		(7,211,602	)		(11,973,582	)
CASH, beginning of year		47,675,537			35,369,285
CASH, end of period	$	40,463,935		$	23,395,703
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest	$	5,382,887		$	8,299,010
Cash paid during the year for income taxes		45,000			—
Non-cash investing activities-net transfers from other assets		1,721,600			3,101,867

The accompanying notes are in integral part of these unaudited consolidated financial statements.

6

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company operates a taxicab rooftop advertising business through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (Japan), (together MTM). (See Note 3)

The Company also conducts business through Business Lenders, LLC (BLL), licensed under the Small Business Administration (SBA) Section 7(a) program; Medallion Business Credit, LLC (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables; Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business; Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and commercial loans; and Medallion Bank (MB), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank that primarily originates medallion loans, commercial loans, and RV/Marine consumer loans, raises deposits, and conducts other banking activities. MFC, MCI, and FSVC, as SBICs, are regulated and financed in part by the SBA.

MB was capitalized on December 16, 2003, with $22,000,000 from the Company. On December 22, 2003, upon satisfaction of the conditions set forth in the FDIC’s order of October 2, 2003 approving MB’s application for federal deposit insurance, the FDIC certified that the deposits of each depositor in MB were insured to the maximum amount provided by the Federal Deposit Insurance Act and MB opened for business. MB is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes examinations by both agencies.

MB is a wholly-owned subsidiary of the Company and was formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions (licenses), 2) asset-based commercial loans and 3) SBA 7(a) loans. The loans are marketed and serviced by MB’s affiliates who have extensive prior experience in these asset groups. Additionally, MB began issuing brokered certificates of deposit in January 2004, and had purchased over $84,150,000 of taxicab medallion and asset-based loans from affiliates of the Company as of June 30, 2004. Additionally, on April 1, 2004, MB purchased a RV/Marine loan portfolio with a principal amount of $84,875,000 net of $4,244,000, or 5% of unrealized depreciation, from an unrelated financial institution for consideration of $86,309,000. The purchase was funded with $7,700,000 of additional capital contributed by the Company and with deposits raised by MB. The purchase included a premium of approximately $5,678,000 to the book value of assets acquired, which will be amortized to interest income over the expected life of the acquired loans, and which is carried in other assets on the consolidated balance sheets.

In June 2003, MFC established several wholly-owned subsidiaries which, along with an existing subsidiary (together, Medallion Chicago), purchased certain City of Chicago taxicab medallions which are leased to fleet operators while being held for long-term appreciation in value.

In September 2002, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust I (Trust), for the purpose of owning medallion loans originated by MFC or others. The Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of the Trust, will be entitled to be satisfied out of the Trust’s assets prior to any value in the Trust becoming available to the Trust’s equity holders. The assets of the Trust are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of the Trust. The Trust’s loans are serviced by MFC.

7

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices in the investment company industry. The preparation of financial statements in conformity with generally accepted accounting principles in the US requires the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for MTM. All significant intercompany transactions, balances, and profits have been eliminated in consolidation. As non-investment companies, MTM cannot be consolidated with the Company, which is an investment company under the 1940 Act. See Note 3 for the presentation of financial information for MTM.

Investment Valuation

The Company’s loans, net of participations and any unearned discount, are considered investments under the 1940 Act and are recorded at fair value. Loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. The Company’s RV/Marine portfolio purchase was net of unrealized depreciation of $4,244,000, or 5.0% of the balances outstanding, and included a purchase premium of approximately $5,678,000. Adjustments to the fair value of this portfolio are based on the historical loan loss data obtained from the seller, adjusted for changes in delinquency trends and other factors as described above.

Investments in securities and stock warrants are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation, respectively. The fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies as well as general market trends for businesses in the same industry. Included in equity investments at June 30, 2004 are marketable and non-marketable securities of $1,307,000 and $3,719,000, respectively. At December 31, 2003, the respective balances were $648,000 and $4,328,000. Because of the inherent uncertainty of valuations, management’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

The Company’s investments consist primarily of long-term loans to persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 61% and 76% of the Company’s investment portfolio at June 30, 2004 and December 31, 2003 had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 80% and 81% were in New York City. These loans are secured by the medallions, taxicabs, and related assets, and are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Company’s portfolio represents loans to various commercial enterprises, in a variety of industries, including wholesaling, food services, financing, broadcasting, communications, real estate, and lodging. These loans are made primarily in the metropolitan New York City area. Approximately 14% of the Company’s portfolio consists of consumer loans collateralized by recreational vehicles, boats, and trailers to consumers in all 50 states. The remaining portion of the Company’s portfolio is from the origination of loans guaranteed by the SBA under its Section 7(a) program, less the sale of the guaranteed portion of those loans. Funding for the Section 7(a) program depends on annual appropriations by the US Congress.

Collateral Appreciation Participation Loans

During the 2000 first half, the Company originated collateral appreciation participation loans collateralized by 500 Chicago taxi medallions of $29,800,000, of which $20,850,000 was syndicated to other financial institutions. During 2002

8

and 2003, all of the medallions were returned to the Company in lieu of repayment of the loans. Subsequently, the Company reached agreement to sell 400 of the medallions to new borrowers at book value upon the transfer of the ownership of the medallion licenses by the City of Chicago, and 390 medallions for $19,459,000 had been reclassified back to medallion loans through June 30, 2004, reflecting the transfers to date, which includes portions of the original loan repurchased from the participants and refinanced elsewhere, primarily with the Merrill Lynch facility. Also, during 2003, 100 of the returned medallions were sold for $2,000,000 to subsidiaries of MFC, who subsequently repurchased the syndicated portion of $4,000,000, the purchase of which was mostly funded by notes of $3,700,000 with several banks. These medallions are leased to fleet operators while being held for long-term appreciation in value. The remaining 10 medallions for $95,000 are carried in other assets as of June 30, 2004. The Company has contracted with certain fleet operators to buy the 10 remaining medallions for full value, similar to the transactions described above; however, there can be no assurances that the balance of such refinancing will occur. As a RIC, the Company is required to mark-to-market these investments on a quarterly basis, as it does on all of its other investments. The Company believes that it has adequately calculated the fair market value of these investments in each accounting period, by relying upon information such as recent and historical medallion sale prices.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 2004, December 31, 2003, and June 30, 2003, net origination costs totaled approximately $1,733,000, $1,646,000, and $1,534,000. Amortization expense for the quarters ended June 30, 2004 and 2003 was $527,000 and $351,000, and was $818,000 and $596,000 for the comparable year to date periods.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At June 30, 2004, the net premium on investment securities totaled $199,000, and amortization expense for the 2004 second quarter and six months was $26,000 and $30,000. There were no premiums or amortization expense in the 2003 periods.

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectibility of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is recognized when cash is received. At June 30, 2004, December 31, 2003, and June 30, 2003 total nonaccrual loans were approximately $27,511,000, $26,769,000, and $31,670,000. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was approximately $4,922,000, $3,856,000, and $4,789,000, as of June 30, 2004, December 31, 2003, and June 30, 2003, of which $739,000 and $916,000 would have been recognized in the quarters ended June 30, 2004 and 2003, and $1,392,000 and $1,238,000 would have been recognized in the comparable year to date periods.

The recently purchased RV/Marine portfolio is a consumer loan portfolio with different characteristics compared to commercial loans, typified by a larger number of lower dollar loans that have similar characteristics. As a result, these loans are not typically placed on nonaccrual, but are charged off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever is earlier, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated.

Loan Sales and Servicing Fee Receivable

The Company currently accounts for its sales of loans in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities- a Replacement of FASB Statement No. 125” (SFAS 140). SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The principal portion of loans serviced for others by the Company was approximately $140,184,000 and $174,887,000 at June 30, 2004 and December 31, 2003.

Gain or losses on loan sales are primarily attributable to the sale of commercial loans which have been at least partially guaranteed by the SBA. The Company recognizes gains or losses from the sale of the SBA-guaranteed portion of a loan at the date of the sales agreement when control of the future economic benefits embodied in the loan is surrendered. The gains are calculated in accordance with SFAS 140, which requires that the gain on the sale of a portion of a loan be based on the relative fair values of the loan sold and the loan retained. The gain on loan sales is due to the differential between the

9

carrying amount of the portion of loans sold and the sum of the cash received and the servicing fee receivable. The servicing fee receivable represents the present value of the difference between the servicing fee received by the Company (generally 100 to 400 basis points) and the Company’s servicing costs and normal profit, after considering the estimated effects of prepayments and defaults over the life of the servicing agreement. In connection with calculating the servicing fee receivable, the Company must make certain assumptions including the cost of servicing a loan including a normal profit, the estimated life of the underlying loan that will be serviced, and the discount rate used in the present value calculation. The Company considers 40 basis points to be its cost plus a normal profit and uses the note rate plus 100 basis points for loans with an original maturity of ten years or less, and the note rate plus 200 basis points for loans with an original maturity of greater than ten years as the discount rate. The note rate is generally the prime rate plus 2.75%.

The servicing fee receivable is amortized as a charge to loan servicing fee income over the estimated lives of the underlying loans using the effective interest rate method. The Company reviews the carrying amount of the servicing fee receivable for possible impairment by stratifying the receivables based on one or more of the predominant risk characteristics of the underlying financial assets. The Company has stratified its servicing fee receivable into pools, generally by the year of creation, and within those pools, by the term of the loan underlying the servicing fee receivable. If the estimated present value of the future servicing income is less than the carrying amount, the Company establishes an impairment reserve and adjusts future amortization accordingly. If the fair value exceeds the carrying value, the Company may reduce future amortization. The servicing fee receivable is carried at the lower of amortized cost or fair value.

The estimated net servicing income is based, in part, on management’s estimate of prepayment speeds, including default rates, and accordingly, there can be no assurance of the accuracy of these estimates. If the prepayment speeds occur at a faster rate than anticipated, the amortization of the servicing asset will be accelerated and its value will decline; and as a result, servicing income during that and subsequent periods would decline. If prepayments occur slower than anticipated, cash flows would exceed estimated amounts and servicing income would increase. The constant prepayment rates utilized by the Company in estimating the lives of the loans depend on the original term of the loan, industry trends, and the Company’s historical data. During 2001, the Company began to experience an increase in prepayment activity and delinquencies. These trends continued to worsen during 2001, and as a result the Company revised its prepayment assumptions on certain loan pools to between 25% and 35% from the 15% rate historically used on all pools. Since late in 2002, prepayment patterns have slowed. The Company evaluates the temporary impairment to determine if any such temporary impairment would be considered to be permanent in nature. In the first quarter of 2003, the Company determined that $856,000 of the temporary impairment reserve had suffered a permanent loss in value and was now permanent. Additionally, during 2003, the Company determined that $400,000 of the temporary impairment reserve was no longer warranted due to the above discussed prepayment patterns and consequently, was reversed and recognized as servicing fee income. The prepayment rate of loans may be affected by a variety of economic and other factors, including prevailing interest rates and the availability of alternative financing to borrowers.

The activity in the reserve for servicing fee receivable follows:

	2004		2003
Balance at December 31,	$	1,037,000	$	2,293,000
Adjustments to carrying values (1)		—		(856,000	)
Reduction charged to operations		—		(300,000	)
Balance at March 31,		1,037,000		1,137,000
Activity during the second quarter		—		—
Balance at June 30,	$	1,037,000	$	1,137,000

⁽¹⁾ The Company determined that a fully reserved portion of the servicing asset had suffered a permanent loss in value in the 2003 first quarter, and accordingly, reduced both the balance of the gross servicing fee receivable and the related reserve by $856,000. There was no impact on the consolidated statement of income.

The Company also has the option to sell the unguaranteed portions of loans to third party investors. The gain or loss on such sales is calculated in accordance with SFAS No. 140. The discount related to unguaranteed portions sold would be reversed, and the Company would recognize a servicing fee receivable or liability based on servicing fees retained by the Company. The Company is required to retain at least 5% of loans sold under the SBA Section 7(a) program. The Company sold $3,815,000 of unguaranteed portions of loans to third party investors during the 2003 second quarter and six months, and sold none during the comparable 2004 periods.

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Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments

The change in unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized depreciation on net investments (which excludes MTM and foreclosed properties) was $11,575,000 as of June 30, 2004, $7,631,000 as of December 31, 2003, and $5,561,000 as of June 30, 2003. The Company’s investment in MTM, as wholly-owned portfolio investments, is also subject to quarterly assessments of its fair value. The Company uses MTM’s actual results of operations as the best estimate of changes in its fair value, and records the result as a component of unrealized appreciation (depreciation) on investments. See Note 3 for the presentation of financial information for MTM.

The following table sets forth the changes in the Company’s unrealized appreciation (depreciation) on net investments during the 2004 and 2003 quarters.

	Loans			Equity Investments			Total
Balance December 31, 2002	($	6,997,426	)	$	6,039,584		($	957,842	)
Increase in unrealized
Appreciation on investments		—			1,536,220			1,536,220
Depreciation on investments		86,610			39,600			126,210
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments		523,640			—			523,640
Balance March 31, 2003		(6,387,176	)		7,615,404			1,228,228
Increase in unrealized
Appreciation on investments		—			321,407			321,407
Depreciation on investments		(3,752,538	)		18,000			(3,734,538	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		(11,811	)		(3,980,179	)		(3,991,990	)
Losses on investments		615,791			—			615,791
Balance June 30, 2003 (1)	($	9,535,734	)	$	3,974,632		($	5,561,102	)

	Loans			Equity Investments			Total
Balance December 31, 2003	($	7,917,791	)	$	287,045		($	7,630,746	)
Increase in unrealized
Depreciation on investments		(205,957	)		17,397			(188,560	)
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments		239,810			7,589			247,399
Balance March 31, 2004		(7,883,938	)		312,031			(7,571,907	)
Increase in unrealized
Appreciation on investments		—			81,400			81,400
Depreciation on investments		(497,406	)		(38,421	)		(535,827	)
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments		694,909			—			694,909
RV/Marine Reserve (2)		(4,243,854	)		—			(4,243,854	)
Balance June 30, 2004 (1)	($	11,930,289	)	$	355,010		($	11,575,279	)

⁽¹⁾ Excludes unrealized depreciation of $50,606, $317,361, and $158,000 on foreclosed properties at June 30, 2004, December 31, 2003 and June 30, 2003.

⁽²⁾ Reflects the difference between the purchase price of the portfolio and the actual nominal value of the loan contracts acquired.

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The table below summarizes components of unrealized and realized gains and losses in the investment portfolio.

	Three months ended						Six months ended
	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	81,400		$	321,407		$	81,400		$	1,857,627
Unrealized depreciation		(535,827	)		(3,734,538	)		(724,387	)		(3,608,328	)
Unrealized depreciation on MTM		(1,135,930	)		(814,031	)		(2,313,359	)		(2,274,721	)
Realized gains		—			(3,991,990	)		—			(3,991,990	)
Realized losses		694,909			615,791			942,306			1,139,431
Unrealized losses on foreclosed properties		(50,606	)		(157,934	)		(50,606	)		(186,811	)
Total	($	946,054	)	($	7,761,295	)	($	2,064,646	)	($	7,064,792	)
Net realized gains (losses) on investments
Realized gains	$	315,913		$	8,847,243		$	315,913		$	8,847,243
Realized losses		(694,909	)		(615,791	)		(942,306	)		(1,139,431	)
Direct recoveries (charge offs)		58,668			(19,482	)		76,934			75,424
Realized gains (losses) on foreclosed properties		5,000			2,062			34,897			(130,769	)
Total	($	315,328	)	$	8,214,032		($	514,562	)	$	7,652,467

Goodwill

Costs of purchased businesses in excess of the fair value of net assets acquired (goodwill) was amortized on a straight-line basis over fifteen years. Effective January 1, 2002, coincident with the adoption of SFAS No.142, “ Goodwill and Intangible Assets,” the Company ceased the amortization of goodwill, and engaged a consultant to help management evaluate its carrying value. The results of this evaluation demonstrated no impairment in goodwill for 2003 and 2002. The Company intends to conduct an annual appraisal of its goodwill, and will recognize any impairment in the period the impairment is identified.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $174,000, $330,000, $158,000 and $320,000 for the 2004 and 2003 second quarters and six months, respectively.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Company’s borrowing facilities, and is amortized over the lives of the related financing agreements. Amortization expense for the three and six months ended June 30, 2004 and 2003 was $521,000, $1,022,000, $679,000 and $1,883,000, respectively. In addition, the Company capitalizes certain costs for transactions in the process of completion, including those for acquisitions and the sourcing of other financing alternatives, and during the quarter was increased by the purchase premium paid on the RV/Marine portfolio purchase of $5,678,000. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, capitalized as goodwill, or written off. Amortization expense for the 2004 quarter and six months was $391,000, and was $0 for the 2003 periods. The amounts on the balance sheet for all of these purposes were $8,227,000 and $2,997,000 as of June 30, 2004 and December 31, 2003.

Federal Income Taxes

Traditionally, the Company and each of its corporate subsidiaries other than Media (the RIC subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment company

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taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries’ policy to comply with the provisions of the Code. The Company did not qualify to be treated as a RIC for 2002, primarily due to a shortfall of interest and dividend income related to total taxable income caused primarily by losses in MFC and other subsidiaries, and also for 2003. As a result, the Company was treated as a taxable entity in 2003 and 2002, which had an immaterial effect on the Company’s financial position and results of operations for 2002. The Company anticipates qualifying and filing it’s federal tax returns as a RIC for 2004.

As a result of the above, for 2003 and for 2002, income taxes were provided under the provisions of SFAS No. 109, “Accounting for Income Taxes,” as the Company was treated as a taxable entity for tax purposes. Accordingly, the Company recognized current and deferred tax consequences for all transactions recognized in the consolidated financial statements, calculated based upon the enacted tax laws, including tax rates in effect for current and future years. Valuation allowances were established for deferred tax assets when it was more likely than not that they would not be realized.

Media and MB are not RICs and are taxed as regular corporations. For 2003 and 2002, Media’s losses have been included in the tax calculation of the Company along with MFC. The Trust is not subject to federal income taxation. Instead, the Trust’s taxable income is treated as having been earned by MFC.

During the 2004 second quarter, BLL changed its tax election from that of a disaggregated “pass-through” entity of the Company to that of a standalone taxable Subchapter C corporation. For the 2004 year to-date, BLL has no tax liability as a result of this election, and it is expected that any future tax liabilities will be generally immaterial to the Company as a whole.

Net Increase (Decrease) in Net Assets Resulting from Operations per Share (EPS)

Basic earnings per share are computed by dividing net increase (decrease) in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s common stock and stock options. The table below shows the calculation of basic and diluted EPS.

Three months ended	June 30, 2004					June 30, 2003
			# of Shares	EPS				# of Shares	EPS
Net increase in net assets resulting from operations available to common shareholders	$	248,863				$	755,120
Basic EPS
Income available to common shareholders	$	248,863	18,141,427	$	0.01	$	755,120	18,242,728	$	0.04
Effect of dilutive stock options			398,992		—		—	135,957		—
Diluted EPS
Income available to common shareholders	$	248,863	18,540,419	$	0.01	$	755,120	18,378,685	$	0.04

Six months ended	June 30, 2004							June 30, 2003
				# of Shares	EPS					# of Shares	EPS
Net increase (decrease) in net assets resulting from operations available to common shareholders	($	1,130,826	)					$	1,185,140
Basic EPS
Income (loss) available to common shareholders	($	1,130,826	)	18,179,524	($	0.06	)	$	1,185,140	18,242,728	$	0.06
Effect of dilutive stock options (1)		—		—		—			—	41,191		—
Diluted EPS
Income (loss) available to common shareholders	($	1,130,826	)	18,179,524	($	0.06	)	$	1,185,140	18,283,919	$	0.06

⁽¹⁾ Because there were net losses in the 2004 six months, the effect of the stock options is antidilutive, and therefore is not presented.

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Derivatives

The Company had no interest rate cap agreements or other derivative investments outstanding during 2004 and 2003.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation.

(3) INVESTMENT IN AND LOANS TO MTM

The following table represents MTM’s combined statements of operations.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Advertising revenue	$	1,497,074		$	1,396,653		$	3,210,434		$	2,663,607
Cost of fleet services		1,267,086			1,120,154			2,572,122			2,345,195
Gross profit		229,988			276,499			638,312			318,412
Depreciation and other non cash adjustments		184,889			869,413			569,961			1,233,312
Other operating expenses		1,256,133			1,055,541			2,456,030			2,189,050
Loss from operations		(1,211,034	)		(1,648,455	)		(2,387,679	)		(3,103,950	)
Other income		—			835,212			—			835,212
Loss before taxes		(1,211,034	)		(813,243	)		(2,387,679	)		(2,268,738	)
Income tax provision		985			788			1,768			5,983
Net loss	($	1,212,019	)	($	814,031	)		(2,389,447	)	($	2,274,721	)

The following table presents MTM’s combined balance sheets.

	June 30, 2004			December 31, 2003
Cash	$	92,858		$	422,432
Accounts receivable, net		882,922			1,668,790
Equipment, net		655,668			919,138
Prepaid signing bonuses, net		1,304,796			1,377,596
Goodwill		2,082,338			2,082,338
Other		315,736			417,338
Total assets	$	5,334,318		$	6,887,632
Accounts payable and accrued expenses	$	1,268,373		$	1,148,853
Deferred revenue		1,047,553			1,747,042
Note payable to banks		357,509			377,252
Total liabilities		2,673,435			3,273,147
Shareholder equity		15,888,844			14,503,772
Accumulated net losses		(13,227,961	)		(10,889,287	)
Total shareholder equity		2,660,883			3,614,485
Total liabilities and equity	$	5,334,318		$	6,887,632

During the last three years, Media’s operations were constrained by a very difficult advertising environment that resulted from the September 11, 2001 terrorist attacks and a general economic downturn, compounded by the rapid expansion of taxicab tops inventory that occurred during 1999 and 2000. Media began to recognize losses as growth in operating expenses exceeded growth in revenue. Media is actively pursuing new sales opportunities, including expansion and upgrading of the sales force, and has taken steps to reduce operating expenses, including renegotiation of fleet payments for advertising rights to better align ongoing revenues and expenses, and to maximize cash flow from operations. Media has developed an operating plan to fund only necessary operations out of available cash flow and intercompany borrowings, and to escalate its sales activities to generate new revenues. Although there can be no assurances, Media and the Company believe that this plan will enable Media to weather this downturn in the advertising cycle and maintain operations at existing

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levels until such time as business returns to historical levels. Media retains a net operating loss carryforward of $6,285,000 at June 30, 2004, which has been fully reserved against until such time as future operations demonstrates its potential realizability.

During the 2003 second quarter, Media settled a claim against one of its fleet operators. The result was a termination of certain contractual relations, the payment of $950,000 to Media, and the forgiveness of certain liabilities Media owed the fleet operator. The net result of this settlement was an $835,000 gain reflected as other income in the accompanying statement of operations. A portion of the proceeds from this settlement was used by Media to repay the balance of its US third-party outstanding debt. Also during the 2003 second quarter, Media determined that certain tops were no longer usable, and $398,000 of these tops were written off to other operating expenses.

Media’s sales began increasing in mid 2003. The drop in accounts receivable primarily reflected payments received on customer accounts, and the decrease in deferred revenue reflected the improved utilization of the fleet during the quarter.

The Company charges Media for salaries and benefits and corporate overhead paid by the Company on Media’s behalf. During 2004 and 2003, these amounts owed by Media and Japan to the Company were contributed to Media and Japan as equity.

In July 2001, the Company acquired certain assets and assumed certain liabilities of MMJ, a taxi advertising operation similar to those operated by Media in the US, which has advertising rights on approximately 4,800 cabs servicing various cities in Japan. The terms of the agreement provide for an earn-out payment to the sellers based on average net income over the three year period following the acquisition. MMJ accounted for approximately 5% and 4% of MTM’s combined revenue during 2004 and 2003.

(4) FLOATING RATE BORROWINGS

In September 2002, the Company and MFC renegotiated a substantial portion of their outstanding debt. The Trust entered into a revolving line of credit with Merrill Lynch Commercial Finance Corp., as successor to Merrill Lynch Bank, USA (MLB), for the purpose of acquiring medallion loans from MFC and to provide for future growth in the medallion lending business. The funds paid to MFC by the Trust were used to pay down notes payable to banks and senior secured notes. As a result of these paydowns, the Company and MFC were able to negotiate amendments to their existing facilities with the banks and noteholders. As of May 31, 2003, the Company and MFC had fully satisfied all of the previous notes payable to banks and senior secured notes, were current on all debt obligations, and in full compliance with all terms and conditions.

Borrowings under the Trust’s revolving line of credit are collateralized by the Trust’s assets and borrowings under the notes payable to banks and the senior secured notes were collateralized by the assets of MFC and the Company.

The outstanding balances were as follows:

	Payments Due By Period
	2004		2005		2006		2007		2008		Thereafter		June 30, 2004		December 31, 2003
Revolving line of credit	$	—	$	206,255,000	$	—	$	—	$	—	$	—	$	206,255,000	$	222,936,000
Notes payable to banks		—		8,700,000		1,564,000		1,876,000		—		—		12,140,000		7,583,000
Total	$	—	$	214,955,000	$	1,564,000	$	1,876,000	$	—	$	—	$	218,395,000	$	230,519,000

(A) REVOLVING LINE OF CREDIT

In September 2002, and as renegotiated in September 2003, the Trust entered into a revolving line of credit agreement (amended) with MLB to provide up to $250,000,000 of financing to acquire medallion loans from MFC (MLB line), which increases to $300,000,000 in September 2004 at the option of MFC. MFC is the servicer of the loans owned by the Trust. The MLB line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The MLB line matures in September 2005. The interest rate is generally LIBOR plus 1.25% with an unused facility fee of 0.125%, effective September 2003, and was LIBOR plus 1.50% and 0.375%, previously. The facility fee was $375,000 in September 2003, and will be $900,000 on the first anniversary date.

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(B) NOTES PAYABLE TO BANKS AND SENIOR SECURED NOTES

New Bank Loans

On April 26, 2004, the Company entered into a $15,000,000 revolving note agreement with Sterling National Bank that matures on April 25, 2005. The line is secured by certain pledged assets of the Company and MBC, and is subject to periodic borrowing base requirements. The line bears interest at the prime rate, payable monthly, and is subject to an unused fee of 0.125%. As of June 30, 2004, $8,700,000 had been drawn down under this line.

On July 11, 2003 certain operating subsidiaries of MFC entered into an aggregate $1,700,000 of note agreements with Atlantic Bank of New York and Israel Discount Bank, collateralized by certain taxicab medallions owned by Medallion Chicago of which $1,564,000 was outstanding at June 30, 2004. The notes mature July 8, 2006 and bears interest at LIBOR plus 2%, adjusted annually, payable monthly. Principal and interest payments of $17,000 are due monthly, with the balance due at maturity.

On June 30, 2003, an operating subsidiary of MFC entered into a $2,000,000 note agreement with Banco Popular North America, collateralized by certain taxicab medallions owned by Medallion Chicago, of which $1,876,000 was outstanding at June 30, 2004. The note matures June 1, 2007 and bears interest at Banco Popular’s prime rate less 0.25%, payable monthly. Principal and interest payments of $18,000 are due monthly, with the balance due at maturity.

On April 30, 2003, the Company entered into a $7,000,000 note agreement with Atlantic Bank of New York, collateralized by certain assets of MBC, of which $0 was outstanding at June 30, 2004. The Note was paid in full during the 2004 first quarter. The note had a maturity of May 1, 2004 and bore interest at Atlantic Bank’s prime rate plus 0.25%, payable monthly. Principal was due at maturity.

The Company Bank Loan

The Company Bank Loan was paid off in the 2003 second quarter. It bore interest at the rate per annum of prime plus 0.5%. The Company Bank Loan permitted the payment of dividends solely to the extent necessary to enable the Company to maintain its status as a RIC, and to avoid the payment of excise taxes, consistent with the Company’s dividend policy. The Company Bank Loan was collateralized by all receivables and various other assets owned by the Company. All financial covenants except for the borrowing base covenants were waived during the term of the loan.

On July 31, 1998 (and as subsequently amended and restated), the Company and MBC entered into the Company Bank Loan, a committed revolving credit agreement with a group of banks. On September 21, 2001, the Company Bank Loan was extended to November 5, 2001 to allow for continuation of renewal discussions which were completed and an amendment signed on February 20, 2002. The Company Bank Loan was further amended on September 13, 2002.

The MFC Bank Loan

The MFC Bank Loan was paid off in the 2003 second quarter. It bore interest at the rate per annum of prime, which increased to prime plus 0.5% on January 11, 2003, and further increased to prime plus 1% on May 11, 2003. The MFC Bank Loan permitted the payment of dividends solely to the extent necessary to enable MFC to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with MFC’s dividend policy. The MFC Bank Loan was collateralized by all receivables and various other assets owned by MFC. The collateral for the MFC Bank Loan collateralized both the MFC Bank Loan and the MFC Note Agreements on an equal basis. All financial covenants except for the borrowing base covenants were waived during the term of the loan.

On March 27, 1992 (and as subsequently amended and restated), MFC entered into the MFC Bank Loan, a line of credit with a group of banks. Effective on June 1, 1999, MFC extended the MFC Bank Loan until September 30, 2001 at an aggregate credit commitment amount of $220,000,000, an increase from $195,000,000 previously, pursuant to the Amended and Restated Loan Agreement dated December 24, 1997. The MFC Bank Loan was further amended on March 30, 2001, September 30, 2001, December 31, 2001, April 1, 2002, and September 13, 2002.

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MFC Note Agreements

The MFC Note Agreements were paid off in the 2003 second quarter, and had similar terms to the MFC Bank Loan, except the initial interest rate was 8.85%, which increased to 9.35% on January 12, 2003, and further increased to 9.85% on May 12, 2003. A prepayment penalty of approximately $3,500,000 was paid in accordance with the prepayment provisions of the agreement.

On June 1, 1999, MFC issued $22,500,000 of Series A senior secured notes and on September 1, 1999, MFC issued $22,500,000 of Series B senior secured notes (together, the Notes). The Notes ranked pari passu with the Bank Loans through inter-creditor agreements, and were generally subject to the same terms, conditions, and covenants as the MFC Bank Loans.

Amendments to the Company Bank Loan, MFC Bank Loan, and MFC Note Agreements

Previously, in the 2001 fourth quarter, the Company Bank Loan matured and MFC was in default under its bank loan and its senior secured notes. As of April 1, 2002 and September 13, 2002, the Company and MFC obtained amendments to their bank loans and senior secured notes. The amendments, in general, waived all defaults through September 13, 2002, changed the maturity dates of the loans and notes, modified the interest rates borne on the bank loans and the secured notes, required certain immediate, scheduled or other prepayments of the loans and notes and reductions in the commitments under the bank loans, required the Company and MFC to engage or seek to engage in certain asset sales, and instituted additional operating restrictions and reporting requirements, with the final amendment reducing such rates.

In addition to the changes in maturity, the interest rates on the Company and MFC’s Bank Loans and MFC’s Note Agreements were modified, and additional fees were charged to renew and maintain the facilities and notes. The last amendments contained substantial limitations on our ability to operate and in some cases required modifications to our previous normal operations. Covenants restricting investment in certain subsidiaries, elimination of various intercompany balances between affiliates, limits on the amount and timing of dividends, the tightening of operating covenants, and additional reporting obligations were added as a condition of renewal.

Interest and Principal Payments

Interest and principal payments were paid monthly. Interest on the bank loans was calculated monthly at a rate indexed to the bank’s prime rate. Substantially all promissory notes evidencing the Company’s and MFC’s investments, other than those held by the Trust, were held by a bank as collateral agent under the agreements. The Company and MFC were required to pay an amendment fee of 25 basis points on the amount of the aggregate commitment for the Company. As noted above, the amendments to the Company’s bank loans and senior secured notes, entered into in 2002, involved changes, and in some cases increases, to the interest rates payable thereunder. In addition, during events of default, the interest rate borne on the lines of credit was based upon a margin over the prime rate rather than LIBOR. In addition to the interest rate charges, approximately $15,080,000 had been incurred through June 30, 2004 for attorneys and other professional advisors, most working on behalf of the lenders, and for prepayment penalties and default interest charges, of which ($89,000) and ($60,000) was expensed as part of costs of debt extinguishment during the three and six months ended June 30, 2003, and $358,000, $745,000, $568,000 and $1,684,000 was expensed as part of interest expense during the three and six months ended June 30, 2004 and 2003. The balance of $582,000, which relates solely to the MLB Line, will be charged to interest expense over the remaining term of the line of credit.

17

(5) FIXED RATE BORROWINGS

The following table shows all fixed rate borrowings, including brokered certificates of deposit issued by MB and all outstanding SBA debentures.

	Payments Due for the year ended December 31,
Dollars in thousands	2004		2005		2006		2007		2008		Thereafter		June 30, 2004		December 31, 2003		Interest Rate(1)
Certificates of deposit	$	67,893	$	29,659	$	28,521	$	20,175	$	9,658	$	5,293	$	161,199	$	—	2.02	%
SBA debentures		—		—		—		—		—		62,935		62,935		56,935	5.86
Total	$	67,893	$	29,659	$	28,521	$	20,175	$	9,658	$	68,228	$	224,134	$	56,935	3.10

(1) Weighted average contractual rate as of June 30, 2004.

In January 2004, MB commenced raising deposits to fund the purchase of various affiliates’ loan portfolios. The deposits were raised through the use of investment brokerage firms who package deposits qualifying for the FDIC insurance guaranty into pools that are sold to MB. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions and include a brokerage fee of 0.25% to 0.40%, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. Interest on the deposits is accrued daily and paid at maturity if term is one year or less, and semiannually if greater than one year.

During 2001, FSVC and MCI were approved by the SBA to receive $36,000,000 each in funding over a period of five years. In November 2003, FSVC applied for and received an additional commitment of $8,000,000. As of June 30, 2004, $17,065,000 was available to be drawn down under the SBA commitments.

(6) SEGMENT REPORTING

The Company has two reportable business segments, lending and taxicab rooftop advertising. The lending segment originates and services medallion and secured commercial and consumer loans. The taxicab rooftop advertising segment sells advertising space to advertising agencies and companies in several major markets across the US and Japan, and is conducted by MTM. MTM is reported as a portfolio investment of the Company and is accounted for using the equity method of accounting. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The lending segment is presented in the consolidated financial statements of the Company. Financial information relating to the taxicab rooftop advertising segment is presented in Note 3.

For taxicab rooftop advertising, the increase in unrealized appreciation (depreciation) on the Company’s investment in MTM represents MTM’s net income or loss, which the Company uses as the basis for assessing the fair market value of MTM. Taxicab rooftop advertising segment assets are reflected in investment in and loans to MTM on the consolidated balance sheets. See Note 3.

(7) OTHER INCOME AND OTHER OPERATING EXPENSES

The major components of other income were as follows:

	Three months ended June 30,				Six months ended June 30,
	2004		2003		2004		2003
Servicing fees	$	299,766	$	224,912	$	507,049	$	748,247
Late charges and prepayment penalties		260,683		308,605		497,468		575,594
Accretion of discount		67,592		129,820		123,717		310,014
Revenue sharing		—		10,050		—		34,275
Other		43,330		65,845		93,401		192,216
Total other income	$	671,371	$	739,232	$	1,221,635	$	1,860,346

Included in servicing fees was $300,000 in the 2003 six months to reduce the valuation reserve for the servicing fee receivable, which resulted from improvements in prepayment patterns (see Note 2). The reduction in accretion of discount in 2004 was primarily due to the lower amounts of SBA Section 7(a) loans outstanding.

18

The major components of other operating expenses were as follows:

	Three months ended June 30,					Six months ended June 30,
	2004		2003			2004		2003
Rent expense	$	311,194	$	278,270		$	646,614	$	568,981
Loan collection expense		230,894		154,376			329,943		383,725
Insurance		146,948		152,607			293,613		321,596
Depreciation and amortization		155,329		140,800			330,441		319,633
Travel meals and entertainment		132,075		104,284			272,119		232,213
Consumer loan servicing		227,089		—			227,089		—
Directors fees		147,957		54,328			218,995		117,977
Miscellaneous taxes		73,341		28,175			208,555		43,717
Office expense		75,459		74,171			137,403		163,604
Computer expense		51,224		58,999			107,189		119,358
Telephone		53,964		44,833			105,356		90,834
Bank charges		47,400		78,527			100,057		141,024
Dues and subscriptions		22,203		23,113			53,565		62,411
Cost of debt extinguishment		—		(88,616	)		—		(59,755	)
Other expenses		500,876		413,515			656,621		661,773
Total other operating expenses	$	2,175,953	$	1,517,382		$	3,687,560	$	3,167,091

Included in miscellaneous taxes for the 2004 six months were $71,000 related to sales tax audit results covering years dating back to 1995. Included in loan collection expense is a $64,000 payment for back taxes on a foreclosed property. Directors fees have increased due to an increased accrual for higher director activity.

(8) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data for the periods ended as follows:

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Net share data:
Net asset value at the beginning of the period	$	8.74		$	8.90		$	8.89		$	8.87
Net investment income		0.14			0.02			0.14			0.03
Income tax provision		(0.06	)		—			(0.06	)		—
Net realized gains (losses) on investments		(0.02	)		0.45			(0.03	)		0.42
Net change in unrealized depreciation on investments		(0.05	)		(0.43	)		(0.11	)		(0.39	)
Net increase (decrease) in net assets resulting from operations		0.01			0.04			(0.06	)		0.06
Distributions of net investment income		(0.08	)		(0.01	)		(0.15	)		0.00
Other		0.01			0.00			0.00			(0.00	)
Net asset value at the end of the period	$	8.68		$	8.93		$	8.68		$	8.93
Per share market value at beginning of period	$	8.65		$	4.05		$	9.49		$	3.90
Per share market value at end of period		7.95			6.97			7.95			6.97
Total return (1)		(29	%)		290	%		(29	%)		159	%
Ratios/supplemental data
Average net assets	$	157,918,000		$	162,103,000		$	159,474,000		$	161,568,00
Operating expenses ratio (2)		12.81	%		10.45	%		11.85	%		10.52
Net investment income ratio (2)		3.85	%		0.77	%		1.83	%		0.77

⁽¹⁾ Total return is calculated by comparing the change in value of a share of common stock assuming the reinvestment of dividends on the payment date.

⁽²⁾ Calculated by dividing annualized described income statement line item by average net assets.

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(9) MB REGULATORY GUIDELINES

MB is subject to various regulatory capital requirements administered by the FDIC and State of Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on MB’s and our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, MB must meet specific capital guidelines that involve quantitative measures of MB’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. MB’s capital amounts and classification are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require MB to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting MB’s application for federal deposit insurance, the FDIC ordered that beginning paid-in-capital funds of not less than $22,000,000 be provided, and that the Tier I Leverage Capital to total assets ratio, as defined, of not less than 15% and an adequate allowance for loan losses shall be maintained and no dividends shall be paid to the Company for its first three years of operation.

The following table represents MB’s actual capital amounts and related ratios as of June 30, 2004 and December 31, 2003, compared to required regulatory minimum capital ratios and the ratio required to be considered well capitalized. Management believes, as of June 30, 2004, that MB meets all capital adequacy requirements to which it is subject, and is well-capitalized.

	Regulatory
	Minimum		Well- capitalized		June 30, 2004			December 31, 2003
Tier I capital	—		—		$	30,311,837		$	21,073,000
Total capital	—		—			30,575,654			21,073,000
Average assets	—		—			157,401,127			4,729,000
Risk-weighted assets	—		—			178,798,745			4,606,000
Leverage ratio (1)	4	%	5	%		19	%		446	%
Tier I capital ratio (2)	4		6			17	%		458	%
Total capital ratio (2)	8		10			17	%		458	%

⁽¹⁾ Calculated by dividing Tier I capital by average assets.

⁽²⁾ Calculated by dividing Tier I or total capital by risk-weighted assets.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a specialty finance company that has a leading position in originating and servicing loans that finance taxicab medallions and various types of commercial businesses, and more recently, in lending to consumer purchases of recreational vehicles, boats, and trailers. Since 1996, the year in which the Company became a public company, it has increased its taxicab medallion loan portfolio at a compound annual growth rate of 13%, and its commercial loan portfolio at a compound annual growth rate of 15%. Total assets under our management, which includes assets serviced for third party investors, were approximately $748,893,000 as of June 30, 2004, and have grown from $215,000,000 at the end of 1996, a compound annual growth rate of 18%.

The Company’s loan-related earnings depend primarily on its level of net interest income. Net interest income is the difference between the total yield on the Company’s loan portfolio and the average cost of borrowed funds. The Company funds its operations through a wide variety of interest-bearing sources, such as revolving bank facilities, bank certificates of deposits, debentures issued to and guaranteed by the SBA, and bank term debt. Net interest income fluctuates with changes in the yield on the Company’s loan portfolio and changes in the cost of borrowed funds, as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by the Company. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance the Company’s lending activities. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice on a different basis than its interest-bearing liabilities.

20

The Company also invests in small businesses in selected industries through its subsidiary MCI. MCI’s investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt investments.

Realized gains or losses on investments are recognized when the investments are sold or written off. The realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets, if any, and the cost of such portfolio assets. In addition, changes in unrealized appreciation or depreciation of investments are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period. Generally, realized gains (losses) on investments and changes in unrealized appreciation (depreciation) on investments are inversely related. When an appreciated asset is sold to realize a gain, a decrease in the previously recorded unrealized appreciation occurs. Conversely, when a loss previously recorded as unrealized depreciation is realized by the sale or other disposition of a depreciated portfolio asset, the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in realized loss.

The Company’s investment in MTM, as wholly-owned portfolio investments, is also subject to quarterly assessments of fair value. The Company uses MTM’s actual results of operations as the best estimate of changes in fair value, and records the result as a component of unrealized appreciation (depreciation) on investments.

21

Trends in Investment Portfolio

The Company’s investment income is driven by the principal amount of and yields on its investment portfolio. To identify trends in the yields, the portfolio is grouped by medallion loans, commercial loans, consumer loans, investment securities and equity investments. The following table illustrates the Company’s investments at fair value and the portfolio yields at the dates indicated.

	June 30, 2004					March 31, 2004					December 31, 2003					June 30, 2003
(Dollars in thousands)	Interest Rate(1)		Principal Balance			Interest Rate(1)		Principal Balance			Interest Rate(1)		Principal Balance			Interest Rate(1)		Principal Balance
Medallion loans
New York	5.60	%	$	263,225		5.77	%	$	244,415		6.00	%	$	231,956		6.55	%	$	220,599
Chicago	6.37			34,591		6.59			30,750		6.74			26,542		7.67			18,964
Boston	7.41			16,659		7.48			16,477		7.54			15,491		8.46			12,759
Newark	9.35			7,102		9.39			7,454		9.52			7,744		9.67			7,927
Cambridge	7.28			4,592		7.24			4,457		7.20			4,076		7.74			2,906
Other	9.28			2,601		9.43			2,928		9.77			2,556		9.94			3,330
Total medallion loans	5.91			328,770		6.10			306,481		6.29			288,365		6.87			266,485
Deferred loan acquisition costs				939					925					905					726
Unrealized depreciation on loans				(1,093	)				(1,075	)				(1,058	)				(1,146	)
Net medallion loans			$	328,616				$	306,331				$	288,212				$	266,065
Commercial loans
Secured mezzanine	13.77	%	$	40,911		13.38	%	$	36,417		13.02	%	$	27,166		12.86	%	$	34,449
Asset based	6.97			40,275		6.66			27,569		7.23			18,179		6.55			22,299
SBA Section 7(a)	6.79			18,317		6.81			18,650		6.93			17,540		7.54			24,740
Other secured commercial	7.64			30,094		7.43			29,814		7.58			30,202		9.35			33,138
Total commercial loans	9.21			129,597		9.07			112,450		8.98			93,087		9.47			114,626
Deferred loan acquisition costs				794					719					741					808
Discount on SBA Section 7(a) loans sold				(981	)				(957	)				(998	)				(1,278	)
Unrealized depreciation on loans				(7,004	)				(6,809	)				(6,860	)				(8,390	)
Net commercial loans			$	122,406				$	105,403				$	85,970				$	105,766
Consumer loans
Marine	18.54	%	$	40,150		0.00	%	$	0		0.00	%	$	0		0.00	%	$	0
RV	18.73			16,511		0.00			0		0.00			0		0.00			0
Other	18.57			19,611		0.00			0		0.00			0		0.00			0
Total consumer loans	18.59			76,272		0.00			0		0.00			0		0.00			0
Unrealized depreciation on loans				(3,833	)				0					0					0
Net consumer loans			$	72,439				$	0				$	0				$	0
Investment securities	3.67	%	$	5,992		3.31	%	$	3,108		0.00	%	$	0		0.00	%	$	0
Premiums paid on purchased securities				199					119					0					0
Net investment securities			$	6,191				$	3,227				$	0				$	0
Equity investments	0.00	%	$	4,670		0.00	%	$	4,670		0.00	%	$	4,690		0.00	%	$	1,370
Unrealized appreciation on equities				356					312					287					3,975
Net equity investments			$	5,026				$	4,982				$	4,977				$	5,345
Investments at cost	8.46	%	$	545,302		6.90	%	$	426,709		6.95	%	$	386,142		7.65	%	$	382,481
Deferred loan acquisition costs				1,733					1,644					1,646					1,534
Discount on SBA Section 7(a) loans sold				(981	)				(957	)				(998	)				(1,278	)
Premiums paid on purchased securities				199					119					0					0
Unrealized appreciation on equities				356					312					287					3,975
Unrealized depreciation on loans				(11,930	)				(7,884	)				(7,918	)				(9,536	)
Net investments			$	534,679				$	419,943				$	379,159				$	377,176

⁽¹⁾ Represents the weighted average interest rate of the respective portfolio as of the date indicated.

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INVESTMENT ACTIVITY

The following table sets forth the components of investment activity in the investment portfolio for the periods indicated.

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Net investments at beginning of period	$	419,942,983		$	353,495,029		$	379,158,525		$	356,246,444
Investments originated		87,718,269			83,683,070			145,667,454			137,968,993
Purchase of RV/Marine loan portfolio		80,631,534			—			80,631,534			—
Repayments of investments		(53,275,147	)		(64,012,574	)		(71,831,448	)		(123,440,851	)
Transfers from other assets		81,896			2,412,867			1,721,600			3,101,867
Net increase in unrealized appreciation (depreciation) (1) (2)		240,482			(6,789,330	)		299,319			(4,603,259	)
Net realized losses on investments (3)		(320,328	)		8,211,970			(549,459	)		7,783,236
Realized gains on sales of loans		185,163			526,769			398,441			715,699
Amortization of origination costs		(526,532	)		(351,396	)		(817,646	)		(595,724	)
Net increase in investments		114,735,337			23,681,376			155,519,795			20,929,961
Net investments at end of period	$	534,678,320		$	377,176,405		$	534,678,320		$	377,176,405

⁽¹⁾ Net of unrealized depreciation related to MTM of $1,135,930, $2,313,359, $814,031, and $2,274,721 for the three and six months ended June 30, 2004 and 2003, respectively.

⁽²⁾ Excludes unrealized depreciation of $50,606, $50,606, $157,934, and $186,811 for the three and six months ended June 30, 2004 and 2003, respectively, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

⁽³⁾ Excludes realized gains (losses) of $5,000, $34,897, $2,062, and ($130,769) for the three and six months ended June 30, 2004 and 2003, respectively, related to foreclosed properties which are carried in other assets on the consolidated balance sheet.

PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio at June 30, 2004 was 8.46%, an increase of 151 basis points from 6.95% at December 31, 2003, and an increase of 81 basis points from 7.65% at June 30, 2003. The increases primarily reflected the impact of the higher yielding RV/Marine portfolio partially offset by the reduction in market interest rates in the traditional businesses over the last several years as borrowers refinance. The general rate decrease is partially mitigated by the sizable number of fixed-rate medallion loans which reprice at longer intervals, and the generally high yields including some at fixed rates, on the commercial portfolio. The Company expects to try to increase the percentage of commercial and consumer loans in the total portfolio, the origination of floating and adjustable-rate loans, and the level of non-New York medallion loans to enhance our yields.

Medallion Loan Portfolio

The Company’s medallion loans comprised 61% of the net portfolio of $534,679,000 at June 30, 2004, compared to 76% at December 31, 2003 and 71% at June 30, 2003. The medallion loan portfolio increased by $40,405,000 or 14% in 2004, reflecting increases in most markets, particularly in New York and Chicago. In 2004 and 2003, a portion of the growth reflected the repurchase of participations generated, complimented by new business and the conversion of owned medallions into earning assets. Total medallion loans serviced for third parties were $22,194,000, $36,245,000, and $42,317,000 at June 30, 2004, December 31, 2003, and June 30, 2003.

The weighted average yield of the medallion loan portfolio at June 30, 2004 was 5.91%, a decrease of 38 basis points from 6.29% at December 31, 2003 and 96 basis points from 6.87% at June 30, 2003. The decreases in yield primarily reflected the generally lower level of interest rates in the economy and the effects of borrower refinancings. At June 30, 2004, 20% of the medallion loan portfolio represented loans outside New York, compared to 19% and 17% at December 31, 2003 and June 30, 2003. The Company continues to focus its efforts on originating higher yielding medallion loans outside the New York market.

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Commercial Loan Portfolio

The Company’s commercial loans represented 23% of the net investment portfolio as of June 30, 2004, compared to 23% and 28% at December 31, 2003 and June 30, 2003. The commercial loan portfolio increased $36,430,000 or 42% in 2004, primarily reflecting increased loan originations in the mezzanine and asset-based loan portfolios, and the repurchase of participated commercial loans in the asset-based loan portfolios, since the removal of liquidity constraints from mid year 2003. Total commercial loans serviced for third parties were $117,990,000, $138,643,000, and $151,924,000 at June 30, 2004, December 31, 2003, and June 30, 2003, and included $109,280,000, $117,548,000 and $131,133,000, respectively, related to the SBA Section 7(a) business.

The weighted average yield of the commercial loan portfolio at June 30, 2004, was 9.21%, an increase of 23 basis points from 8.98% at December 31, 2003, and a decrease of 26 basis points from 9.47% at June 30, 2003. The increase in 2004 was primarily due to the higher origination volume in the high yielding mezzanine loan portfolio, partially offset by increased customer refinancing activities at lower rates. The Company continues to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate its interest rate risk in a rising interest rate environment. At June 30, 2004, variable-rate loans represented approximately 49% of the commercial portfolio, compared to 58% and 54% at December 31, 2003 and June 30, 2003. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.

Consumer loan portfolios

The Company’s consumer loans represented 14% of the net investment portfolio as of June 30, 2004. The existing portfolio was purchased on April 1, 2004 from an unrelated financial institution and the transaction closed May 6, 2004. The loans are collateralized by recreational vehicles, boats, and trailers in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The weighted average yield of the consumer loan portfolio at June 30, 2004, was 18.59%. Premium amortization was 1.96% for a net yield of 16.57%. At June 30, 2004, adjustable rate loans represented approximately 84% of the consumer portfolio. The Company will start originating new adjustable rate RV/Marine loans in 10 states during the third quarter.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our commercial loans that are in arrears as to interest payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest payments are brought fully current and there is a period of performance subsequent to the modification. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships on an “enterprise value” basis, expecting to locate and install a new operator to run the business and reduce the debt.

For the consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off to realized losses. If the collateral is repossessed, a realized loss is recorded to write off the loan down to its net realizable value, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off as a realized loss or any excess proceeds are recorded as a realized gain. On final disposition, any losses are subject to subsequent recovery efforts. Consumer portfolio charge offs were $562,018 or 2.82% during the second quarter which was lower than what is expected in future quarters. All collection, repossession, and recovery efforts are handled on behalf of MB by the servicer.

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The following table shows the trend in loans 90 days or more past due:

Dollars in thousands	June 30, 2004				March 31, 2004				December 31, 2003				June 30, 2003
Medallion loans	$	8,791	1.6	%(1)	$	8,783	2.1	%(1)	$	4,569	1.2	%(1)	$	4,579	1.2	%(1)
Commercial loans
Secured mezzanine		10,860	2.1			8,573	2.0			7,543	2.0			11,877	3.1
SBA Section 7(a)		2,504	0.5			3,549	0.8			4,143	1.1			6,565	1.7
Asset-based receivable		—	0.0			—	0.0			—	0.0			—	0.0
Other secured commercial		3,191	0.6			3,174	0.8			2,842	0.7			2,775	0.8
Total commercial loans		16,555	3.2			15,296	3.6			14,528	3.8			21,217	5.6
Consumer loans		226	0.0			—	0.0			—	0.0			—	0.0
Total loans 90 days or more past due	$	25,572	4.8	%	$	24,079	5.7	%	$	19,097	5.0	%	$	25,796	6.8	%

⁽¹⁾ Percentage is calculated against the total loan portfolio.

In general, collection efforts over the past 30 months since the establishment of our collection function have substantially contributed to the sizable reduction in overall delinquencies. The decrease in medallion delinquencies throughout 2003 primarily represented improvements in business for many fleet owners and individual drivers. The increase from year end was concentrated in the Chicago medallion portfolio, is viewed as a temporary spike, and remains at a relatively low historical level. The increase in secured mezzanine financing delinquencies primarily reflected the impact of the economy on certain concession and media properties, some of which is believed to be of temporary nature, and is not unusual given the nature of this kind of business and the current stage of the economic cycle. The decrease compared to a year ago primarily reflected the conversion of a $3,621,000 loan into an equity position in a portfolio investment. The continued improvement in the trend of delinquencies in the SBA Section 7(a) portfolio, and the relatively low level of delinquencies in the other commercial secured loan portfolio primarily reflected management’s efforts to collect and restructure nonperforming loans, and the foreclosure of certain loans, transferring them to other assets. Included in the SBA Section 7(a) delinquency figures are $289,000, $290,000, $845,000, and $2,028,000 at June 30, 2004, March 31, 2004, December 31, 2003, and June 30, 2003, respectively, which represent loans repurchased for the purpose of collecting on the SBA guarantee. The Company is actively working with each delinquent borrower to bring them current, and believes that any potential loss exposure is reflected in the Company’s mark-to-market estimates on each loan. Although there can be no assurances as to changes in the trend rate, management believes that any loss exposures are properly reflected in reported asset values.

We monitor delinquent loans for possible exposure to loss by analyzing various factors, including the value of the collateral securing the loan and the borrower’s prior payment history. Under the 1940 Act, our loan portfolio must be recorded at fair value or “marked-to-market.” Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet.

In determining the value of our portfolio, management and the Board of Directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market interest rates, management and the Board of Directors could decrease its valuation of the portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values which approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results. Based upon these factors, net unrealized appreciation or depreciation on investments is determined, or the amount by which our estimate of the current realizable value of our portfolio is above or below our cost basis.

25

The following table presents credit-related information for the investment portfolios for the periods shown below:

	June 30, 2004			March 31, 2004			December 31, 2003			June 30, 2003
Total loans
Medallion loans	$	328,616,456		$	306,330,557		$	288,211,557		$	266,065,935
Commercial loans		122,405,715			105,403,494			85,970,205			105,765,794
Consumer loans		72,438,909			—			—			—
Total loans		523,461,080			411,734,051			374,181,762			371,831,729
Investment securities		6,190,938			3,226,539			—			—
Equity investments (1)		5,026,303			4,982,393			4,976,763			5,344,676
Net investments	$	534,678,321		$	419,942,983		$	379,158,525		$	377,176,405
Net unrealized appreciation (depreciation) on investments
Medallion loans	($	1,093,310	)	($	1,074,824	)	($	1,058,196	)	($	1,145,674	)
Commercial loans		(7,003,609	)		(6,809,114	)		(6,859,595	)		(8,390,060	)
Consumer loans		(3,833,370	)		—			—			—
Total loans		(11,930,289	)		(7,883,938	)		(7,917,791	)		(9,535,734	)
Investment securities		93			—			—			—
Equity investments		354,079			312,031			287,045			3,974,632
Total net unrealized appreciation (depreciation) on investments	($	11,575,279	)	($	7,571,907	)	($	7,630,746	)		(5,561,102	)
Unrealized appreciation (depreciation) as a % of balances outstanding (2)
Medallion loans		(0.33	%)		(0.35	%)		(0.37	%)		(0.43	%)
Commercial loans		(5.41	)		(6.07	)		(7.39	)		(7.35	)
Consumer loans		(5.03	)		—			—			—
Total loans		(2.23	)		(1.88	)		(2.07	)		(2.50	)
Investment securities		0.02			—			—			—
Equity investments		7.58			6.68			6.12			290.11
Net investments		(2.12	)		(1.78	)		(1.97	)		(1.45	)
	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Realized gains (losses) on loans and equity investments
Medallion loans	$	900		($	1,660	)	$	2,297		($	44,219	)
Commercial loans		(75,124	)		(630,373	)		(298,852	)		(1,061,548	)
Consumer loans		(562,018	)		—			(562,018	)		—
Total loans (3)		(636,242	)		(632,033	)		(858,574	)		(1,105,767	)
Investment securities		—			—			—			—
Equity investments		320,914			8,846,065			344,011			8,713,234
Total realized gains (losses) on loans and equity investments	($	315,328	)	$	8,214,032		($	514,562	)	$	7,652,467
Realized gains (losses) as a % of average balances outstanding
Medallion loans		0.00	%		0.00	%		0.00	%		(0.04	%)
Commercial loans		(0.26	)		(2.30	)		(0.57	)		(2.01	)
Consumer loans		(6.11	)		—			(5.33	)		—
Total loans		(0.54	)		(0.71	)		(0.39	)		(0.60	)
Investment securites		—			—			—			—
Equity investments		26.02			533.74			13.88			250.89
Net investments		(0.26	)		9.01			(0.23	)		4.26

⁽¹⁾ Represents common stock and warrants held as investments.

⁽²⁾ Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect estimates of the current realizable value of the loan portfolio. These percentages represent the discount or premiums that investments are carried on the books at, relative to their par value.

⁽³⁾ Includes realized gains (losses) of $5,000, $34,897, $2,062, and ($130,769) for the three and six months ended June 30, 2004 and 2003, respectively, related to foreclosed properties which are carried in other assets on the consolidated balance sheet.

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Investment Securities

Investment securities were 1.2% of the Company’s total portfolio at June 30, 2004, and represent a new investment category during the first quarter of 2004. The investment securities are primarily mortgage-backed securities purchased by MB to better utilize required cash liquidity.

Equity Investments

Equity investments were 0.1%, 1.3%, and 1.4%, of the Company’s total portfolio at June 30, 2004, December 31, 2003, and June 30, 2003. Equity investments are comprised of common stock and warrants, primarily held by MCI. The increase in equity cost from June 30, 2003 primarily reflected the conversion of a $3,621,000 loan into an equity position in a portfolio investment and the decrease in unrealized appreciation on equities from June 30, 2003 was primarily a result of the realization of the large gain on an appreciated equity investment during 2003.

Investment in and loans to MTM

The investments and loans to MTM represent the Company’s investment in its taxicab advertising business, including contributed capital, the Company’s share of accumulated losses, and intercompany loans provided to MTM for operating capital.

Trends in Interest Expense

The Company’s interest expense is driven by the interest rates payable on its short-term credit facilities with banks, bank certificates of deposit, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. The establishment of the Merrill Lynch Bank, USA (MLB) line of credit in September 2002 and its favorable renegotiation in September 2003 had the effect of dramatically reducing the Company’s cost of funds. In addition, MB began raising brokered bank certificates of deposit during 2004 which were at the Company’s lowest borrowing costs. As a result of MB raising funds through certificates of deposits as previously noted, the Company was able to realign the ownership of some of its medallions and related assets to MB allowing the Company and its subsidiaries to use cash generated through these transactions to retire debt with higher interest rates.

During the 2002 third quarter, the Trust closed a $250,000,000 line of credit with MLB for lending on medallion loans, which was priced at LIBOR plus 1.50%, excluding fees and other costs. All of the draws on this line were paid to MFC for medallion loans purchased, and were used by MFC to repay higher priced debt with the banks and noteholders, and to purchase loans for the Trust from participants and affiliates. During the 2003 third quarter, this line was renewed and extended, and borrowings are now generally at LIBOR plus 1.25%. In addition, $20,060,000 of higher priced SBA debentures were repaid during 2003, and $15,150,000 was drawn back at lower borrowing rates.

The September 13, 2002 amendments repriced the bank loans to 5.25% for the Company and 4.75% for MFC, and repriced MFC’s senior secured notes to 8.85%. In addition to the interest rate charges, approximately $15,080,000 had been incurred through June 30, 2004 for attorneys and other professional advisors, most working on behalf of the lenders, and for prepayment penalties and default interest charges, of which ($89,000) and ($60,000) was expensed as part of costs of debt extinguishment during the three and six months ended June 30, 2003, and $358,000, $745,000, $568,000, and $1,684,000 was expensed as part of interest expense during the three and six months ended June 30, 2004 and 2003. The balance of $582,000, which relates solely to the MLB Line, will be charged to interest expense over the remaining term of the line of credit.

The Company’s cost of funds is primarily driven by the rates paid on its various debt instruments and their relative mix, and changes in the levels of average borrowings outstanding. See Notes 4 and 5 to the consolidated financial statements for details on the terms of all outstanding debt. The Company’s debentures issued to the SBA typically have terms of ten years.

The Company measures its borrowing costs as its aggregate interest expense for all of its interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following table shows the average borrowings and related borrowing costs for the 2004 and 2003 second quarter and six months. Average balances have increased from a year ago, primarily reflecting the establishment of MB and its resulting growth, and the funding needs to

27

support the growth in the Company’s other investment portfolios. The decline in borrowing costs reflected the utilization of the lower cost revolving line of credit with MLB, the raising of low-cost deposits by MB, and the trend of declining interest rates in the economy, partially offset by higher cost bank debt and related renewal expenses, and additional long-term SBA debt also at higher rates.

	Three months ended						Six months ended
	Interest Expense		Average Balance		Average Borrowing Costs		Interest Expense			Average Balance		Average Borrowing Costs
June 30, 2004
Floating rate borrowings	$	1,955,000	$	204,467,000	3.85	%	$	3,665,000		$	198,376,000	3.74	%
Fixed rate borrowings		1,701,000		187,174,000	3.66			2,889,000			150,252,000	3.85
Total	$	3,656,000	$	391,641,000	3.75		$	6,554,000		$	348,628,000	3.76
June 30, 2003 (1)
Floating rate borrowings	$	2,038,000	$	185,105,000	4.42	%	$	4,234,000		$	182,581,000	4.65	%
Fixed rate borrowings		1,160,000		65,524,000	7.10			2,293,000			66,175,000	6.95
Total	$	3,198,000	$	249,629,000	5.14		$	6,527,000	(1)	$	248,756,000	5.26

⁽¹⁾ Included in interest expense in the 2003 first quarter was $538,000 of interest reversals. Adjusted for this amount, the floating rate borrowings average borrowing costs would have been 5.24%, and the total average borrowing costs would have been 5.70% in the 2003 six months.

The Company will continue to seek SBA funding to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. The Company uses SBA funding to fund loans that qualify under SBIA and SBA regulations. The Company believes that financing operations primarily with short-term floating rate secured bank debt has generally decreased its interest expense, but has also increased the Company’s exposure to the risk of increases in market interest rates, which the Company mitigates with certain hedging strategies. At June 30, 2004, December 31, 2003, and June 30, 2003, short-term floating rate debt constituted 49%, 80%, and 78% of total debt, respectively.

Taxicab Advertising

In addition to its finance business, the Company also conducts a taxicab rooftop advertising business primarily through Media, which began operations in November 1994. Media’s revenue is affected by the number of taxicab rooftop advertising displays currently showing advertisements, and the rate charged customers for those displays. At June 30, 2004, Media had approximately 6,700 installed displays in the United States. The Company expects that Media will continue to expand its operations by entering new markets on its own or through acquisition of existing taxicab rooftop advertising companies. Although Media is a wholly-owned subsidiary of the Company, its results of operations are not consolidated with the Company’s operations because SEC regulations prohibit the consolidation of non-investment companies with investment companies.

During the last three years, Media’s operations were constrained by a very difficult advertising environment that resulted from the September 11, 2001 terrorist attacks and a general economic downturn, compounded by the rapid expansion of taxicab tops inventory that occurred during 1999 and 2000. Media began to recognize losses as growth in operating expenses exceeded growth in revenue. Media is actively pursuing new sales opportunities, including expansion and upgrading of the sales force, and has taken steps to reduce operating expenses, including renegotiation of fleet payments for advertising rights to better align ongoing revenues and expenses, and to maximize cash flow from operations. Media has developed an operating plan to fund only necessary operations out of available cash flow and intercompany borrowings, and to escalate its sales activities to generate new revenues. Although there can be no assurances, Media and the Company believe that this plan will enable Media to weather this downturn in the advertising cycle and maintain operations at existing levels until such time as business returns to historical levels. Media retains a net operating loss carryforward of $6,285,000 at June 30, 2004.

In July 2001, through its subsidiary MMJ, the Company acquired certain assets and assumed certain liabilities of a taxi advertising operation similar to those operated by Media in the US, which has advertising rights on approximately 4,800 cabs servicing various cities in Japan. The terms of the agreement provide for an earn-out payment to the sellers based on average net income over the next three years. MMJ accounted for approximately 5% and 4% of MTM’s combined revenue during 2004 and 2003.

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Factors Affecting Net Assets

Factors that affect the Company’s net assets include net realized gain or loss on investments and change in net unrealized appreciation or depreciation on investments. Net realized gain or loss on investments is the difference between the proceeds derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity investment. Change in net unrealized appreciation or depreciation on investments is the amount, if any, by which the Company’s estimate of the fair value of its investment portfolio is above or below the previously established fair value or the cost basis of the portfolio. Under the 1940 Act and the SBIA, the Company’s loan portfolio and other investments must be recorded at fair value.

Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of the loan portfolio to reflect the Company’s estimate of the current value of the total loan portfolio. Since no ready market exists for the Company’s loans, fair value is subject to the good faith determination of the Company. In determining such fair value, the Company and its Board of Directors consider factors such as the financial condition of its borrowers and the adequacy of its collateral. Any change in the fair value of portfolio loans or other investments as determined by the Company is reflected in net unrealized depreciation or appreciation of investments and affects net increase in net assets resulting from operations but has no impact on net investment income or distributable income.

The Company’s investment in MTM, as a wholly-owned portfolio investments, is also subject to quarterly assessments of its fair value. The Company uses MTM’s actual results of operations as the best estimate of changes in fair value, and records the result as a component of unrealized appreciation (depreciation) on investments.

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SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the quarters ended June 30, 2004 and 2003.

	Three Months Ended June 30,						Six months ended June 30,
Dollars in thousands	2004			2003			2004			2003
Statement of operations
Investment income	$	10,400		$	6,468		$	16,886		$	12,996
Interest expense		3,656			3,198			6,554			6,527
Net interest income		6,744			3,270			10,332			6,469
Noninterest income		857			1,267			1,620			2,577
Operating expenses		5,028			4,225			9,396			8,429
Net investment income		2,573			312			2,556			617
Income tax provision		1,063			9			1,108			19
Net realized gains (losses) on investments		(315	)		8,214			(514	)		7,652
Net change in unrealized depreciation on investments (1)		(946	)		(7,762	)		(2,065	)		(7,065	)
Net increase (decrease) in net assets resulting from operations	$	249		$	755		($	1,131	)	$	1,185
Per share data
Net investment income		0.14		$	0.02			0.14		$	0.03
Income tax provision		(0.06	)		—			(0.06	)		—
Net realized losses on investments		(0.02	)		0.45			(0.03	)		0.42
Net change in unrealized appreciation on investments		(0.05	)		(0.43	)		(0.11	)		(0.39	)
Net increase (decrease) in net assets resulting from operations	$	0.01		$	0.04		($	0.06	)	$	0.06
Dividends declared per share	$	0.08		$	0.03		$	0.16		$	0.04
Weighted average common shares outstanding
Basic		18,141,427			18,242,728			18,179,524			18,242,728
Diluted		18,540,419			18,378,685			18,179,524			18,283,919
Balance sheet data
Net investments							$	534,678		$	377,176
Total assets								608,709			429,102
Total borrowed funds								442,529			258,536
Total liabilities								451,291			266,235
Total shareholders’ equity								157,418			162,867

30

	Three Months Ended June 30,				Six months ended June 30,
	2004		2003		2004		2003
Selected financial ratios and other data
Return on average assets (ROA) (2)
Net investment income	1.10	%	0.30	%	0.57	%	0.30	%
Net increase (decrease) in net assets resulting from operations	0.18		0.72		(0.44	)	0.57
Return on average equity (ROE) (3)
Net investment income	3.85		0.77		1.83		0.77
Net increase (decrease) in net assets resulting from operations	0.63		1.87		(1.43	)	1.48
Weighted average yields	8.58	%	7.02	%	7.53	%	7.15	%
Weighted average cost of funds	3.05		3.47		2.96		3.59
Net interest margin (4)	5.53	%	3.55	%	4.57	%	3.56	%
Noninterest income ratio (5)	0.72	%	1.39	%	0.74	%	1.43	%
Operating expense ratio (6)	4.21		4.63		4.27		4.69
As a percentage of net investment portfolio
Medallion loans					61	%	71	%
Commercial loans					23		28
Consumer loans					14		—
Investment securities					1		—
Equity investments					1		1
Investments to assets (7)					87	%	88	%
Equity to assets (8)					26		38
Debt to equity (9)					281		159

⁽¹⁾ Net changes in unrealized appreciation (depreciation) on investments represents the increase (decrease) for the period in the fair value of the Company’s investments including foreclosed properties, and also including the results of operations for MTM.

⁽²⁾ ROA represents the net investment income (loss) or net increase (decrease) in net assets resulting from operations, divided by average total assets.

⁽³⁾ ROE represents the net investment income (loss) or net increase (decrease) in net assets resulting from operations divided by average shareholders’ equity.

⁽⁴⁾ Net interest margin represents net interest income for the year divided by average interest earning assets.

⁽⁵⁾ Noninterest income ratio represents noninterest income divided by average interest earning assets.

⁽⁶⁾ Operating expense ratio represents operating expenses divided by average interest earning assets.

⁽⁷⁾ Represents net investments divided by total assets as of June 30.

⁽⁸⁾ Represents total shareholders’ equity divided by total assets as of June 30.

⁽⁹⁾ Represents total debt (floating rate and fixed rate borrowings) divided by total shareholders’ equity as of June 30.

CONSOLIDATED RESULTS OF OPERATIONS

2004 Second Quarter and Six Months compared to the 2003 Periods

Net increase (decrease) in net assets resulting from operations was $249,000 or $0.01 per diluted common share and ($1,131,000) or ($0.06) per share in the 2004 second quarter and six months, down $506,000 and $2,316,000 from income of $755,000 or $0.04 per share and $1,185,000 or $0.06 per share in the 2003 second quarter and six months, primarily reflecting increased net interest income due to the RV/Marine portfolio purchase, partially offset by higher taxes and higher operating expenses associated with servicing these acquired assets. Year to date also was affected by reduced non interest income and the sale of Select Comfort.

Investment income was $10,401,000 and $16,886,000 in the 2004 second quarter and six months, up $3,933,000 or 61% and $3,890,000 or 30% from $6,468,000 and $12,996,000 in the year ago periods, primarily reflecting $3,304,000 in income earned on the newly purchased RV/Marine portfolio. Excluding that, investment income increased $629,000 or 10% compared to the year ago quarter and $586,000 or 5% compared to the year ago six months, reflecting the growth in the other investment portfolio’s. The yield on the investment portfolio was 8.58% and 7.53% in the 2004 second quarter and six months, up 22% and 5% from yields of 7.02% and 7.15% in the year ago periods, reflecting the impact of the higher yielding RV/Marine portfolio, partially offset by the reduction in market interest rates in the traditional businesses over the last several years as borrowers refinance. The yield on the investment portfolio excluding the $86,309,000 RV/Marine portfolio purchase was

31

6.31% and 6.34% in the 2004 three and six months, down 10% and 11% from the comparable 2003 periods, reflecting the reduction in market interest rates. Average investments outstanding were $482,823,000 and $445,605,000 in the quarter and six months, ($445,829,000 and $424,465,000 excluding the RV/Marine portfolio) up 31% and 22% from $369,788,000 and $366,642,000 in the year ago periods (up 21% and 16% excluding the RV/Marine portfolio), primarily reflecting RV/Marine purchase and growth in most other portfolios.

Medallion loans were $328,616,000 at quarter end, up $62,550,000 or 24% from $266,066,000 a year ago, representing 61% of the investment portfolio compared to 71% in 2003, and were yielding 5.91% compared to 6.87% a year ago, a decrease of 14%. The increase in outstandings primarily reflected the efforts to book new business and repurchase certain participations, primarily in the New York City market, to maximize the utilization of the lower cost MLB line. As medallion loans renewed during the year and new business was booked, they were priced at generally lower current market rates. The commercial loan portfolio was $122,406,000 at quarter end, compared to $105,766,000 a year ago, an increase of $16,640,000 or 16%, and represented 23% of the investment portfolio compared to 28% in 2003. Commercial loans yielded 9.21% at quarter end, compared to 9.47% a year ago, reflecting downward repricing pressure consistent with the interest rate drops over the last few years. The increase in commercial loans was concentrated in asset based receivables and, to a lesser extent, mezzanine loans, partially offset by decreases in loans in the other commercial categories. The Company’s consumer loans represented 14% of the net investment portfolio as of June 30, 2004. The existing portfolio was purchased on April 1, 2004 from another financial institution and the transaction was settled May 6, 2004. The loans are collateralized by recreational vehicles, boats, and trailers in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank. The weighted average yield of the consumer loan portfolio at June 30, 2004, was 18.59%. Premium amortization was 1.96% for a net yield of 16.57%. At June 30, 2004, adjustable rate loans represented approximately 84% of the consumer portfolio. The company will start originating new adjustable rate RV/Marine loans in 10 states during the third quarter. See page 22 for a table which shows loan balances and portfolio yields by type of loan.

Interest expense was $3,656,000 and $6,554,000 in the 2004 second quarter and six months, up $458,000 or 14% and up $27,000 from $3,198,000 and $6,527,000 in the 2003 second quarter and six months. Included in interest expense in 2004 was $357,000 and $715,000 related to the amortization of debt origination costs on the ML Line, due to the extension of maturity timeframe on the MLB line, compared to $568,000 and $1,683,000 in 2003, which was partially offset by $543,000 of interest reversals in the six months. The increases in interest expense were due primarily to higher average borrowed funds outstanding, partially offset by lower borrowing costs. Average debt outstanding was $385,920,000 and $347,506,000 in the quarter and six months, compared to $248,186,000 and $249,307,000 in the year ago periods, increases of 55% and 39%, reflecting the utilization of the MLB line and newly raised brokered CD’s and other borrowings used to fund the RV/Marine portfolio purchase and other investment growth. The cost of borrowed funds was 3.20% and 3.79% in the quarter and six months, compared to 3.78% and 5.28% a year ago, decreases of 15% and 28%, primarily attributable to the increased utilization of the lower cost MLB line and the utilization of low cost brokered deposit financing. Approximately 49% of the Company’s debt was short-term and floating or adjustable rate at quarter end, compared to 80% at year end and 78% a year ago. See page 28 for a table which shows average balances and cost of funds for the Company’s funding sources.

Net interest income was $6,744,000 and $10,332,000, and the net interest margin was 5.53% and 4.57% for the 2004 quarter and six months, up $3,474,000 and $3,863,000 or 60% from $3,270,000 and $6,469,000 in the 2003 periods, representing net interest margins of 3.55% and 3.56% for the 2003 periods, reflecting the items discussed above.

Noninterest income was $857,000 and $1,620,000 in the 2004 second quarter and six months, down $409,000 or 32% and $956,000 or 37% from $1,266,000 and $2,576,000 in the year ago periods. Gains on the sale of loans were $185,000 and $398,000 in the 2004 quarter and six months, down $342,000 or 65% and $318,000 or 44% from $527,000 and $716,000 in the 2003 periods, which included gains from the sales of $3,815,000 of unguaranteed portions of the SBA portfolio for a gain of $179,000 in the 2003 second quarter and six months, and otherwise reflecting a slowdown in loan origination and sales activity by BLL in 2004. During 2004, $2,144,000 and $4,422,000 of guaranteed loans were sold under the SBA program in the quarter and six months, compared to $3,584,000 and $5,683,000 in 2003, declines of 40% and 22%. The decrease in gains on sale under the SBA program primarily reflected the decrease in loans sold, as well as higher market-determined net premiums received on the sales in 2003. Other income, which is comprised of servicing fee income, prepayment fees, late charges, and other miscellaneous income, was $671,000 and $1,222,000 in the 2004 second quarter and six months, compared to $739,000 and $1,860,000 in the year ago periods, decreases of $68,000 or 9% and $638,000 or 34%, respectively. Included in the 2003 six months was $300,000 related to reversing a portion of the servicing asset impairment reserve which was no longer required due to improved prepayment patterns in the servicing asset pools. Excluding those items, other income was $739,000 and $1,560,000 in the 2003 second quarter and six months. The decreases generally reflecting lower fee income from a generally lower level of average managed assets in the 2004 periods excluding the purchased RV/Marine portfolio .

32

Operating expenses were $5,028,000 and $9,396,000 in the 2004 second quarter and six months, compared to $4,225,000 and $8,429,000 in the 2003 periods, increases of $803,000 or 19% and $967,000 or 11%, respectively. Salaries and benefits expense was $2,303,000 and $4,704,000 in the quarter and six months, down $136,000 or 6% and $169,000 or 3% from $2,439,000 and $4,873,000 in the 2003 periods, primarily reflecting an increase in capitalized loan origination costs, and compared to a year ago, the severance reserves established for terminated employees in 2003, partially offset by higher levels of salaries in 2004. Professional fees were $549,000 and $1,004,000 in the 2004 periods, up $281,000 and $615,000 from $268,000 and $388,000 in the 2003 periods, primarily reflecting increased legal and accounting costs . Other operating expenses of $2,176,000 and $3,688,000 in the 2004 quarter and six months were up $659,000 or 43% and $521,000 or 16% from $1,517,000 and $3,167,000 in 2003, primarily reflecting the newly incurred service costs for the RV/Marine portfolio, higher collection expenses, and a higher level of operating expenses, partly due to the growth of MB.

Net unrealized depreciation on investments was $946,000 and $2,065,000 in the 2004 second quarter and six months, compared to depreciation of $7,761,000 and $7,065,000 in the in the year ago periods, improvements of $6,815,000 and $5,000,000. Net unrealized appreciation net of Media was $190,000 and $249,000 in the 2004 quarter and six months, compared to depreciation of $6,947,000 and $4,790,000 in the 2003 periods, improvements of $4,980,000 and $7,196,000, respectively. Unrealized appreciation (depreciation) arises when the Company makes valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2004 second quarter activity resulted from the reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $695,000 ($943,000 for the six months and net increases in the valuation of equity investments of $43,000 (and $60,000 for the six months), partially offset by net unrealized depreciation on loans of $497,000 ($703,000 in the six months) and by net unrealized depreciation of $51,000 on foreclosed property in the three and six months. The 2003 second quarter activity resulted from the reversals of unrealized appreciation associated with appreciated equity investments that were sold of $3,992,000 in the quarter and six months, net unrealized depreciation on loans and equities of $3,734,000 ($3,608,000 for the six months), and net unrealized depreciation of $158,000 ($187,000 for the six months) on foreclosed property, partially offset by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $616,000 ($1,140,000 for the six months), and increases in the valuation of equity investments of $321,000 ($1,857,000 for the six months).

Also included in unrealized appreciation (depreciation) on investments were the net losses of the MTM divisions of the Company. MTM generated net losses of $1,212,000 and $2,389,000 in 2004 second quarter and six months, up $397,000 or 49% and $115,000 or 5% from net losses of $814,000 and $2,275,000 in the 2003 periods. Included in the 2003 second quarter was an $835,000 net gain from the settlement of a lawsuit with one of our fleet operators, partially offset by a $398,000 writeoff of damaged/missing tops. Adjusted for these items, Media lost $1,281,000 and $2,741,000 in the 2003 second quarter and six months. The improvement primarily reflected increased revenues as business began picking up, partially offset by higher fleet costs and operating expenses. The overall net loss position was primarily a result of revenues remaining at generally historically low levels, as a result of the depressed advertising market, and high fixed overhead, partially offset by reduced fleet costs which declined at a slower rate than revenue as fleet contracts were renegotiated. Advertising revenues were $1,497,000 and $3,210,000 in the 2004 periods, up $100,000 or 7% and $546,000 or 20% from $1,397,000 and $2,664,000 in 2003. Vehicles under contract in the US were 6,700, down 180 or 1% 6,880 a year ago, primarily reflecting efforts to reduce fleet costs. Media’s results also included losses of $278,000 and $534,000 for the 2004 periods, and $208,000 and $95,000 for the related 2003 periods, related to foreign operations (2,900 tops/racks under contract), which are suffering from the same slowdown in advertising that is hurting the US market.

Income tax expenses were $1,063,000 and $1,108,000 in the quarter and six months, compared to $9,000 and $19,000 in the year ago periods, primarily reflecting MB’s provision for taxes.

The Company’s net realized loss on investments was $315,000 and $515,000 in the 2004 second quarter and six months, compared to gains of $8,214,000 and $7,652,000 for the 2003 periods, reflecting the above, and direct gains on sales of equity investments of $315,000 in the 2004 quarter and six months, direct gains on sales of foreclosed property of $5,000 ($35,000 in the six months) and by net recoveries of $59,000 ($77,000 in the six months). The 2003 activity reflected the above and direct gains on sales of equity investments of $4,855,000 in the 2003 quarter and six months, partially offset by 2003 net direct chargeoffs of $9,000 ($5,000 for the six months).

The Company’s net realized/unrealized losses on investments were $1,261,000 and $2,579,000 in the 2004 second quarter and six months, compared to gains of $453,000 and $588,000 for the 2003 periods, reflecting the above.

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ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

The Company, like other financial institutions, is subject to interest rate risk to the extent its interest-earning assets (consisting of medallion, commercial, and consumer loans, and investment securities) reprice on a different basis over time in comparison to its interest-bearing liabilities (consisting primarily of credit facilities with banks, bank certificates of deposit, and subordinated SBA debentures).

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, the Company anticipates that approximately 40% of the taxicab medallion portfolio will mature or be prepaid each year. The Company believes that the average life of its loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values, particularly in the medallion loan portfolio.

In addition, the Company manages its exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals or the maturities of tranches drawn under the revolving line of credit or issued as certificates of deposit, for terms of up to five years. The Company had outstanding SBA debentures of $62,935,000 with a weighted average interest rate of 5.86%, constituting 14% of the Company’s total indebtedness as of June 30, 2004. Also, portions of the adjustable rate debt with Banks reprice at intervals of as long as 36 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from the Company’s interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets. The following table presents the Company’s interest rate sensitivity gap reflecting actual contractual repricing of assets and liabilities, and does not reflect any prepayment assumption on the loan portfolio.

	Cumulative rate gap (1)
(Dollars in thousands)	Less Than 1 Year			More Than 1 and Less Than 2 Years			More Than 2 and Less Than 3 Years		More Than 3 and Less Than 4 Years		More Than 4 and Less Than 5 Years		More Than 5 and Less Than 6 Years		Thereafter
June 30, 2004 (2)	($	17,601	)	$	12,973		$	23,252	$	53,727	$	127,379	$	136,380	$	141,204
December 31, 2003 (2)		(61,987	)		(6,176	)		104,121		123,280		181,851		189,272		141,674
December 31, 2002		(24,529	)		38,168			116,363		129,245		141,889		149,975		140,526

⁽¹⁾ The ratio of the cumulative one year gap to total interest rate sensitive assets was (3%), (14%), and (6%) as of June 30, 2004, December 31, 2003, and December 31, 2002.

⁽²⁾ Adjusted for the medallion loan 40% prepayment assumption results in cumulative one year positive interest rate gap and related ratio of $74,419,000 or 13% and $19,136,000 or 4% for June 30, 2004 and December 31, 2003, respectively.

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Liquidity and Capital Resources

Our sources of liquidity are the revolving line of credit with MLB, unfunded commitments from the SBA for long-term debentures that are issued to or guaranteed by the SBA, loan amortization and prepayments, participations or sales of loans to third parties, and our ability to raise brokered certificates of deposit through MB. As a RIC in 2001 and earlier years, and as expected for 2004 and later years, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. In September 2002, the Trust entered into a $250,000,000 revolving line of credit with MLB for the purpose of funding medallion loans acquired from MFC and others. At June 30, 2004, $43,746,000 of this line was available for future use, and in September 2004, this line of credit may grow to $300,000,000, at our option. At the current required capital levels, it is expected, although there can be no guarantee, that deposits of approximately $9,000,000 could be raised by MB to fund future loan origination activity. In addition, MB as a non-RIC subsidiary of the Company is allowed (and for three years required) to retain all earnings in the business to fund future growth. In May 2001, the Company applied for and received $72,000,000 of additional funding with the SBA ($113,400,000 to be committed by the SBA in total), subject to the infusion of additional equity capital into the respective subsidiaries, and in December 2003, an additional $8,000,000 of funding was committed by the SBA, free from any additional equity capital contribution. At June 30, 2004, $17,065,000 is available under these commitments ($9,000,000 of which requires a capital contribution from the company of $3,000,000), $8,065,000 of which requires no capital contribution. Since SBA financing subjects its recipients to certain regulations, the Company will seek funding at the subsidiary level to maximize its benefits. Lastly, approximately $11,363,000 was available at June 30, 2004 under a loan sale agreement that MBC has with a participant bank, and $6,300,000 is available under a revolving credit agreement with a commercial bank.

The components of our debt were as follows at June 30, 2004:

	Balance		Percentage		Rate (1)
Revolving line of credit	$	206,255,000	47	%	3.15	%
Certificates of deposits		161,199,000	36		2.02
SBA debentures		62,935,000	14		5.86
Notes payable to banks		12,140,000	3		4.03
Total outstanding debt	$	442,529,000	100	%	3.07

⁽¹⁾ Weighted average contractual rate as of June 30, 2004.

The Company values its portfolio at fair value as determined in good faith by management and approved by the Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. The Company records unrealized appreciation on equities if it has a clear indication that the underlying portfolio company has appreciated in value and, therefore, the Company’s security has also appreciated in value. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect management’s estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in the Company’s statement of operations as net unrealized appreciation (depreciation) on investments. The Company’s investment in MTM, as wholly-owned portfolio investments, is also subject to quarterly assessments of its fair value. The Company uses MTM’s actual results of operations as the best estimate of changes in fair value, and records the result as a component of unrealized appreciation (depreciation) on investments.

In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with long-term

35

fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. The Company has analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates would have positively impacted net increase (decrease) in net assets resulting from operations as of at June 30, 2004 by approximately $981,000 on an annualized basis, compared to $822,000 as of December 31, 2003, and the impact of such an immediate 1% change over a one year period would have been ($46,000), compared to ($112,000) for 2003. Although management believes that this measure is indicative of the Company’s sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet, and other business developments that could affect net increase (decrease) in net assets resulting from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

The Company continues to work with investment banking firms and other financial intermediaries to investigate the viability of a number of other financing options which include, among others, the sale or spin off certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for the Company and each of the subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at June 30, 2004.

(Dollars in thousands)	The Company			MFC			BLL		MCI			MBC		FSVC			MB			Total 6/30/04			12/31/03
Cash	$	2,188		$	9,852		$	1,168	$	4,023		$	3,209	$	2,976		$	17,048		$	40,464		$	47,676
Bank loans (1)		15,000																			15,000			—
Amounts undisbursed		6,300																			6,300			—
Amounts outstanding		8,700			3,440																12,140			7,583
Average interest rate		4.25	%		3.45	%															4.03	%		3.87	%
Maturity		4/05			6/07																4/05-6/07			5/04-6/07
Lines of Credit (2)					250,000																250,000			250,000
Amounts undisbursed					43,745																43,745			27,064
Amounts outstanding					206,255																206,255			222,936
Average interest rate					3.15	%															3.15	%		2.54	%
Maturity					9/05																9/05			9/05
SBA debentures (3)										36,000					44,000						80,000			80,000
Amounts undisbursed										9,000					8,065						17,065			23,065
Amounts outstanding										27,000					35,935						62,935			56,935
Average interest rate										5.57	%				6.08	%					5.86	%		5.93	%
Maturity										9/11-3/14					9/11-9/13						9/11-3/14			9/11-3/14
Certificates of deposit																		161,199			161,199
Average interest rate																		2.02	%		2.02	%
Maturity																		7/04-5/09			7/04-5/09
Total cash and remaining amounts undisbursed under credit facilities	$	2,188		$	53,597		$	1,168	$	13,023		$	3,209	$	11,041		$	17,048		$	101,274		$	97,804
Total debt outstanding	$	8,700		$	209,695		$	—	$	27,000		$	—	$	35,935		$	161,199		$	442,529		$	287,454

⁽¹⁾ On April 30, 2004 Financial drew a $8,700,000 under a $15,000,000 line of credit with Sterling National Bank secured by certain loans of MBC.

⁽²⁾ Line of credit with MLB for medallion lending. Line extended on September 12, 2003 until September 2005 at improved pricing, fees, terms, and conditions. The committed amount can grow to $300,000,000 in September 2004, at our option.

⁽³⁾ MCI has $9,000,000 under the approved commitment from the SBA which may be drawn down through May, 2006, upon submission of a request for funding by the Company and its subsequent acceptance by the SBA. FSVC has a commitment of $8,065,000 from the SBA, which expires in December 2008. In the 2004 second quarter, MCI pulled down an additional $6,000,000 under their commitment.

Loan amortization, prepayments, and sales also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, medallion loan market rates, economic conditions, and competition. Loan sales are a major focus of the SBA Section 7(a) loan program conducted by BLL, which is primarily set up to originate and sell loans. Increases in SBA Section 7(a) loan balances in any given period generally reflect timing differences in closing and selling transactions. The Company believes that its credit facilities with MLB and the SBA, deposits generated at MB, and cash flow from operations (after distributions to shareholders) will be adequate to fund the continuing operations of the Company’s loan portfolio and advertising business. Also, MB is not a RIC, and therefore is able to retain earnings to finance growth.

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MTM funds its operations through internal cash flow and historically through intercompany debt, and during 2004 and 2003, such debt was contributed to MTM as equity. MTM is not a RIC and, therefore, is able to retain earnings to finance growth. MTM has developed an operating plan to fund only necessary operations out of available cash flow and intercompany borrowings, and to escalate its sales activities to generate new revenues. Although there can be no assurances, MTM and the Company believe that this plan will enable MTM to weather this downturn in the advertising cycle and maintain operations at existing levels until such time as business returns to historical levels.

Recently Issued Accounting Standards

In December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities” (FIN 46R), an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. Variable interest entities, some of which were formerly referred to as special purpose entities, are generally entities for which their other equity investors (1) do not provide significant financial resources for the entity to sustain its activities, (2) do not have voting rights or (3) have voting rights that are disproportionately high compared with their economic interests. Under FIN 46R, variable interest entities must be consolidated by the primary beneficiary. The primary beneficiary is generally defined as having the majority of the risks and rewards of ownership arising from the variable interest entity. FIN 46R also requires certain disclosures if a significant variable interest is held but not required to be consolidated. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). This statement requires that an issuer classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). The provisions of SFAS No.149 that relate to SFAS No. 133 and No. 138 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, provisions of SFAS No. 149 which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The changes in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133 and No. 138, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying financing component to conform it to language used in FIN 45, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated above and for hedging relationships designated after June 30, 2003. In addition, except as stated above, all provisions of SFAS No.149 should be applied prospectively. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol “TAXI.” Our common stock commenced trading on May 23, 1996. As of August 6, 2004, there were approximately 123 holders of record of the Company’s common stock.

On August 6, 2004, the last reported sale price of our common stock was $7.60 per share. Historically, our common stock has traded at a premium to net asset value per share, and although there can be no assurance, the Company anticipates that its stock will again trade at a premium in the future.

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The following table sets forth, for the periods indicated, the range of high and low closing prices for the Company’s common stock on the Nasdaq National Market.

	HIGH		LOW
2004
Second Quarter	$	9.03	$	7.46
First Quarter		9.25		7.91
2003
Fourth Quarter	$	9.49	$	6.49
Third Quarter		7.08		6.28
Second Quarter		7.03		3.70
First Quarter		4.82		3.19

As a non-RIC in 2002 and 2003, dividend distributions were at management’s discretion. Prior to 2002, as required, we met all qualification requirements under IRC Section 851 and distributed at least 90% of our investment company taxable income to our stockholders, and if we requalify as a RIC in 2004 and subsequent years, we intend to distribute at least 90% of our investment company taxable income to our shareholders as well. Distributions of our income were generally required to be made within the calendar year the income was earned as a RIC; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Investment company taxable income includes, among other things, interest, dividends, and capital gains reduced by deductible expenses. Our ability to make dividend payments as a RIC is restricted by certain asset coverage requirements under the 1940 Act and has been dependent upon maintenance of our status as a RIC under the Code in the past, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances, however, that we will have sufficient earnings to pay such dividends in the future.

We have adopted a dividend reinvestment plan pursuant to which stockholders may elect to have distributions reinvested in additional shares of common stock. When we declare a dividend or distribution, all participants will have credited to their plan accounts the number of full and fractional shares (computed to three decimal places) that could be obtained with the cash, net of any applicable withholding taxes that would have been paid to them if they were not participants. The number of full and fractional shares is computed at the weighted average price of all shares of common stock purchased for plan participants within the 30 days after the dividend or distribution is declared plus brokerage commissions. The automatic reinvestment of dividends and capital gains distributions will not release plan participants of any incoming tax that may be payable on the dividend or capital gains distribution. Stockholders may terminate their participation in the dividend reinvestment plan by providing written notice to the Plan Agent at least 10 days before any given dividend payment date. Upon termination, we will issue to a stockholder both a certificate for the number of full shares of common stock owned and a check for any fractional shares, valued at the then current market price, less any applicable brokerage commissions and any other costs of sale. There are no additional fees or expenses for participation in the dividend reinvestment plan. Stockholders may obtain additional information about the dividend reinvestment plan by contacting the Plan Agent at 59 Maiden Lane, New York, NY, 10038.

ISSUER PURCHASES OF EQUITY SECURITIES ⁽¹⁾

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs
December 1 through December 31, 2003	10,816	$	9.20	10,816	$	9,900,492
January 1 through March 31, 2004	85,517		8.32	85,517		9,188,675
April 1 through June 30, 2004	35,000		8.61	35,000		8,887,280
Total	131,333		8.47	131,338		—

⁽¹⁾ The Company publicly announced its Stock Repurchase Program in a press release dated November 5, 2003. The Board of Directors approved the repurchase of up to $10,000,000 of the Company’s outstanding common stock. The Board of Directors did not set an expiration date for the Stock Repurchase Program.

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INVESTMENT CONSIDERATIONS

Interest rate fluctuations may adversely affect the interest rate spread we receive on our taxicab medallion and commercial loans.

Because we borrow money to finance the origination of loans, our income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan funds. While the loans in our portfolio in most cases bear interest at fixed-rates or adjustable-rates (which adjust at various intervals), we finance a substantial portion of such loans by incurring indebtedness with adjustable or floating interest rates (which adjust immediately to changes in rates). As a result, our debt may adjust to a change in interest rates more quickly than the loans in our portfolio. In periods of sharply rising interest rates, our costs of funds would increase, which would reduce our portfolio income before net realized and unrealized gains. Accordingly, like most financial services companies, we face the risk of interest rate fluctuations. Although we intend to continue to manage our interest rate risk through asset and liability management, including the use of interest rate caps, general rises in interest rates will tend to reduce our interest rate spread in the short term. In addition, we rely on our counterparties to perform their obligations under such interest rate caps.

A decrease in prevailing interest rates may lead to more loan prepayments, which could adversely affect our business.

Our borrowers generally have the right to prepay their loans upon payment of a fee ranging from 30 to 120 days interest. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. In a lower interest rate environment, we will have difficulty re-lending prepaid funds at comparable rates, which may reduce the net interest margin we receive.

We have traditionally qualified to be a RIC, and in order to be taxed as a RIC we must distribute our income, we may have a continuing need for capital if we continue to be taxed as a RIC in the future.

We have a continuing need for capital to finance our lending activities. Our current sources of capital and liquidity are the following:

• line of credit for medallion lending;

• raising deposits at MB;

• loan amortization and prepayments;

• sales of participation interests in loans;

• fixed-rate, long-term SBA debentures that are issued to the SBA; and

• borrowings from other financial intermediaries.

In order to be taxed as a RIC in 2001 and earlier years, and as expected for 2004 and later years, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. At June 30, 2004, we had $43,745,000 available under the Company’s revolving line of credit with MLB (which can increase by $50,000,000 in September, 2004, at our option), $17,065,000 available under outstanding commitments from the SBA, $11,363,000 available under a loan sale agreement with a participant bank, $9,000,000 of additional deposits can be raised by MB at existing capital levels, and $6,300,000 is available under a revolving credit agreement with a commercial bank.

We may have difficulty raising capital to finance our planned level of lending operations.

Although the Company has demonstrated an ability to meet significant debt amortization requirements in the last two years, has received approval to operate MB and begin raising federally-insured deposits, and has several refinancing options in progress and under consideration, there can be no assurance that additional funding sources to meet amortization requirements or future growth targets will be successfully obtained. See the additional discussion related to the credit facilities and note agreements in the Liquidity and Capital Resources section on page 35.

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Lending to small businesses involves a high degree of risk and is highly speculative.

Lending to small businesses involves a high degree of business and financial risk, which can result in substantial losses and should be considered speculative. Our borrower base consists primarily of small business owners that have limited resources and that are generally unable to achieve financing from traditional sources. There is generally no publicly available information about these small business owners, and we must rely on the diligence of our employees and agents to obtain information in connection with our credit decisions. In addition, these small businesses often do not have audited financial statements. Some smaller businesses have narrower product lines and market shares than their competition. Therefore, they may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recovery of, our investment in these businesses.

Our borrowers may default on their loans.

We primarily invest in and lend to companies that may have limited financial resources. Numerous factors may affect a borrower’s ability to repay its loan, including:

• the failure to meet its business plan;

• a downturn in its industry or negative economic conditions;

• the death, disability or resignation of one or more of the key members of management; or

• the inability to obtain additional financing from traditional sources.

Deterioration of a borrower’s financial condition and prospects may be accompanied by deterioration of the collateral for the loan. Expansion of our portfolio and increases in the proportion of our portfolio consisting of commercial loans could have an adverse impact on the credit quality of the portfolio.

We borrow money, which may increase the risk of investing in our common stock.

We use financial leverage through banks and our long-term subordinated SBA debentures. Leverage poses certain risks for our stockholders, including the following:

• it may result in higher volatility of both our net asset value and the market price of our common stock;

• since interest is paid to our creditors before any income is distributed to our stockholders, fluctuations in the interest payable to our creditors may decrease the dividends and distributions to our stockholders; and

• in the event of a liquidation of the Company, our creditors would have claims on our assets superior to the claims of our stockholders.

Our failure to remedy certain internal control deficiencies at our BLL subsidiary could have an adverse affect on our business operations.

The Company’s BLL subsidiary has been operating under an agreement with the State of Connecticut to, among other things, improve BLL’s liquidity and capital ratios, correct certain operational weaknesses, improve the quality of assets, and increase the level of valuation allowances, the latter of which has already been reflected in these financial statements. The Board of Directors of BLL has entered into an agreement to address these areas of concern, which are similar to those in previous reports. There can be no assurance that BLL will be able to fully comply with its provisions. BLL has historically represented less than 1% of the profits of the Company.

If we are unable to continue to diversify geographically, our business may be adversely affected if the New York City taxicab industry experiences a sustained economic downturn.

Although we have diversified from the New York City area, a significant portion of our taxicab advertising and loan revenue is derived from New York City taxicabs and medallion loans collateralized by New York City taxicab medallions. An economic downturn in the New York City taxicab industry could lead to an increase in defaults on our medallion loans and may also adversely affect the operation of our taxicab rooftop advertising business. There can be no assurance that we will be able to sufficiently diversify our operations geographically.

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An economic downturn could result in certain of our commercial loan customers experiencing declines in business activities, which could lead to difficulties in their servicing of their loans with us, and increasing the level of delinquencies, defaults, and loan losses in our commercial loan portfolio. Although the Company believes the estimates and assumptions used in determining the recorded amounts of net assets and liabilities at June 30, 2004 are reasonable, actual results could differ materially from the estimated amounts recorded in the Company’s financial statements.

The loss of certain key members of our senior management could adversely affect us.

Our success is largely dependent upon the efforts of senior management. The death, incapacity, or loss of the services of certain of these individuals could have an adverse effect on our operations and financial results. There can be no assurance that other qualified officers could be hired.

Acquisitions may lead to difficulties that could adversely affect our operations.

By their nature, corporate acquisitions entail certain risks, including those relating to undisclosed liabilities, the entry into new markets, operational, and personnel matters. We may have difficulty integrating acquired operations or managing problems due to sudden increases in the size of our loan portfolio. In such instances, we might be required to modify our operating systems and procedures, hire additional staff, obtain and integrate new equipment, and complete other tasks appropriate for the assimilation of new business activities. There can be no assurance that we would be successful, if and when necessary, in minimizing these inherent risks or in establishing systems and procedures which will enable us to effectively achieve our desired results in respect of any future acquisitions.

Competition from entities with greater resources and less regulatory restrictions may decrease our profitability.

We compete with banks, credit unions, and other finance companies, some of which are SBICs, in the origination of taxicab medallion loans and commercial loans. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that we will be able to continue to identify and complete financing transactions that will permit us to continue to compete successfully.

Our taxicab rooftop advertising business competes with other taxicab rooftop advertisers as well as with all segments of the out-of-home advertising industry. We also compete with other types of advertising media, including cable and network television, radio, newspapers, magazines, billboards, and other forms of outdoor advertising and direct mail marketing. Certain of these competitors have also entered into the taxicab rooftop advertising business. Many of these competitors have greater financial resources than the Company and offer multiple types of advertising as well as production facilities. There can be no assurance that we will continue to compete with these businesses successfully.

The valuation of our loan portfolio is subjective and we may not be able to recover our estimated value in the event of a foreclosure or sale of a substantial portion of portfolio loans.

Under the 1940 Act, our loan portfolio must be recorded at fair value or “marked-to-market.” Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our investment portfolio is adjusted quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of our management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet. If liquidity constraints required the sale of a substantial portion of the portfolio, such an action may require the sale of certain assets at amounts less than their carrying amounts.

In determining the value of our portfolio, management and the Board of Directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market interest rates, management and the Board of Directors could decrease its valuation of the

41

portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values which approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results.

Considering these factors, we have determined that the fair value of our portfolio is below its cost basis. At June 30, 2004, our net unrealized depreciation on investments was approximately $11,575,000 or 2.12% of our net investment portfolio. Based upon current market conditions and current loan-to-value ratios, management believes, and our Board of Directors concurs, that the net unrealized depreciation on investments is adequate to reflect the fair value of the portfolio.

Changes in taxicab industry regulations that result in the issuance of additional medallions could lead to a decrease in the value of our medallion loan collateral.

Every city in which we originate medallion loans, and most other major cities in the US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. New York City has determined to increase the number of medallions by 900, auctioned over a three year period beginning in 2004, preceded by a 25% fare hike. The first of these auctions for 300 medallions concluded in April 2004 and generated high levels of bid activity and record medallion prices. Although there can no be no assurances, we would expect the balance of the auctions to obtain similar results. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses can render taxicab operations less profitable, and could cause borrowers to default on loans from the Company, and could potentially adversely affect the value of the Company’s collateral. As mentioned above, New York City approved a 25% fare increase as a part of the auction program which was effective May 1, 2004.

A significant portion of our taxicab advertising and loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City Taxi and Limousine Commission data, over the past 20 years New York City taxicab medallions have appreciated in value an average of 10% each year. However, for sustained periods during that time, taxicab medallions have declined in value. During 2004, the value of New York City taxicab medallions increased by approximately 15% for individual medallions and 16% for corporate medallions.

Our failure to re-establish our RIC status in 2003 and beyond could lead to a substantial reduction in the amount of income distributed to our shareholders.

In 2003, changes were enacted to the federal tax laws which, among other things, significantly reduced the tax rate on dividends paid to shareholders from a corporation’s previously taxed income. Assuming we qualify as a RIC for 2004 or subsequent taxable years, we are unable to predict the effect of such changes upon our common stock.

As noted above, we did not qualify as a RIC in 2002 and 2003, and as a result we will be able to take advantage of corporate net operating loss carryforwards. If we do not file as a RIC for more than two consecutive years, and then seek to requalify and elect RIC status, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period. Absent such special election, any gain we recognize would be deemed distributed to our stockholders as a taxable distribution. Prior to 2002, we (along with some of our subsidiaries) qualified to be treated as RICs under the Code. As RICs, we generally were not subject to federal income tax on investment company taxable income (which includes, among other things, interest, dividends, and capital gains reduced by deductible expenses) distributed to our shareholders. If we or those of our subsidiaries that were also RICs fail to qualify as RICs in 2004 or beyond, our respective income would become fully taxable and a substantial reduction in the amount of income available for distribution to us and to our shareholders could result.

To qualify and be taxed as a RIC, we must meet certain income, diversification, and distribution requirements. However, because we use leverage, we are subject to certain asset coverage ratio requirements set forth in the 1940 Act.

42

These asset coverage requirements could, under certain circumstances, prohibit us from making distributions that are necessary to maintain our RIC status or require that we reduce our leverage.

In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on us and limit our ability to retain earnings to cover periods of loss, provide for future growth and pay for extraordinary items. Certain of our loans, including the medallion collateral appreciation participation loans, could also be re-characterized in a manner that would generate non-qualifying income for purposes of the RIC rules. In this event, if such income exceeds the amount permissible, we could fail to satisfy the requirement that a RIC derive at least 90% of its gross income from qualifying sources, with the result that we would not meet the requirements of Subchapter M for qualification as a RIC. Qualification as a RIC is made on an annual basis and, although we and some of our subsidiaries qualified as regulated investment companies in the past, no assurance can be given that each will qualify for such treatment in 2004 and beyond. Failure to qualify as a RIC would subject us to tax on our income and could have material adverse effects on our financial condition and results of operations.

Our SBIC subsidiaries may be unable to meet the investment company requirements, which could result in the imposition of an entity-level tax.

The SBIA regulates some of our subsidiaries. The SBIA restricts distributions by a SBIC. Our SBIC subsidiaries that are also RICs could be prohibited by SBA regulations from making the distributions necessary to qualify as a RIC. Each year, in order to comply with the SBA regulations and the RIC distribution requirements, we must request and receive a waiver of the SBA’s restrictions. While the current policy of the SBA’s Office of SBIC Operations is to grant such waivers if the SBIC makes certain offsetting adjustments to its paid-in capital and surplus accounts, there can be no assurance that this will continue to be the SBA’s policy or that our subsidiaries will have adequate capital to make the required adjustments. If our subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC status and a consequent imposition of an entity-level tax.

The Internal Revenue Code’s diversification requirements may limit our ability to expand our taxicab rooftop advertising business and our medallion collateral appreciation participation loan business.

We intend to continue to pursue an expansion strategy in our taxicab rooftop advertising business. We believe that there are growth opportunities in this market. However, the asset diversification requirements for RICs could restrict such expansion. These requirements provide that to qualify as a RIC, not more than 25% of the value of our total assets may be invested in the securities (other than US Government securities or securities of other RICs) of any one issuer. While our investments in RIC subsidiaries are not subject to this diversification test so long as these subsidiaries qualify as RICs, our investments in Media and MB would be subject to this test, and could impact requalification as a RIC.

At the time of our original investment, Media represented approximately 1% of our total assets, which is in compliance with the diversification test. Assuming we had maintained our RIC status, the subsequent growth in the value of Media by itself would not re-trigger the test even if Media represented in excess of 25% of our assets. However, under the RIC rules, the test would have to be reapplied in the event that we made a subsequent investment in Media, loaned to it or acquired another taxicab rooftop advertising business. The application of this assets valuation rule to us and our investment in Media in light of our loss of RIC status in 2003 and 2002 is unclear, although compelling arguments can be made that it should continue to apply if we re-qualify as a RIC in the future. Provided that it does apply, it will be important that we take actions to satisfy the 25% diversification requirement in order to maintain our RIC status during those years. As a result, maintenance of RIC status in the future could limit our ability to expand our taxicab rooftop advertising business. It will be our policy to expand our advertising business through internally generated growth. We expect to consider an acquisition in this area only if we will be able to meet RIC diversification requirements.

Additionally the Company’s investment in MB, while representing only 18% of the Company’s total assets at June 30, 2004, currently falls well within the guidelines of the 25% test described above. However, as an anticipated future growth vehicle of the Company, the investment in MB will need to be monitored for continued compliance with the test.

The fair value of the collateral appreciation participation loan portfolio at June 30, 2004 was $19,459,000, which represented 4% of the total investment portfolio, and the owned medallion portion was $6,095,000 or 1% of total assets. We will continue to monitor the levels of these asset types in conjunction with the diversification tests, assuming we re-qualify for RIC status.

43

Our past use of Arthur Andersen LLP as our independent auditors may pose risks to us and also limit your ability to seek potential recoveries from them related to their work.

Effective July 29, 2002, the Company dismissed its independent auditors, Arthur Andersen LLP (Andersen), in view of recent developments involving Andersen, and engaged PricewaterhouseCoopers LLP to serve as the Company’s independent public accountants and to audit the financial statements for the years ended December 31, 2003 and 2002.

As a public company, we are required to file periodic financial statements with the SEC that have been audited or reviewed by an independent accountant. As our former independent auditors, Andersen provided a report on our consolidated financial statements as of and for each of the five fiscal years in the period ended December 31, 2001. SEC rules require us to obtain Andersen’s consent to the inclusion of its audit report in our public filings. However, Andersen was indicted and found guilty of federal obstruction of justice charges, and has informed the Company that it is no longer able to provide such consent as a result of the departure from Andersen of the former partner and manager responsible for the audit report. Under these circumstances, Rule 437A under the Securities Act of 1933, as amended, permits the Company to incorporate the audit report and the audited financial statements without obtaining the consent of Andersen.

The SEC has recently provided regulatory relief designed to allow public companies to dispense with the requirement that they file a consent of Andersen in certain circumstances. Notwithstanding this relief, the inability of Andersen to provide either its consent or customary assurance services to us now and in the future could negatively affect our ability to, among other things, access the public capital markets. Any delay or inability to access the public markets as a result of this situation could have a material adverse impact on our business, financial condition, and results of operations.

We depend on cash flow from our subsidiaries to make dividend payments and other distributions to our shareholders.

We are primarily a holding company, and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but there can be no assurance that our subsidiaries will be in a position to continue to make these dividend or debt payments. Furthermore, as a condition of its approval by its regulators, MB is precluded from making any dividend payments for its first three years of operations.

We operate in a highly regulated environment.

We are regulated by the SEC, the SBA, and the FDIC, and the Utah Department of Financial Institutions. In addition, changes in the laws or regulations that govern BDCs, RICs, SBICs, or banks may significantly affect our business. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change. Any change in the laws or regulations that govern our business could have a material impact on our operations.

Our use of brokered deposit sources for MB’s deposit-gathering activities may not be available when needed.

MB relies on the established brokered deposit market to originate deposits to fund its operations. While MB has developed contractual relationships with a diversified group of investment brokers, and the brokered deposit market is well-developed and utilized by many banking institutions, conditions could change that might affect the availability of deposits. If the capital levels at MB fall below the “well-capitalized” level, or if MB experiences a period of sustained operating losses, the cost of attracting deposits from the brokered deposit market could increase significantly, and the ability of MB to raise deposits from this source could be impaired. MB is able to manage its growth to stay within the “well-capitalized” level, and the capital level currently required by the FDIC during MB’s first three years of operation is also considerably higher than the level required to be classified as “well-capitalized”.

44

Consumer lending is a new product line for us that carries a higher risk of loss and could be adversely affected by an economic downturn.

The acquisition of the RV/Marine loan portfolio represents an entry into the new market of consumer lending for the Company. Although it is a seasoned portfolio, and MB management has considerable experience in managing consumer loans, there can be no assurances that these loans will perform at their historical levels under different management going forward.

By its nature, lending to consumers that have blemishes on their credit reports carries with it a higher risk of loss. Although the net interest margins should be higher to compensate the Company for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of the consumer loan portfolio.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of June 30, 2004 and December 31, 2003 and (ii) no change in internal control over financial reporting occurred during the quarters ended June 30, 2004 and 2003 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are currently involved in various legal proceedings incident to the ordinary course of its business, including collection matters with respect to certain loans. The Company intends to vigorously defend any outstanding claims and pursue its legal rights. In the opinion of the Company’s management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on the Company’s results of operations or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In November 2003, the Board of Directors authorized the Company to repurchase up to $10,000,000 of its common stock. As of June 30, 2004, the Company had repurchased 131,333 shares of its common stock at an aggregate purchase price of $1,112,720. Thus, the Company is authorized to repurchase an additional $8,887,280 of its common stock. The repurchased shares are held in treasury stock.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) REPORTS ON FORM 8-K

On May 6, 2004, the Company filed a Current Report on Form 8-K, announcing by press release the financial results for the quarter ended March 31, 2004.

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(B) EXHIBITS

Number	Description
4.1	Revolving Credit Note, dated April 26, 2004, in the amount of $15,000,000, from Medallion Financial Corp., payable to Sterling National Bank. Filed herewith.
10.1	Loan and Security Agreement, dated April 26, 2004, by and between Medallion Financial Corp. and Sterling National Bank. Filed herewith.
31.1	Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.
32.1	Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2	Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

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IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-Q and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-Q were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-Q will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled by or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-Q should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-Q. The inclusion of the forward-looking statements contained in this Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-Q will be achieved. In light of the foregoing, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-Q and other documents that the Company files from time to time with the Securities and Exchange Commission, including annual reports and form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K must be considered by any investor or potential investor in the Company.

SIGNATURES

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

MEDALLION FINANCIAL CORP.
Date:	August 9, 2004
By:	/s/ Alvin Murstein
	Alvin Murstein
	Chairman and Chief
	Executive Officer

By:	/s/ Larry D. Hall
	Larry D. Hall
	Senior Vice President and
	Chief Financial Officer
	Signing on behalf of the registrant
	as principal financial and accounting officer

47

EX-4.1

REVOLVING CREDIT NOTE

$15,000,000 April 26, 2004

FOR VALUE RECEIVED, the undersigned, MEDALLION FINANCIAL CORP. a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay on or before April 26, 2005 (the “Revolving Credit Termination Date”), to the order of STERLING NATIONAL BANK (the “Bank”), at the office of the Bank located at 650 Fifth Avenue, New York, New York 10019, or at such other location as the Bank shall designate, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (i) $15,000,000, or (ii) so much thereof as shall have been advanced (the “Advances”) by the Bank to the Borrower and remain outstanding pursuant to that certain Loan and Security Agreement dated the date hereof by and between the Borrower and the Bank (the “Agreement”). Terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement.

The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time at a rate or rates per annum and at such times as are provided in the Agreement. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed.

All Advances made by the Bank to the Borrower hereunder may be noted by the Bank on any schedule or other record which may now or hereafter be annexed by the Bank hereto, and the Bank is authorized to make such notations which shall be prima facie evidence of the principal amount outstanding hereunder at any time; provided, however, that any failure to make such a notation (or any error in notation) shall not limit or otherwise affect the obligation of the Borrower hereunder, which is and shall remain absolute and unconditional.

This Note is secured by the Collateral, the Security Agreement and other collateral described in the Agreement.

The Borrower shall pay to the Bank a late charge (the “Late Charge”) in an amount equal to five percent (5%) of any payment which is more than ten (10) days in arrears to cover the extra expense involved in handling delinquent payments. The term “payments” shall be construed to include principal, interest, fees and any other amount due under the terms of this Note or any of the other Loan Documents. Acceptance by the Bank of payment of a Late Charge shall in no way be construed to be an election of remedies or waiver by the Bank of any of its rights at law or under the terms of any of the Loan Documents.

This Note may be prepaid, in whole or in part, at any time or from time to time, in accordance with the provisions of the Agreement.

All payments made hereunder shall be applied: first, to any fees or other charges owing to the Bank hereunder; second, to accrued and unpaid interest; and third, to the outstanding principal balance hereof. Notwithstanding the foregoing, upon the occurrence of an Event of Default, the

Bank may apply payments received hereunder in such manner as it shall determine in its sole and absolute discretion.

The Bank may declare this Note to be immediately due and payable if any of the following events shall have occurred and be continuing:

(1) Failure by the Borrower to make any payment of principal or interest under this Note on any date when due; or

(2) An Event of Default shall have occurred under the Agreement or any of the other Loan Documents.

Upon the occurrence of any Event of Default, the Bank may, in addition to such other and further rights and remedies as provided by law or under any of the Loan Documents, (i) collect interest on such overdue amount from the date of such maturity until paid at a rate per annum equal to two percent (2%) in excess of the rate otherwise in effect hereunder, (ii) setoff such amount against any deposit account maintained in the Bank by the Borrower, and such right of setoff shall be deemed to have been exercised immediately upon such stated or accelerated maturity even though such setoff is not noted on the records of the Bank until a later time, and (iii) hold as security any property heretofore or hereafter delivered into the custody, control or possession of the Bank or any entity acting as agent for the Bank by any person liable for the payment of this Note.

This Note may not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

Should the indebtedness represented by this Note or any part hereof be collected at law or in equity, or in bankruptcy, receivership, or any other court proceeding, or should this Note be placed in the hands of attorneys for collection upon default, the Borrower agrees to pay, in addition to the principal and interest due and payable hereon, all reasonable costs and expenses of collecting or attempting to collect this Note, including reasonable attorneys’ fees and expenses.

This Note shall be and remain in full force and effect and in no way impaired until the actual payment thereof to the Bank, its successors or assigns.

Anything herein to the contrary notwithstanding, the obligations of the Borrower under this Note shall be subject to the limitation that payments of interest shall not be required to the extent that receipt of any such payment by the Bank would be contrary to provisions of law applicable to the Bank limiting the maximum rate of interest which may be charged or collected by the Bank.

The Borrower and all endorsers and guarantors of this Note hereby waive presentment, demand for payment, protest and notice of dishonor of this Note.

This Note is binding upon the Borrower and its successors and permitted assigns and shall inure to the benefit of the Bank and its successors and assigns.

2

This Note and the rights and obligations of the parties hereto shall be subject to and governed by the laws of the State of New York without regard to any conflict of laws principles.

IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed by its authorized officer as of the date set forth on the first page hereof.

MEDALLION FINANCIAL CORP.
By:	/s/ Alvin Murstein
	Name: Alvin Murstein
	Title:   Chairman and Chief Executive Officer

3

STATE OF NEW YORK	)
	: ss.:
COUNTY OF NEW YORK	)

On the              day of April             , 2004, before me, the undersigned, personally appeared                                                      , personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

Notary Public

EX-10.1

LOAN AND SECURITY AGREEMENT

by and between

MEDALLION FINANCIAL CORP.

and

STERLING NATIONAL BANK

April 26, 2004

TABLE OF CONTENTS

		Page
I. DEFINITIONS		1
1.1	Defined Terms	1
II. LOANS		11
2.1	Advances	11
2.2	Procedure for Advances	11
2.3	Revolving Credit Note	11
2.4	Interest Rate Under Revolving Credit Note	12
2.5	Payments Under Revolving Credit Note	12
2.6	Use of Proceeds of Advances	12
2.7	Optional Prepayments of Revolving Credit Note	12
2.8	Mandatory Prepayment of Revolving Credit Note	12
2.9	Method of Payment	13
2.10	[Intentionally omitted]	13
2.11	Business Day	13
2.12	Charge	13
2.13	Demand Deposit Accounts	13
2.14	Unused Line Fee	13
2.15	Bank’s Counsel Fees	14
III. SECURITY INTEREST		14
3.1	Grant of Security Interest	14
3.2	Substitute or Additional Collateral	15
3.3	Rights of the Bank; Limitations on Bank’s Obligations	17
IV. REPRESENTATIONS AND WARRANTIES		18
4.1	Subsidiaries; Non-Consolidation	18
4.2	Organization; Power; Qualification	18
4.3	Authorization of Agreement	18
4.4	No Legal Bar	18
4.5	Consent	19
4.6	Compliance With Law	19
4.7	Title to Underlying Loans; Liens	19
4.8	No Default	19
4.9	No Litigation	19
4.10	[Intentionally omitted]	19
4.11	Tax Returns and Payments	19
4.12	Financial Statements	20
4.13	No Adverse Changes	20

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4.14	ERISA	20
4.15	Federal Reserve Regulations	20
4.16	Collateral	20
4.17	Solvency	21
4.18	Accuracy and Completeness of Information	21
4.19	Permits	21
4.20	Intellectual Property	21
4.21	Labor Controversies, Union Contracts, Etc.	21
V. COVENANTS		22
5.1	Preservation of Existence	22
5.2	Nature of Business	22
5.3	Compliance with Laws	22
5.4	Maintenance of Properties	22
5.5	Accounting Methods	22
5.6	Payment of Taxes and Claims	23
5.7	Visits and Inspections; Collateral Audits	23
5.8	Information Covenants	23
(i)     Monthly Financial Statements		23
(ii)    Annual Financial Statements		24
(iii)   Certificate		24
(iv)   Copies of Other Reports		24
(v)    Notice of Litigation and Other Matters		25
5.9	Accuracy and Completeness of Information	25
5.10	Insurance	26
5.11	Indebtedness	26
5.12	Liens	26
5.13	Sale of Assets; Merger	26
5.14	[Intentionally omitted]	26
5.15	Collateral	26
5.16	Financial Covenants	27
5.17	Further Documentation	27
5.19	Bank’s Appointment as Attorney-in-Fact	28
5.20	Performance by Bank of Borrower’s Obligations	29
VI. CONDITIONS PRECEDENT		29
6.1	Conditions Precedent	29
6.2	Conditions Precedent to Additional Advances	31
VII. EVENTS OF DEFAULT		31
VIII. REMEDIES		33

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IX. INDEMNIFICATION		35
9.1	Indemnification	35
X. MISCELLANEOUS		36
10.1	Notice	36
10.2	No Waiver; Cumulative Remedies	37
10.3	Survival of Agreements	37
10.4	Amendment	37
10.5	Successors and Assigns	37
10.6	Severability	38
10.7	Counterparts	38
10.8	Governing Law; No Third Party Rights	38
10.9	Pledge to the Federal Reserve	38
10.10	WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION	38

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THIS LOAN AND SECURITY AGREEMENT is dated April 26, 2004 and is by and between MEDALLION FINANCIAL CORP., a Delaware corporation having an address of 437 Madison Avenue, New York, New York 10022 (the “Borrower”), and STERLING NATIONAL BANK, a national banking association having an address of 650 Fifth Avenue, New York, New York 10019 (the “Bank”).

RECITALS

A. The Borrower has requested the Bank to extend certain credit and make certain loans to the Borrower in an aggregate principal amount not to exceed $15,000,000.

B The Bank is willing to extend such credit and to make such loans to the Borrower, all in accordance with and subject to the terms hereof.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

I. DEFINITIONS

1.1 Defined Terms. As used in this Agreement, the following words and terms shall have the following meanings:

“Account” shall mean, in addition to the definition “account” contained in the Code, any account, contract right, general intangible, chattel paper, instrument or document representing any right to payment for goods sold or services rendered, whether or not earned by performance and whether or not evidenced by a contract, instrument or document, which is now owned or hereafter acquired by the Borrower.

“Advance Request” shall have the meaning ascribed to such term in Section 2.2 hereof.

“Advances” shall have the meaning ascribed to such term in Section 2.1 hereof.

“Affiliate” shall mean as to any specified Person:

(a) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person;

(b) any Person that is an officer of, partner in, or trustee of, or serves in a similar capacity with respect to, the specified Person, or of or in which the specified Person is an officer, partner or trustee, or with respect to which the specified Person serves in a similar capacity;

(c) any Person that, directly or indirectly, is the beneficial owner of any amount of any class of equity securities of the specified Person or is the beneficial owner of any interest in the capital profit of the specified Person;

(d) any Person of which the specified Person is directly or indirectly the beneficial owner of any amount of any class of equity securities or any Person of which the specified Person is the beneficial owner of any interest in the capital and profits; or

(e) any member of the immediate family of the specified Person or any trust for the benefit thereof.

“Agreement” shall mean this Loan and Security Agreement, together with any and all exhibits, schedules, amendments or supplements hereto.

“Asset-Based Loans” shall mean loans made by the Borrower or a Pledgor in which the amounts outstanding, as well as the availability, under such loans is based upon a formula comprised in whole or in part of (a) a specified advance rate multiplied by the borrower’s eligible accounts receivable and (b) a specified advance rate multiplied by the borrower’s eligible inventory.

“Bank” shall mean Sterling National Bank and its successors and assigns.

“Bank Costs” shall mean all taxes and insurance premiums of every kind and nature of the Borrower paid by the Bank; all filing, recording, publication, and search fees incurred in connection with and relating to the Borrower paid by the Bank; all reasonable out-of-pocket costs incurred and sums expended by the Bank, with or without suit, to correct any default, to make advances of principal and interest or payments to prior secured parties, to enforce any right or remedy of the Bank, or in connection with any other provision of any Loan Document, including without limitation, any out-of-pocket costs incurred by the Bank with respect to any other lender in connection with the Loan Documents and the transactions contemplated thereby; all reasonable out-of-pocket costs incurred and sums expended in gaining possession of, inspection of, maintaining, handling, preserving, repairing, renovating, storing, shipping, finishing, selling, preparing for sale, and advertising to sell the Collateral, whether or not a sale is consummated; out-of-pocket costs of using, operating, controlling and managing the Collateral, including but not limited to, rental and licensing costs; out-of-pocket costs of collecting and receiving rent, income, revenue, earnings, issues and profits of the Collateral; reasonable out-of-pocket costs of suit incurred by the Bank in enforcing or defending this Agreement or any other Loan Document or any portion thereof; all out-of-pocket costs and expenses including reasonable attorneys’ fees and expenses incurred by the Bank in preparing, reviewing, enforcing, amending, modifying, extending, administering, defending or otherwise concerning this Agreement or any other Loan Document or any portion hereof or thereof; and whether or not suit is brought, all out-of-pocket costs of arbitration and insolvency proceedings.

“Borrower” shall mean Medallion Financial Corp., a Delaware corporation, and its successors and assigns.

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“Borrowing Base” shall mean at any time an amount equal to seventy six and nine-tenths (76.9%) percent of the portion of the aggregate outstanding principal amount of all Eligible Underlying Loans that is owned and held by the Borrower or a Pledgor.

“Borrowing Base Certificate” shall mean the form of borrowing base certificate attached hereto as Exhibit A (or such other form as the Bank may reasonably require) for completion by the Borrower in order to calculate the Borrowing Base.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which state or federally chartered banks in the State of New York are authorized to close.

“Capitalized Lease Obligations” shall mean any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Chattel Paper” shall have the meaning given to such term in the Code.

“Code” shall mean the Uniform Commercial Code as in effect in any applicable jurisdiction.

“Collateral” shall have the meaning ascribed to such term in Section 3.1 hereof.

“Collateral Proceeds Account” shall have the meaning ascribed to such term in Section 3.3(b) hereof.

“Computer Hardware and Software” shall mean all of the Borrower’s rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes.

“Contracts” shall mean all contracts, instruments, undertakings, documents or other agreements with respect to the Collateral in or under which the Borrower may now or hereafter have any right, title or interest, including without limitation all Underlying Loan Documents.

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“Contract Rights” shall mean any right of the Borrower to payment under a Contract, which right is at the time not yet earned by performance.

“Default” shall mean any of the events specified in Article VII hereof which, with the passage of time or giving of notice or both, would constitute an Event of Default.

“Documents” shall have the meaning given to such term in the Code.

“Eligible Underlying Loan” shall mean an Underlying Loan, to the extent that it is held of record and beneficially by the Borrower or a Pledgor (i.e., only to the extent that it has not been sold or participated by the Borrower or a Pledgor), that meets all of the following requirements:

(a) such Underlying Loan represents a complete bona fide transaction which requires no further act under any circumstances on the part of the Borrower or a Pledgor to make such Underlying Loan payable by the Underlying Borrower (other than advances to be made by the Borrower or a Pledgor pursuant to the express terms of the Underlying Loan Documents relating thereto);

(b) (i) if such Underlying Loan is an Asset-Based Loan, the aggregate principal amount outstanding at any time thereunder does not exceed the lesser of (A) the maximum available amount under the Underlying Loan Documents relating thereto or (B) the borrowing base formula applicable thereto, and (ii) if such Underlying Loan is any other type of loan, such Underlying Loan shall not be in payment default for more than 60 days;

(c) such Underlying Loan is evidenced and secured by valid, binding and enforceable Underlying Loan Documents in form and substance acceptable to the Bank, and, except for Asset-Based Loans, all original promissory notes with respect to such Underlying Loan (or, if no promissory note was issued in connection therewith, all original documents evidencing the debt obligation of the Underlying Borrower thereunder) have been delivered to, and are being held by, the Bank;

(d) the Underlying Borrower with respect to such Underlying Loan is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other proceeding or action which might have a materially adverse effect on the business of such Underlying Borrower or is not, in the reasonable discretion of the Bank, deemed ineligible for credit for any other reason;

(e) such Underlying Loan is a valid, legally enforceable obligation of the Underlying Borrower with respect thereto and is not subject to any present or contingent, and no facts exist which are the basis for any future, offset or counterclaim or other defense on the part of such Underlying Borrower;

(f) except as set forth on Schedules I and III attached hereto, the Bank has a first position perfected Lien on such Underlying Loan, which is subject to no other Lien;

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(g) except as set forth on Schedules I and III attached hereto, the Borrower or a Pledgor has a first position perfected Lien on collateral pledged to the Borrower or such Pledgor pursuant to the terms of the Underlying Loan Documents relating to such Underlying Loan;

(h) except as set forth on Schedules I and III attached hereto, such Underlying Loan does not arise out of any transaction between the Borrower and any Affiliate of the Borrower;

(i) such Underlying Loan is not subject to any provision prohibiting its assignment or requiring notice of or consent to such assignment; and

(j) such Underlying Loan is not deemed ineligible by the Bank for any other reason in the exercise of its reasonable discretion.

Notwithstanding the foregoing or anything in this Agreement to the contrary, (i) at no time shall the aggregate outstanding principal amount of all Taxicab Medallion Loans and Asset-Based Loans owned by the Borrower and the Pledgors constitute less than fifty (50%) percent of the aggregate outstanding principal amount of all Eligible Underlying Loans, and (ii) at no time shall the aggregate outstanding principal amount of all Taxicab Medallion Loans, Asset-Based Loans and Taxicab Medallion Related Loans owned by the Borrower and the Pledgors constitute less than sixty (60%) percent of the aggregate outstanding principal amount of all Eligible Underlying Loans; it being understood and agreed that no Underlying Loan that would otherwise be deemed to be an Eligible Underlying Loan shall constitute an Eligible Underlying Loan to the extent that such Underlying Loan would cause noncompliance with either of the percentage thresholds set forth in the preceding clauses (i) and (ii).

“Event of Default” shall mean any of the events specified in Article VII hereof, provided that any requirement for notice or lapse of time or any other condition has been satisfied.

“GAAP” shall mean generally accepted accounting principles in the United States of America as in effect from time to time.

“General Intangibles” shall mean any “general intangibles,” as such term is defined in the Code, now or hereafter owned by the Borrower or in which the Borrower has rights and, in any event, including, without limitation, all customer lists, mailing lists, Rolodex and other telephone listings and directories, prospect lists, partnership interests, Trademarks, Patents, trade secrets, know-how, engineering labs, computer software, drawings, rights in proprietary information, rights in intellectual property, licenses, license and royalty agreements relating to Patents and Trademarks, permits, copyrights and the right to receive any assets distributed upon or in connection with the termination of any employee benefit plan.

“Indebtedness” shall mean (i) all items (other than capital stock, capital surplus and retained earnings) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet as at the date on which Indebtedness is to be

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determined, and (ii) whether or not so reflected, all indebtedness for borrowed money, contingent or otherwise and whether unsecured or secured by any Lien, and all Capitalized Lease Obligations.

“Indebtedness to Tangible Net Worth Ratio” shall mean, for the applicable measurement period, the ratio of (i) the Borrower’s consolidated Indebtedness to (ii) the Borrower’s consolidated Tangible Net Worth.

“Instruments” shall have the meaning given to such term in the Code.

“Intellectual Property” shall mean all past, present and future: trade secrets, know-how and other proprietary information; Trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patentable); patent applications and Patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.

“Interest Payment Date” shall mean the first day of each month, commencing on May 1, 2004.

“Letter of Credit Rights” shall have the meaning given to such term in the Code.

“Lien” shall mean (a) any lien, judicial lien, assignment, charge, conditional sale or other title retention agreement, lease constituting a capital lease, hypothecation, mortgage, pledge or other security interest, encumbrance or title retention agreement of any kind, whether legal or equitable, in respect of any property of a Person, or upon the income, rents or profits therefrom; (b) any arrangement, express or implied, under which any property of a Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general unsecured creditors of such Person; (c) any Indebtedness for wages or Indebtedness arising for any other reason which is unpaid more than 30 days after the same shall have become due and payable and which, if unpaid, might by Section 507 of the Bankruptcy Code or any other law (whether or not the events or conditions (other than the existence of such Indebtedness or the initiation of legal proceedings available generally to unsecured creditors) set forth in such law have occurred or been satisfied) be given any priority whatsoever over general unsecured creditors of such Person; and (d)

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the filing of, or any agreement to give, any financing statement under the Code or its equivalent in any jurisdiction.

“Loan Documents” shall collectively mean this Agreement, the Revolving Credit Note, the Security Agreement and all other agreements, documents, financing statements, instruments and certificates executed and delivered to the Bank in connection herewith or therewith, together with all modifications to, extensions of and substitutions for the foregoing.

“Material Adverse Effect” shall mean a material adverse effect on the business, assets, condition (financial or otherwise), liabilities or results of operations of the Borrower or any Pledgor.

“Maximum Amount” shall mean $15,000,000.

“Obligations” shall mean all loans, advances, extensions of credit, letters of credit and banker’s acceptances and related fees, debts, obligations under foreign exchange contracts, liabilities, obligations, payments, guarantees, covenants and duties owing by the Borrower to the Bank, of any kind and description, direct or indirect (including any participation or interest of the Bank in any obligation of the Borrower to any other Person), voluntary or involuntary, absolute or contingent, due or to become due, now existing or hereafter incurred or created, whether or not related to or of the same class as the loans described herein. Without limiting the generality of the foregoing, the term “Obligations” shall include all Bank Costs, field examination fees and commitment fees.

“Other Holders” means any Person (other than the Borrower, the Pledgors and any Affiliates of the Borrower or the Pledgors) that is the record, legal and beneficial holder of a participation or other ownership interest in and to any portion of an Underlying Loan.

“Overadvance” shall have the meaning set forth in Section 3.2 hereof.

“Patents” shall mean all of the following now or hereafter owned by the Borrower: (i) all patents of the United States or any other country, and all applications for patents of the United States or any other country; (ii) all renewals, reissues, continuations, divisions, continuations-in-part or extensions thereof; (iii) any inventions and improvements on existing inventions and any future inventions and improvements thereon; (iv) all rights to damages or profits due or accrued or arising out of all past, present or future infringements of any Patent; (v) the right to sue for all past, present and future infringements of any Patent; and (vi) all rights of the Borrower under any license, royalty, franchise or other agreement relating to any Patent.

“Payment Intangibles” shall have the meaning given to such term in the Code.

“Permits” shall have the meaning ascribed to such term in Section 4.19 hereof.

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“Permitted Indebtedness” shall mean:

(i) Indebtedness owing to the Bank;

(ii) Indebtedness incurred in favor of trade creditors and in the ordinary course of business and paid within agreed upon terms (unless being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, but only as long as foreclosure, distraint, sale or other similar proceedings shall not have been commenced and such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been provided therefor);

(iii) Indebtedness in respect of taxes, assessments, governmental charges, worker’s compensation, levies and claims for labor, materials, supplies and rentals to the extent otherwise permitted under this Agreement to remain unpaid and undischarged;

(iv) Indebtedness existing on the date hereof and fully described on Schedule II attached hereto;

(v) Indebtedness incurred in the ordinary course of the Borrower’s business;

(vi) Indebtedness represented by debt offerings of the Borrower in the public debt market; and

(vii) Other secured and unsecured borrowings of the Borrower.

“Permitted Liens” shall mean:

(i) any Lien in favor of the Bank;

(ii) Liens that exist on the date hereof and are set forth on Schedule III attached hereto;

(iii) Liens for taxes, assessments or governmental charges or levies not yet due;

(iv) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue;

(v) pledges or deposits in connection with workers’ compensation, workers’ compensation insurance, unemployment insurance and other social security legislation;

(vi) deposits to secure the performance of bids, trade contracts (other than for borrowed money), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; and

(vii) Liens created by or existing from any litigation or legal proceeding; provided that the execution or other enforcement of such Liens is effectively stayed, the claims secured thereby are being actively contested in good faith by appropriate proceedings, adequate book

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reserves have been established in accordance with GAAP with respect thereto and no Default or Event of Default arises or is created as a result thereof.

“Person” shall mean any individual, corporation, partnership, association, limited liability company, joint stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof.

“Pledgors” shall mean Medallion Business Credit LLC, a Delaware limited liability company, and Medallion Funding Corp., a New York corporation, and their respective successors and assigns. The term “Pledgor” shall mean and refer to any one of the Pledgors.

“Prime Rate” shall mean the rate of interest published from time to time by The Wall Street Journal as the prime rate of interest of major commercial banks in the United States. This rate of interest is determined from time to time by the Bank as a means of pricing some loans to its customers and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers of the Bank.

“Proceeds” shall have the meaning ascribed to such term in the Code and shall include in any event (i) whatever is received upon any collection, exchange, sale or other disposition or refinancing of any of the Collateral and any property into which any of the Collateral is converted, whether cash or non-cash proceeds, (ii) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Borrower from time to time with respect to any of the Collateral (iii) any and all payments (in any form whatsoever) made or due and payable to the Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any Person acting under color of governmental authority), and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

“Revolving Credit Loan” shall have the meaning ascribed to such term in Section 2.1 hereof.

“Revolving Credit Note” shall have the meaning ascribed to such term in Section 2.3 hereof.

“Revolving Credit Termination Date” shall mean April 26, 2005.

“Security Agreement” shall mean the Security Agreement dated the date hereof from the Pledgors in favor of the Bank, together with all modifications thereto, extensions thereof and substitutions therefor.

“Software” shall have the meaning given to such term in the Code.

“Tangible Net Worth” shall mean, as of any date, the excess of the assets of the Borrower over its liabilities, all as determined on a consolidated basis in accordance with GAAP, but excluding from such assets (i) all amounts due to the Borrower from (A) Affiliates of the

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Borrower, (B) officers of the Borrower, and (C) employees of the Borrower, and (ii) all other items that would be considered “intangible assets” under GAAP.

“Taxicab Medallion Loans” shall mean loans made by the Borrower or a Pledgor to an Underlying Borrower for the purpose of funding the purchase by such Underlying Borrower of a taxicab medallion or other license issued by a taxi commission which grants the right to operate a taxicab.

“Taxicab Medallion Related Loans” shall mean loans made by the Borrower or a Pledgor to an Underlying Borrower for the purpose of funding Taxicab Medallion Loans made by such Underlying Borrower to one or more other Persons.

“Trademarks” shall mean all of the following now or hereafter owned by the Borrower or under which the Borrower has conducted any business: (i) all trademarks, trade names, corporate names, company names, division names, business names, fictitious business names, trade styles, service marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof; (ii) all reissues, extensions or renewals thereof; (iii) the goodwill of any business relating to, conducted with or symbolized by any Trademark; (iv) all rights to damages or profits due or accrued or arising out of past, present or future infringements of any Trademark or injury to said goodwill; (v) the right to sue for all past, present and future infringements of any Trademark; and (vi) all rights of the Borrower under any license, royalty, franchise or other agreement relating to any Trademark.

“Underlying Borrower” shall mean any borrower or other obligor with respect to any Underlying Loan.

“Underlying Loan Documents” shall mean all Contracts, Chattel Paper, Documents and Instruments (including without limitation all promissory notes, pledge agreements, security agreements and hypothecation agreements) evidencing, securing or otherwise delivered in connection with the Underlying Loans.

“Underlying Loans” shall mean (i) all of the loans, credits, lines of credit and other credit facilities owned and held by the Borrower or a Pledgor and more particularly described on Schedule I attached hereto and made a part hereof and (ii) all loans, credits, lines of credit and other credit facilities now or hereafter owned and held by the Borrower or a Pledgor and hereafter pledged to the Bank (whether in substitution for or in addition to any then existing Underlying Loans) as security for the Obligations.

1.2 The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified.

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1.3 As used in this Agreement, or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms which are not otherwise defined shall have the meanings given to them under GAAP.

1.4 Wherever pursuant to this Agreement (i) the Bank exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to the Bank, or (iii) any other decision or determination is to be made by the Bank, the decision of the Bank to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by the Bank, shall be in the sole but reasonable discretion of the Bank, except as may be otherwise expressly provided herein.

1.5 Wherever pursuant to this Agreement, it is provided that the Borrower pays any costs and expenses, such costs and expenses shall be reasonable and shall include reasonable legal fees and reasonable disbursements of the Bank.

II. LOANS

A. Revolving Credit Loan.

2.1 Advances. From time to time, during the period from the date hereof until the Revolving Credit Termination Date, in the manner hereinafter set forth, the Borrower may borrow from the Bank and, upon request of the Borrower and upon the terms and conditions contained herein, the Bank shall lend to the Borrower a sum or sums (the “Advances”) which, when added to the outstanding principal amount of the Advances theretofore made pursuant to this Agreement will not exceed in the aggregate at any time the lesser of (i) the Maximum Amount or (ii) the Borrowing Base (the “Revolving Credit Loans”).

2.2 Procedure for Advances. Subject to the terms and conditions set forth herein, the Borrower may borrow, pay or prepay and reborrow from the Bank under the Revolving Credit Loan. Each Advance shall be made upon prior written or telephonic (followed by written) notice from the Borrower to the Bank (an “Advance Request”) specifying (i) the proposed date of such borrowing, and (ii) the principal amount thereof. Each Advance Request shall be irrevocable and must be received by the Bank not later than 12:00 p.m. New York City time on the same Business Day of the requested date of the Advance. On the date of each such Advance, upon fulfillment of the conditions precedent set forth herein, the Bank shall make available to the Borrower the amount of such Advance by transferring such funds to the account maintained at the Bank’s principal office located at the address set forth on the first page of this Agreement or in accordance with written instructions provided by the Borrower and reasonably acceptable to the Bank.

2.3 Revolving Credit Note. The indebtedness of the Borrower to the Bank under the Revolving Credit Loan shall be evidenced by a revolving credit note made payable to the order of the Bank, dated the date hereof, signed by the Borrower and delivered to the Bank (such

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revolving credit note, together with all modifications thereto, extensions thereof and substitutions therefor, is herein referred to as the “Revolving Credit Note”).

2.4 Interest Rate Under Revolving Credit Note. The outstanding daily principal balance of the Revolving Credit Note shall bear interest at a fluctuating rate per annum equal to the Prime Rate or, upon the occurrence of an Event of Default, such higher rate as provided in the Revolving Credit Note. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The rate of interest on the outstanding principal amount of the Revolving Credit Note shall be adjusted automatically as of the opening of business on each day on which any change in the Prime Rate occurs.

2.5 Payments Under Revolving Credit Note.

(a) Interest under the Revolving Credit Note shall be payable on each Interest Payment Date.

(b) Subject to the Bank’s right of acceleration upon the occurrence of an Event of Default, all principal, interest and other amounts outstanding under the Revolving Credit Note shall be immediately due and payable on the Revolving Credit Termination Date, without any requirement of notice or otherwise.

2.6 Use of Proceeds of Advances. Proceeds of the Advances shall be utilized by the Borrower for working capital purposes.

2.7 Optional Prepayments of Revolving Credit Note. The Borrower shall have the right to prepay, in whole or in part and without premium or penalty, the Revolving Credit Note at any time and from time to time.

2.8 Mandatory Prepayment of Revolving Credit Note.

(a) If at any time and for whatever reason the aggregate outstanding principal amount of Advances hereunder exceeds the Borrowing Base, then the Borrower shall either (i) immediately pay such excess, together with accrued interest thereon, to the Bank upon demand therefor or (ii) provide to the Bank and/or cause one or more Pledgors to provide to the Bank, in accordance with Section 3.2(b) hereof, additional Collateral that satisfies the requirements of said Section 3.2(b).

(b) Notwithstanding the foregoing, if at any time and for whatever reason the aggregate outstanding principal amount of Advances hereunder exceeds the Maximum Amount, such excess, together with accrued interest thereon, shall be due and payable by the Borrower immediately upon demand by the Bank.

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B. General Provisions.

2.9 Method of Payment. The Borrower shall make each payment to be made by it hereunder and under the Revolving Credit Note (including, without limitation, all principal, interest and optional and mandatory prepayments), without set-off or counterclaim, not later than 4:00 p.m. (New York City time) on the day when due in lawful money of the United States of America and in immediately available funds to the Bank at its principal office set forth on the first page of this Agreement.

2.10 [Intentionally omitted]

2.11 Business Day. Whenever any payment hereunder or under the Revolving Credit Note shall be stated as due on any day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day and interest and all other fees shall accrue during such extension.

2.12 Charge. Without in any way limiting any right of offset, counterclaim or banker’s lien which the Bank may otherwise have at law, the Borrower hereby irrevocably authorizes and directs the Bank to charge against the Borrower’s account or accounts at the Bank an amount or amounts as are due and payable to the Bank hereunder or under the Revolving Credit Note from time to time.

2.13 Demand Deposit Accounts. The Borrower shall maintain its demand deposit accounts with the Bank, including its primary operating account which shall be established with the Bank on or before the date hereof. The average daily compensating balance maintained by the Borrower in its demand deposit account with the Bank, plus the aggregate average daily compensating balances of all other demand deposit accounts maintained with the Bank by the Pledgors and other Affiliates of the Borrower (collectively, the “Borrower DDA Balances”), shall at no time be less than $1,000,000. To the extent that the Borrower DDA Balances are less than $1,000,000, the Borrower shall pay a deficiency fee to the Bank in an amount equal to the Prime Rate plus 2% on the amount of such shortfall. Said deficiency fee shall be payable in arrears in quarterly installments on the same dates that the unused line fee is payable pursuant to Section 2.14 hereof. It is understood and agreed that the failure by the Borrower to maintain the Borrower DDA Balances as set forth herein shall not in and of itself be deemed to constitute an Event of Default.

2.14 Unused Line Fee.

(a) The Borrower shall pay to the Bank an unused line fee calculated as follows:

(i) For each day that the aggregate outstanding principal amount of Advances hereunder is $10,000,000 or less, the unused line fee shall be equal to one-eighth of one percent (1/8%) per annum computed on the average daily amount by which such aggregate outstanding principal amount of Advances hereunder is less than $10,000,000.

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(ii) For each day that the aggregate outstanding principal amount of Advances hereunder exceeds $10,000,000, the unused line fee shall be equal to one-eighth of one percent (1/8%) per annum computed on the average daily unused balance of the Maximum Amount.

(b) The unused line fee shall be computed on the basis of the actual number of days elapsed over a year of 360 days and shall accrue from the date hereof to and including the Revolving Credit Termination Date. Such unused line fee shall be payable (i) quarterly in arrears, commencing on July 31, 2004, and continuing on the last day of each October, January, April and July thereafter, and (ii) on the Revolving Credit Termination Date.

2.15 Bank’s Counsel Fees. Concurrently herewith, the Borrower is reimbursing the Bank for all reasonable legal fees and expenses incurred by the Bank in connection with the negotiation and preparation of the Loan Documents, review of pre-closing documents and materials required by the Bank and performance of customary closing tasks relating to the Loan Documents and the transactions described therein.

III. SECURITY INTEREST

3.1 Grant of Security Interest.

(a) As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of all Obligations and in order to induce the Bank to enter into this Agreement and, among other things, make the Advances to the Borrower as provided herein, the Borrower hereby mortgages, pledges, hypothecates, transfers and grants to the Bank a security interest in and lien on all of the Borrower’s right, title and interest in and to the following, which in each case shall constitute a first position security interest therein and lien thereon except as otherwise set forth on Schedules I and III attached hereto (all of the following being collectively referred to herein as the “Collateral”):

(i) the Underlying Loans, including without limitation (A) all interest thereon and all payments made by or on behalf of the Underlying Borrower in respect thereof, (B) all amendments, modifications and renewals thereof and replacements and substitutions therefor, (C) all collateral, letters of credit and guaranties given, granted, pledged or otherwise provided therefor or in connection therewith, (D) all Underlying Loan Documents, (E) all Accounts, Letter of Credit Rights, General Intangibles, Payment Intangibles, Contract Rights, Intellectual Property and Computer Hardware and Software with respect thereto and (F) all books and records relating thereto;

(ii) the Collateral Proceeds Account;

(iii) any and all moneys, securities, drafts, notes, and other property of any kind of the Borrower, now or hereafter held or received by or in transit to the Bank from or for the Borrower (including, without limitation, all moneys held or deposited in the Collateral Proceeds Account or any lock box maintained by or on behalf of the Bank), or which may now or hereafter be in the possession of the Bank, or as to which the Bank may now or hereafter

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be in the control or possession of, by documents of title or otherwise, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and any and all deposits, general or special, balances, sums, proceeds and credits of the Borrower, and all rights and remedies which the Borrower might exercise with respect to any of the foregoing but for this Agreement;

(iv) all Proceeds of the foregoing.

(b) All Collateral heretofore, herein or hereafter given or granted to the Bank by the Borrower shall secure payment of all of the Obligations. The Bank shall be under no obligation to proceed against any or all of the Collateral before proceeding directly against the Borrower or any Pledgor.

(c) In addition to the security interest of the Bank in the Collateral as herein provided, all of the Obligations shall be secured by the Security Agreement.

(d) The Borrower hereby authorizes the Bank to prepare and file in the appropriate public office(s) such UCC-1 financing statements as are required by the Code. The Borrower further agrees to execute and deliver such other instruments, assignments or documents as are necessary to perfect the Bank’s Lien upon any of the Collateral and shall take such other commercially reasonable action as may be required to perfect or to continue the perfection of the Bank’s Lien upon the Collateral. The parties agree that a photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At the Bank’s request, the Borrower shall also promptly execute or cause to be executed and shall deliver to the Bank any and all documents, instruments and agreements deemed necessary by the Bank to give effect to or carry out the terms or intent of the Loan Documents. The Borrower hereby irrevocably authorizes the Bank to prepare and file such UCC-3 statements as the Bank deems necessary to continue the perfection of the Lien granted to it hereunder.

3.2 Substitute or Additional Collateral.

(a) (i) The Borrower shall have the right, from time to time at its election but subject to the terms of this Section 3.2 and the other provisions of this Agreement, to add one or more Eligible Underlying Loans to the Collateral pledged to the Bank hereunder and/or to remove one or more Eligible Underlying Loans from the Collateral pledged to the Bank hereunder.

(ii) In connection with the addition of any new Eligible Underlying Loan to the Collateral pledged to the Bank hereunder:

(A) The Borrower shall give the Bank at least three (3) Business Days’ prior written notice of the Borrower’s intention to add such new Eligible Underlying Loan to the Collateral, which notice shall be accompanied by such documents, instruments and other materials as shall be reasonably required by the Bank in order to enable the Bank to assess and evaluate the value and adequacy of such new Eligible Underlying Loan. The Bank shall be deemed

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to have approved such addition if the Bank has not objected to same within three (3) Business Days after the Borrower has provided all of the materials required by this clause (A).

(B) The Borrower shall mortgage, pledge, hypothecate, transfer and grant to the Bank (or cause one or more Pledgors to mortgage, pledge, hypothecate, transfer and grant to the Bank) a first position security interest in and lien on each such new Eligible Underlying Loan.

(iii) No Eligible Underlying Loan shall be removed from the Collateral pledged to the Bank hereunder unless all of the following conditions are satisfied:

(A) No Default or Event of Default then exists hereunder, and no Default of Event of Default will result from such removal.

(B) Immediately after such removal, the aggregate principal amount of all Advances outstanding under this Agreement will not exceed the lesser of (1) the Maximum Amount or (2) the Borrowing Base.

(C) The Borrower shall have given the Bank at least three (3) Business Days’ prior written notice of the Borrower’s intention to remove such Eligible Underlying Loan(s), which notice shall be accompanied by a Borrowing Base Certificate effective as of the date of such notice and prepared and calculated as if the Eligible Underlying Loans to be removed had already been removed. The Bank shall be deemed to have approved such removal if the Bank has not objected to same within three (3) Business Days after the Borrower has provided all of the materials required by this clause (C).

(b) In addition to the foregoing, if at any time and for whatever reason the aggregate outstanding principal amount of Advances hereunder exceeds the Borrowing Base (such excess being hereinafter referred to as an “Overadvance”) and the Borrower has not immediately paid the Overadvance, together with accrued interest thereon, to the Bank upon demand therefor in accordance with Section 2.8 hereof, then the Borrower shall, within five (5) Business Days, mortgage, pledge, hypothecate, transfer and grant to the Bank (or cause one or more Pledgors to mortgage, pledge, hypothecate, transfer and grant to the Bank) a first position security interest in and lien on one or more additional Eligible Underlying Loans in an aggregate principal amount sufficient to eliminate the Overadvance. At least two (2) Business Days prior to the expiration of such 5-Business-Day period, the Borrower shall deliver to the Bank such documents, instruments and other materials as shall be reasonably required by the Bank in order to enable the Bank to assess and evaluate the value and adequacy of such new Eligible Underlying Loan(s).

(c) In connection with any change in the Collateral as contemplated by this Section 3.2, the Borrower, at the Borrower’s cost and expense, shall (and shall cause the Pledgors to) execute and deliver such documents, instruments and certificates, and take such other actions, as shall be reasonably required by the Bank in order to evidence, effectuate, implement, secure, confirm or perfect any such mortgage, pledge, hypothecate, transfer and grant of any new Eligible Underlying Loan or any such removal of any existing Eligible Underlying Loan, including without

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limitation the filing of financing statements or amendment statements under the Code. All additional Eligible Underlying Loans mortgaged, pledged, hypothecated, transferred and granted to the Bank after the date hereof shall automatically be and become part of the Collateral pledged to the Bank hereunder with the same force and effect as the original Underlying Loans set forth on Schedule I hereto. All costs and expenses incurred by the Bank in connection with any such mortgage, pledge, hypothecate, transfer and grant of any new Eligible Underlying Loan or any such removal of any existing Eligible Underlying Loan, including without limitation all filing fees and all reasonable attorney’s fees and disbursements, shall be paid by the Borrower immediately upon demand by the Bank.

3.3 Rights of the Bank; Limitations on Bank’s Obligations.

(a) It is expressly agreed by the Borrower that, anything herein to the contrary notwithstanding, the Borrower shall remain liable under each Underlying Loan Document to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of each Underlying Loan Document. The Bank shall not have any obligation or liability under any Underlying Loan Document by reason of or arising out of this Agreement or the receipt by the Bank of any payment relating to any Underlying Loan Document pursuant hereto, nor shall the Bank be required or obligated in any manner to perform or fulfill any of the obligations of the Borrower under or pursuant to any Underlying Loan Document, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Underlying Loan Document, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(b) (i) The Bank may, at any time following the occurrence of an Event of Default, establish an account over which the Bank has sole dominion and control (the “Collateral Proceeds Account”) and deposit into the Collateral Proceeds Account (rather than the Borrower’s operating account) all amounts received by the Bank on account of or with respect to any of the Collateral.

(ii) All amounts in the Collateral Proceeds Account shall continue to be Collateral for all of the Obligations. The Bank may apply the funds in the Collateral Proceeds Account to the Obligations in such manner as the Bank shall determine in its sole and absolute discretion.

(c) The Bank may, at any time following the occurrence of an Event of Default, but subject to the rights, if any, of Other Holders and the rights, if any, of the applicable Underlying Borrowers under the applicable Underlying Loan Documents, notify some or all of the Underlying Borrowers to the effect that the Underlying Loans have been assigned to the Bank and that payments shall be made directly to the Collateral Proceeds Account or as the Bank shall otherwise direct. Upon the request of the Bank at any time following the occurrence of an Event of Default, the Borrower will so notify the Underlying Borrowers and will indicate on all bills that payments shall be made directly to the Collateral Proceeds Account or as the Bank shall otherwise direct,

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subject to the rights, if any, of Other Holders and the rights, if any, of the applicable Underlying Borrowers under the applicable Underlying Loan Documents.

(d) In the event that any of the Collateral consists of chattel paper, notes and other instruments and negotiable documents, the Borrower shall, at any time and from time to time upon request by the Bank, endorse and deliver the same to the Bank.

IV. REPRESENTATIONS AND WARRANTIES.

4. In order to induce the Bank to enter into this Agreement and, among other things, make the Advances as provided herein, the Borrower hereby represents, warrants and agrees that:

4.1 Subsidiaries; Other Names. Except as set forth on Schedule IV attached hereto and made a part hereof, the Borrower has no subsidiaries. The Borrower does not currently conduct business under any other name, trade name, or alternate or fictitious name other than the name “Medallion Financial Group,” nor has the Borrower within the five years prior to the date hereof conducted business under any other name, trade name, or alternate or fictitious name.

4.2 Organization; Power; Qualification. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Borrower has full power and authority to own and operate its properties and assets and to carry on the business now conducted by it. The Borrower is qualified or authorized to do business and in good standing in all other jurisdictions wherein the character of the property owned or the nature of the business conducted by the Borrower makes such qualification or authorization necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect.

4.3 Authorization of Agreement. The Borrower has full power and authority to execute, deliver and perform any action which may be necessary or advisable to carry out the terms of the Loan Documents to which it is a party; and each Loan Document to which the Borrower is a party has been duly executed and delivered by the Borrower and is the legal, valid and binding obligation of the Borrower enforceable in accordance with its terms.

4.4 No Legal Bar. The execution, delivery and performance of the Loan Documents will not (i) violate any provision of any existing law, statute, rule, regulation or ordinance, (ii) conflict with, result in a breach of or constitute a default under (a) the certificate of incorporation or by-laws of the Borrower, (b) any order, judgment, award or decree of any court, governmental authority, bureau or agency, or (c) any mortgage, lease, material contract or other material agreement or undertaking to which the Borrower is a party or by which the Borrower or any of its properties or assets may be bound, or (iii) result in the creation or imposition of any Lien upon or with respect to any property or asset now or hereafter acquired by the Borrower other than the Liens created by the Loan Documents, except, in the case of clauses (ii) and (iii) above, for any deviation from the foregoing which would not reasonably be expected to have a Material Adverse Effect.

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4.5 Consent. No consent, license, permit, approval or authorization of, exemption by, notice to, report to, or registration, filing or declaration with any Person is required in connection with the execution, delivery, performance or validity of the Loan Documents or the transactions contemplated thereby, other than (i) filing or recordation of financing statements and like documents in connection with the Liens being granted in favor of the Bank and (ii) those consent, if they were not obtained or made, which would not reasonably be expected to have a Material Adverse Effect.

4.6 Compliance With Law. The Borrower is not in violation of any applicable law, rule, regulation, statute, ordinance or any order, judgment, award or decree of any court, governmental authority, bureau or agency, the violation of which would be reasonably expected to have a Material Adverse Effect.

4.7 Title to Underlying Loans; Liens. The Borrower has good, marketable and legal title to the Underlying Loans listed on Schedule I hereto. Except for financing statements naming the Bank as secured party, and except as otherwise set forth on Schedule III attached hereto, no financing statement under the Code which names the Borrower as debtor has been filed in any jurisdiction, and the Borrower has not signed any such financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement in any such jurisdiction.

4.8 No Default. The Borrower is not in default in any material respect in the payment or performance of any of such party’s obligations or in the performance of any mortgage, indenture, lease, contract or other agreement or undertaking to which it is a party or by which it or any of its properties or assets may be bound, and no Default or Event of Default has occurred and is continuing. Except where such default would not reasonably be expected to have a Material Adverse Effect, the Borrower is not in default under any material order, award or decree of any court, arbitrator, or governmental authority binding upon or affecting such party or by which any of its properties or assets may be bound or affected, and no such order, award or decree, if any, materially adversely affects the ability of the Borrower to carry on its business as presently conducted or to perform its obligations under the Loan Documents.

4.9 No Litigation. Except as set forth on Schedule V attached hereto, no litigation, investigation or proceeding of or before any court, arbitrator or governmental authority is currently pending, nor, to the knowledge of Borrower, threatened, against the Borrower or any of its properties and revenues, which, if adversely determined, would reasonably be expected to have a Material Adverse Effect.

4.10 [Intentionally omitted]

4.11 Tax Returns and Payments. All federal, state and other tax returns of the Borrower required by law to be filed have been duly filed or extensions obtained, and all federal, state and other taxes, assessments and governmental charges or levies upon the Borrower or any of its properties, income, profits or assets which are due and payable have been paid or provided for,

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except for such taxes and assessments which the Borrower is disputing in good faith and for which the Borrower has established adequate reserves on its books for the payment of such disputed taxes or assessments in accordance with GAAP.

4.12 Financial Statements. The Borrower has furnished to the Bank the audited balance sheet of the Borrower as at December 31, 2003, and the related audited statements of income, cash flows and retained earnings. Such financial statements fairly present the financial position and results of operations of the Borrower on the dates and for the periods then ended, in accordance with GAAP, consistently applied throughout the periods involved.

4.13 No Adverse Changes. Since December 31, 2003, no material adverse change has occurred in the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower, and no event has occurred or failed to occur which has had or is likely to have a material adverse effect on the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower.

4.14 ERISA.

(a) The Borrower is in compliance in all material respects with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all regulations issued thereunder.

(b) The “employee benefit plan”, as defined in Section 3 of ERISA, maintained and administered by the Borrower (but excluding any multi-employer plan in which any Borrower participates but does not administer) has been and is being maintained in compliance with its terms and in compliance with all applicable laws and regulations, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

4.15 Federal Reserve Regulations. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System). No part of any of the Advances hereunder shall be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock.

4.16 Collateral.

(a) Except as set forth on Schedules I and III hereto, the Borrower is (or, in the case of after acquired property, will be) the sole owner of each item of Collateral and has good and marketable title thereto, free and clear of any and all Liens, except for Permitted Liens.

(b) Except as set forth on Schedule III hereto, no security agreement, financing statement, mortgage, deed of trust, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office.

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(c) Except as set forth on Schedules I and III hereto, this Agreement constitutes a valid and continuing first lien on and first perfected security interest in the Collateral in favor of the Bank, prior to all other liens, encumbrances, security interests and rights of others, and is enforceable as such or against creditors of and purchasers from the Borrower.

(d) Schedule VI attached hereto sets forth the location of the Borrower’s principal place of business which is the place where its records concerning the Collateral are kept. During the five-year period prior to the date of this Agreement, the Borrower has not conducted business or kept any of its records at any jurisdiction other than those set forth on Schedule VI hereto.

(e) Each Underlying Loan is a bona fide, valid and legally enforceable obligation of the Underlying Borrower in respect thereof. Except as otherwise arising in the ordinary course of business, the right, title and interest of the Borrower in each Underlying Loan is not subject to any defense, offset, counterclaim, or other claim, nor have any of the foregoing been asserted or alleged against the Borrower as to any Underlying Loan. The amount represented by the Borrower to the Bank as owing by each Underlying Borrower in respect of the Underlying Loans is the correct amount actually and unconditionally owing by such Underlying Borrower thereunder.

4.17 Solvency. The present fair saleable value of the assets of the Borrower, after giving effect to all the transactions contemplated herein, exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Borrower as they mature. The property of the Borrower does not constitute unreasonably small capital for the Borrower to carry out its business as now conducted and as proposed to be conducted, including the capital needs of the Borrower.

4.18 Accuracy and Completeness of Information. All information, reports and other papers and data furnished to the Bank were, at the time the same were so furnished, complete and correct in all material respects.

4.19 Permits. The Borrower has obtained, and taken all necessary steps to preserve, the franchises, licenses, approvals, certificates of occupancy, permits and other authorizations (collectively, the “Permits”) required to conduct its business in accordance with all applicable laws and with all material agreements to which it is subject and has not failed to adhere to the requirements thereof, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. All of the Permits are valid, in good standing and in full force and effect.

4.20 Intellectual Property. Except as set forth on Schedule VII attached hereto and made a part hereof, the Borrower neither owns nor utilizes in its business any trademarks, patents or other intellectual property, other than mass marketed business software programs.

4.21 Labor Controversies, Union Contracts, Etc. There are no labor controversies pending or, to the knowledge of the Borrower, threatened against the Borrower, which if adversely determined, would reasonably be expected to have a Material Adverse Effect. There are no

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pending or, to the Borrower’s knowledge, threatened or anticipated (i) employment discrimination charges or complaints against or involving the Borrower before any governmental Person, (ii) unfair labor practice charges or complaints, disputes or grievances or arbitration proceedings or controversies affecting the Borrower, (iii) union representation petitions respecting the employees of the Borrower or (iv) strikes, slowdowns, work stoppages, or lockouts or threats thereof affecting the Borrower, other than those which would not reasonably be expected to have a Material Adverse Effect. There are no collective bargaining agreements covering any of the employees of the Borrower.

V. COVENANTS

5. The Borrower covenants and agrees that until all of the Obligations have been satisfied and paid in full, the Borrower will comply with the following covenants:

5.1 Preservation of Existence. The Borrower will do or cause to be done all things necessary to preserve and maintain in full force and effect its corporate existence and all contracts, rights, licenses, permits, franchises and trade names which in its judgment are necessary or useful to the proper conduct of its business and shall qualify and remain qualified as a foreign corporation and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization.

5.2 Nature of Business. The Borrower will not engage in any business other than financing, including taxicab medallion financing, asset-based financing, SBA Section 7(a) loans and taxicab related advertising, and other business which, after giving effect to the acquisition thereof, would not result in the noncompliance by the Borrower of any of the terms, provisions or covenants set forth in this Agreement.

5.3 Compliance with Laws. The Borrower will comply with all laws, ordinances, governmental rules and regulations to which it or its properties or assets are, or might become, subject (unless the same shall be contested by the Borrower in good faith and by appropriate proceedings and such contest shall operate to stay any such non-compliance), the noncompliance with which would materially interfere with the performance of its obligations under the Loan Documents or with the proper conduct of its business.

5.4 Maintenance of Properties. The Borrower will maintain or cause to be maintained in working order and condition, ordinary wear and tear excepted, all of its assets and properties which are material to the conduct of its business, and from time to time, make or cause to be made all necessary repairs, replacements, additions, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

5.5 Accounting Methods. The Borrower will maintain a system of accounting established and administered in accordance with GAAP, keep adequate records and books of account in which complete entries will be made in accordance with GAAP, make provision in its

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accounts in accordance with GAAP for reserves for depreciation, obsolescence and amortization and all other proper reserves and accruals which in accordance with GAAP should be established.

5.6 Payment of Taxes and Claims. The Borrower will pay and discharge promptly (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its properties or assets before the same shall become delinquent, (ii) all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords, and other similar persons for labor, materials, supplies and rentals which, if unpaid, might by law become a Lien or charge upon its property and (iii) all of its Indebtedness and other obligations of whatever nature when due (subject, where applicable, to grace periods, normal credit terms and to other forbearance in the ordinary course of business); provided, however, that none of the foregoing need be paid while being contested in good faith and by appropriate proceedings, so long as adequate book reserves have been established in accordance with GAAP with respect thereto and such nonpayment would not reasonably be expected to have a Material Adverse Effect.

5.7 Visits and Inspections; Collateral Audits. The Borrower will permit the Bank and its agents and representatives, at any time during normal business hours and upon reasonable prior notice (except during an Event of Default, when no notice shall be required), to (i) visit and inspect the premises and the properties of the Borrower, (ii) inspect and make extracts from the books and records of the Borrower and (iii) discuss with the Borrower’s principal officers, employees and independent public accountants any and all matters with respect to the business, assets, liabilities, financial condition, results of operations and business prospects of the Borrower. Without limiting the generality of the foregoing, during each fiscal year of the Borrower, the Bank shall be permitted to conduct a maximum of three (3) periodic collateral audits in accordance with the Bank’s normal and customary practices (it being understood and agreed that such maximum shall not apply upon the occurrence and during the continuance of an Event of Default). Promptly upon demand, the Borrower shall pay to the Bank a collateral audit fee in the amount of $750 per person per day; provided however, that, so long as no Event of Default has occurred and is continuing, in no event shall the Borrower pay more than $10,000 in the aggregate in any 12-month period (commencing on the date hereof) in such collateral audit fees.

5.8 Information Covenants. The Borrower will furnish the following information to the Bank:

(i) Quarterly Financial Statements. As soon as practicable and, in any case, within 45 days after the close of the first three quarterly accounting periods in each fiscal year of the Borrower, a consolidating balance sheet of the Borrower as at the end of such quarterly period and the related consolidating statements of operations, retained earnings and cash flows of the Borrower for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, which shall be accompanied by an attestation, signed by the chief financial officer of the Borrower, stating that, in his opinion and to the best of his knowledge, such financial statements present fairly, in all material respects and in accordance with GAAP the Borrower’s financial position and results of operations as at and for the period then ended and for the elapsed portion of the fiscal year ended with the last day of such period, subject

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only to normal year-end auditing adjustments and footnotes. Notwithstanding the foregoing, nothing in this clause (i) shall require the Borrower to deliver any information to the Bank that is not required to be filed with or submitted to the Securities and Exchange Commission on a quarterly basis.

(ii) Annual Financial Statements. As soon as practicable and, in any case, within 90 days after the end of each fiscal year of the Borrower, a consolidating balance sheet of the Borrower as at the end of such fiscal year and the related consolidating statements of operations, retained earnings and cash flows of the Borrower for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, audited by certified public accountants reasonably satisfactory to the Bank, whose certificate shall not contain any qualification and shall state that such financial statements have been prepared in accordance with GAAP consistently applied and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances and who shall have authorized the Borrower to deliver such financial statements and certifications thereof to the Bank pursuant to this Agreement. Notwithstanding the foregoing, nothing in this clause (i) shall require the Borrower to deliver any information to the Bank that is not required to be filed with or submitted to the Securities and Exchange Commission on an annual basis.

(iii) Certificate. At the time the financial statements are furnished pursuant to subsections (i) and (ii) above, the Borrower shall furnish (A) a certificate of the chief financial officer of the Borrower stating that no event has occurred which constitutes a Default or an Event of Default under any of the Loan Documents or if such an event has occurred, disclosing each such event or failure and its nature, when it occurred, whether it is continuing and the steps being taken by the Borrower with respect to such event or failure, and (B) in the case of the financial statements delivered pursuant to subsection (ii), a detailed report evidencing the Borrower’s compliance with all of the financial covenants under this Agreement.

(iv) Copies of Other Reports.

(A) On or before the 10^th Business Day of each month, a Borrowing Base Certificate, which shall (1) be true and correct as of the last day of the preceding month, and (2) if requested by the Bank, be accompanied by supporting documentation therefor;

(B) Within 15 Business Days after filing same with the Securities and Exchange Commission, full copies of all quarterly Form 10Q reports and all annual Form 10K reports of the Borrower;

(C) Within 15 Business Days after the Borrower has filed its federal tax returns each year, a copy of such tax returns; and

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(D) From time to time and promptly upon each request, such existing reports and other information regarding the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower as the Bank may reasonably request.

(v) Notice of Litigation and Other Matters. Prompt notice of:

(1) the commencement of any proceeding or investigation by or before any governmental body, and any action or proceeding in any court or before any arbitrator against or in any other way relating adversely to the Borrower or any Pledgor or any of their properties, assets or business, which, if adversely determined, would singly or when aggregated with all other proceedings, investigations or actions, reasonably be expected to have a Material Adverse Effect;

(2) any notice received from any administrative official or agency relating to any order, ruling, statute or other law or information which would reasonably be expected to have a Material Adverse Effect;

(3) any other event that would reasonably be expected to have a Material Adverse Effect;

(4) any Default or Event of Default by the Borrower hereunder, or any default under any other material agreement to which the Borrower or any Pledgor is a party or by which any of their respective properties may be bound;

(5) the declaration by the Borrower or any Pledgor of any default or event of default under any Underlying Loan;

(6) any event which would result in a representation or warranty of the Borrower contained herein being false or incorrect in any material respect if made on and as of the date of occurrence of such event; or

(7) any strike, walk out or other stoppage of work at the Borrower’s principal place of business.

5.9 Accuracy and Completeness of Information. The Borrower covenants that all information, reports, statements, and other papers and data furnished to the Bank pursuant to any provision or term of any of the Loan Documents shall be, at the time the same is so furnished, complete and correct in all material respects.

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5.10 Insurance. The Borrower will maintain insurance policies (substantially similar to the policies currently maintained by the Borrower and with insurance companies with ratings substantially similar to the Borrower’s current insurance companies) insuring the Borrower against liability for personal injury, property damage and such other risks for which companies in the Borrower’s industry typically obtain insurance, such policies to be in such form and in such amounts and coverage as are customary for the industry.

5.11 Indebtedness. The Borrower will not create, assume, incur, guarantee or in any manner become liable, contingently or otherwise, in respect of any Indebtedness except for Permitted Indebtedness; provided, however, that the foregoing provision shall not apply if, concurrently with the incurrence of such Indebtedness, the proceeds thereof are applied to the complete satisfaction and payment in full of all Obligations.

5.12 Liens. The Borrower will not create, assume or incur or cause to be created, assumed or incurred, or permit to exist, any Liens on any Collateral pledged, given or granted to the Bank except for Permitted Liens, and the Borrower will defend the right, title and interest of the Bank in and to any of the Borrower’s rights to the Collateral and in and to the Proceeds and Products thereof against the claims and demands of all Persons whomsoever.

5.13 Sale of Assets; Merger. The Borrower shall not sell, transfer, assign, lease or otherwise dispose of (whether in one transaction or a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired).

5.14 [Intentionally omitted].

5.15 Collateral.

(a) The Borrower will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. The Borrower will mark its books and records pertaining to the Collateral to evidence the security interest therein granted hereby as the Bank may request. For the Bank’s further security, the Borrower agrees that the Bank shall have a security interest in and a Lien upon all of the Borrower’s books and records (including all computer programs, software, discs, drives, printouts, Rolodexes and other telephone listings and directories and similar items), to the extent same pertain to the Collateral, and if any Event of Default shall have occurred and be continuing, the Borrower shall promptly deliver and turn over any such books and records to the Bank or its representatives at any time upon demand.

(b) Except as expressly permitted pursuant to the terms of this Agreement, the Borrower will not sell, transfer, lease or otherwise dispose of any or all of the Collateral, or attempt, offer or contract to do so, without the express prior written consent of the Bank.

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(c) The Borrower will perform and comply in all material respects with all obligations under all Underlying Loan Documents and all other material agreements to which it is a party or by which it is bound relating to the Collateral.

(d) The Borrower will not, without the Bank’s consent, (i) amend, modify, terminate or waive any provision of any Underlying Loan Document in any manner which might materially adversely affect the value of the Collateral, (ii) fail to exercise promptly and diligently each and every material right which it may have under each Underlying Loan Document or (iii) fail to deliver to the Bank a copy of each material demand, notice or document received by it relating in any way to any Underlying Loan Document.

(e) Except as otherwise permitted by this Agreement, the Borrower will not, without the Bank’s consent, grant any extension of the time of payment of any of the Underlying Loans, or compromise, compound or settle the same for less than the full amount thereof, or release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon.

(f) [Intentionally omitted]

(g) The Borrower will promptly advise the Bank, in complete detail, (i) of any Lien asserted or claim made against any of the Collateral, (ii) of any material change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material effect on the value of the Collateral or on the security interest created hereunder.

(h) The Borrower will not change its name (or commence doing business under any alternate or fictitious name), identity, jurisdiction of incorporation or corporate structure in any manner which might make any financing or continuation statement filed hereunder misleading, nor will the Borrower change its principal place of business or record-keeping location or remove any of its books and records or tangible Collateral to any location other than as set forth in Schedule VI hereto or take any other action which could impair the perfection or priority of the Liens granted to the Bank hereunder, unless, in each case, the Borrower shall have given the Bank at least 30 days’ prior written notice thereof and shall have taken all action necessary or requested by the Bank to amend such financing statement or continuation statement so that it is not misleading.

5.16 Financial Covenants.

(a) The Borrower shall not cause, suffer or permit the Indebtedness to Tangible Net Worth Ratio to exceed 6.00 to 1.00 at any time.

(b) The Borrower shall not cause, suffer or permit its Tangible Net Worth to be less than $100,000,000 at any time.

5.17 Further Documentation. At the Borrower’s sole expense, the Borrower will promptly and duly execute and deliver such further documents and instruments and do such further acts and things as the Bank may reasonably request in order to obtain the full benefits of this

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Agreement and the Loan Documents and the rights and powers herein and therein granted, including the filing of any financing or continuation statements and amendments thereto under the Code in effect in any jurisdiction and any and all other recording documents with respect to the Liens and security interests granted to the Bank pursuant to the Loan Documents. The Borrower also hereby authorizes the Bank to file any such financing or continuation statement without the signature of the Borrower to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument or chattel paper, such note or other instrument or chattel paper shall be immediately pledged to the Bank hereunder, duly endorsed in a manner satisfactory to the Bank and delivered to the Bank.

5.19 Bank’s Appointment as Attorney-in-Fact.

(a) The Borrower hereby irrevocably constitutes and appoints the Bank, and any officer or agent thereof (such constitution and appointment to become automatically effective following the occurrence and during the continuance of an Event of Default), with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Borrower and in the name of the Borrower or in its own name, from time to time in the Bank’s discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Bank the power and right, on behalf of the Borrower without notice to or assent by the Borrower to do the following (subject to the rights, if any, of any Other Holders and the rights, if any, of the applicable Underlying Borrowers under the applicable Underlying Loan Documents):

(i) upon the occurrence and during the continuance of an Event of Default, to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under or in connection with any Collateral and, in the name of the Borrower or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Bank for the purpose of collecting any and all such moneys due under any Collateral whenever payable; and

(ii) upon the occurrence and during the continuance of any Event of Default (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due and to become due thereunder directly to the Bank or as the Bank shall direct; (B) to receive, open and dispose of all mail addressed to the Borrower and to notify postal authorities to change the address for delivery thereof to such address as may be designated by the Bank; (C) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (D) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral; (E) to commence and prosecute any suits, actions or proceedings at law or

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in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (F) to defend any suit, action or proceeding brought against the Borrower with respect to any Collateral; (G) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Bank may deem appropriate; (H) to assign any copyright or trademark (along with the goodwill of the business to which such copyright or trademark pertains) for such term or terms, on such conditions, and in such manner as the Bank shall determine in its sole discretion; and (I) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Bank were the absolute owner thereof for all purposes, and to do, at the Bank’s option and the Borrower’s expense, at any time or from time to time, all acts and things which the Bank deems necessary to protect, preserve or realize upon the Collateral and the Bank’s security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as the Borrower might do.

(b) This power of attorney is a power coupled with an interest and shall be irrevocable.

(c) The powers conferred on the Bank hereunder are solely to protect the interests of the Bank in the Collateral and shall not impose any duty upon it to exercise any such powers. The Bank shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its directors, officers, employees or agents shall be responsible to the Borrower for any act or failure to act, except for its gross negligence, willful misconduct or fraud.

(d) The Borrower also authorizes the Bank at any time and from time to time following the occurrence and during the continuance of an Event of Default (i) to communicate with Underlying Borrowers with regard to the assignment of Underlying Loans hereunder and other matters relating thereto and (ii) to execute any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

5.20 Performance by Bank of Borrower’s Obligations. If the Borrower fails to perform or comply with any of its agreements contained herein, and the Bank, as provided for by the terms of this Agreement, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Bank incurred in connection with such performance or compliance (together with interest thereon at the rate of two (2%) percent in excess of the interest rate then in effect under the Revolving Credit Note) shall be payable by the Borrower to the Bank on demand and shall constitute Obligations secured hereby.

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VI. CONDITIONS PRECEDENT

6.1 Conditions Precedent. The obligation of the Bank to make an Advance as of the date hereof is subject to the condition precedent that the Bank shall have received each and every one of the following on or before the date hereof in form and substance satisfactory to the Bank:

(a) An originally executed copy of this Agreement and each of the other Loan Documents which are dated the date hereof, and all other documents, instruments and certificates required hereunder and thereunder;

(b) A copy of the certificate of incorporation, certificate of formation, bylaws and operating agreement, as applicable, of the Borrower and each Pledgor, certified as a true copy by the Secretary or an Assistant Secretary of each such entity;

(c) A good standing certificate issued as of a recent date with respect to the Borrower and each Pledgor by the Secretary of State of each state in which the Borrower or any Pledgor is incorporated or qualified to conduct business;

(d) A certificate of the Secretary or an Assistant Secretary of the Borrower and each Pledgor certifying the names and true signatures of the officers of the Borrower and each Pledgor authorized to sign each of the Loan Documents to which the Borrower or such Pledgor, as applicable, is a party;

(e) (i) Evidence reasonably satisfactory to the Bank that the Borrower is authorized to execute, deliver and perform each of the Loan Documents to which it is a party, and (ii) a copy of the resolutions approved by the Board of Directors/Managers of each Pledgor authorizing the execution, delivery and performance by such Pledgor, as applicable, of each of the Loan Documents to which it is a party, certified as a true copy by the Secretary or an Assistant Secretary of each such Pledgor;

(f) A written opinion of in-house counsel to the Borrower and the Pledgors, reasonably satisfactory to the Bank;

(g) An originally executed copy of a Borrowing Base Certificate dated as of a date not earlier than three (3) Business Days prior to the date of this Agreement;

(h) Evidence reasonably satisfactory to the Bank that Collateral is not subject to any Lien other than Permitted Liens.

(i) Evidence reasonably satisfactory to the Bank that all filings, recordings and other actions that are necessary or desirable in order to establish and perfect the Bank’s security interest in the Collateral as a valid perfected first priority security interest (except as otherwise set forth on Schedules I and III hereto) shall have been or shall be duly effected, including, without limitation, the filing of financing statements and the filing or recordation of such other documents as the Bank shall deem necessary or desirable, all in form and substance satisfactory to the Bank, and all fees, taxes and other charges relating to such filings and recordings shall have been paid by the Borrower;

(j) Payment of all reasonable legal, closing and other fees of the Bank; and

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(k) Such other documents, certificates, opinions and information as the Bank shall reasonably request, in form and substance satisfactory to the Bank, and all legal matters and documents with respect to the transactions contemplated by this Agreement shall be satisfactory to counsel for the Bank.

6.2 Conditions Precedent to Additional Advances. The Bank shall have no obligation to make any additional Advance subsequent to the date hereof unless each of the following conditions precedent has been either satisfied or waived prior to or concurrently with the making of such Advance.

(a) Each of the conditions of Section 6.1 has been satisfied or waived by the Bank in writing;

(b) Each of the Loan Documents shall be in full force and effect;

(c) The representations and warranties of the Borrower set forth herein shall be true and correct as of the date of each Advance as if made on and as of such date;

(d) No Default or Event of Default has occurred and is continuing as of the date of each Advance;

(e) There is and has been no material adverse change in the Borrower’s financial condition, results of operations or otherwise which would, in the judgment of the Bank, impair the Borrower’s ability to repay all or any portion of the Revolving Credit Note; and

(f) No further action, including any filing or recording of any agreement, document or instrument, is necessary to establish and perfect the Bank’s Lien on and priority in the Collateral.

Each request for an Advance by the Borrower shall be deemed a representation and warranty by the Borrower that each of the conditions precedent set forth in Sections 6.2(a), (b), (c), (d) and (e) hereof has been satisfied, unless the Bank has waived satisfaction of any such condition in writing prior to or concurrently with the making of such Advances in which case the representation and warranty of the Borrower will not be deemed to extend to that particular condition.

VII. EVENTS OF DEFAULT

7. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental body:

7.1 The Borrower shall fail to make any payment of principal, interest, fees or other amounts under the Revolving Credit Note or under this Agreement on any date when due.

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7.2 If any warranty or representation made by or on behalf of the Borrower contained herein or in any of the Loan Documents or in any document furnished in compliance or connection with the Loan Documents is false or incorrect in any material respect when made.

7.3 (i) The Borrower shall default in the performance or observance of any covenant or agreement set forth in Sections 5.1 through and including 5.22, or (ii) the Borrower shall default in the performance or observance of any other covenant or agreement contained in this Agreement (which is not the subject of Section 7.1 or 7.2 hereof or clause (i) of this Section 7.3) and such default shall continue unremedied for 30 days after any officer of the Borrower shall have become aware of such default.

7.4 If any Event of Default shall occur under any of the other Loan Documents.

7.5 The Borrower or any Pledgor shall default in any payment of the principal of or interest on any Indebtedness (other than the Indebtedness evidenced by the Revolving Credit Note) owing to the Bank.

7.6 (i) The Borrower or any Pledgor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Pledgor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any Pledgor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 30 days; or (iii) there shall be commenced against the Borrower or any Pledgor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 30 days from the entry thereof; or (iv) the Borrower or any Pledgor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii) or (iii) above.

7.7 A final judgment shall be entered against the Borrower by any court for the payment of money which, together with all other outstanding judgments against the Borrower exceeds $2,500,000 in the aggregate, which judgment is not fully covered by insurance, or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower, which together with other such property subject to other such process, exceeds in value $2,500,000 in the aggregate and, if within 60 days (10 days if such aggregate amount exceeds $5,000,000) after the entry, issue or levy thereof, such judgment, warrant or process shall not have been discharged or stayed pending appeal, or, if within 60 days (10 days if such aggregate amount

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exceeds $5,000,000) after the expiration of any such stay, such judgment, warrant or process shall not have been discharged.

7.8 (i) A reportable event (as defined in Section 4043 (b) of Title IV of ERISA) shall have occurred with respect to any “employee benefit plan” (as defined in Section 3 of ERISA) maintained by the Borrower or to any multi-employer plan in which the Borrower participates (collectively, the “Benefit Plans”) or any Benefit Plan of the Borrower shall have been voluntarily terminated as provided in Section 4041(a) of ERISA and the guaranteed, nonfunded, nonforfeitable benefits (as such terms are defined in Section 4022 of ERISA) of any such Benefit Plan that has been voluntarily terminated or with respect to which a reportable event has occurred, when included in the financial statements of the Borrower on a pro forma basis as a current liability and as a deduction from net worth, would cause the Borrower to have a negative net worth; (ii) a trustee shall be appointed by a United States District Court to administer any Benefit Plan; or (iii) the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Benefit Plan.

7.9 If the Borrower or any Pledgor shall commence any action or step with respect to, or shall approve any plan of, any liquidation or dissolution of the Borrower or any Pledgor, unless provision is otherwise made for the payment in full of the Obligations.

7.10 If the Bank does not have a first position perfected Lien on any of the Collateral (except as otherwise indicated on Schedules I and III hereto).

7.11 If any Pledgor shall terminate or attempt to terminate its obligations under the Security Agreement.

VIII. REMEDIES

8.1 Upon the occurrence of an Event of Default set forth in Section 7.6, the Bank shall have no obligation to make any further Advances, and all amounts outstanding (with accrued interest thereon) and all other amounts owing under the Revolving Credit Note and the other Loan Documents shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower.

8.2 Upon the occurrence of any other Event of Default, the Bank shall have no obligation to make any further Advances and the Bank may declare all amounts outstanding (with accrued interest thereon) and all other amounts owing to it under the Revolving Credit Note and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower.

8.3 Upon the occurrence of any Event of Default, and subject to the rights, if any, of any Other Holders and the rights, if any, of the applicable Underlying Borrowers under the applicable Underlying Loan Documents:

(i) All payments received by the Borrower under or in connection with any of the Collateral shall be held by the Borrower in trust for the Bank, shall be segregated from other funds of the Borrower and shall forthwith upon receipt by the Borrower be turned over to the Bank, in the same form as received by the Borrower (duly endorsed by the Borrower to the Bank, if required); and

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(ii) Any and all such payments so received by the Bank (whether from the Borrower or otherwise) may, in the sole discretion of the Bank, be held by the Bank as collateral security for, and/or then or at any time thereafter applied in whole or in part by the Bank against, all or any part of the Obligations in such order as the Bank shall determine in its sole discretion. Any balance of such payments held by the Bank and remaining after payment in full of all such Obligations shall be paid over to the Borrower or, if the Bank has knowledge that another Person is lawfully entitled to receive the same, to such other Person.

8.4 If any Event of Default shall occur, the Bank may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other Loan Document, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Bank may, without any requirement of notice, setoff any and all amounts owing by the Borrower to it against any deposit account maintained in the Bank by the Borrower or any other property of the Borrower which may now or hereafter be in the Bank’s possession or control, and such right of setoff shall be deemed to have been exercised immediately upon such stated or accelerated maturity as aforesaid even though such setoff is not noted on the records of the Bank until a later time. Without limiting the generality of the foregoing, the Borrower expressly agrees that in any such event the Bank, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Borrower or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or sell or otherwise dispose of and deliver the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker’s board or at any of the Bank’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Borrower which shall be released. The Borrower further agrees, at the Bank’s request, to assemble the Collateral and make it available to the Bank at places which the Bank shall reasonably select, whether at the Borrower’s premises or elsewhere. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any or all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorneys’ fees and legal expenses, to the Bank for payment in whole or in part of the Obligations, in such order as the Bank shall determine in its sole discretion, the Borrower remaining liable for any deficiency remaining unpaid after such application, and only after paying over such net proceeds and after the payment by the Bank of any other amount required by any provision of law, need the Bank account for the surplus, if any, to the Borrower. To the

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extent permitted by applicable law, the Borrower waives all claims, damages, and demands against the Bank arising out of the repossession, retention or sale of the Collateral. The Borrower agrees that the Bank need not give more than twenty (20) days’ notice (which notification shall be deemed given when mailed, postage prepaid, addressed to the Borrower at its address set forth in Section 10.1 hereof) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. The Borrower shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the Bank is entitled, the Borrower also being liable for the fees of any attorneys employed by the Bank to collect such deficiency.

8.5 The Borrower also agrees to pay all Bank Costs reasonably incurred with respect to the collection of any of the Obligations and the enforcement of any of the Bank’s rights hereunder.

8.6 The Borrower hereby waives (i) presentment, demand, protest or any notice (to the extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral, except as otherwise provided herein, (ii) all rights to seek from any court any bond or security prior to the exercise by the Bank of any remedy described herein, (iii) the benefit of all valuation, appraisement and exemption laws and (iv) all rights to demand or to have any marshaling of assets upon any power of sale granted herein or pursuant to judicial proceedings or upon any foreclosure or any enforcement of this Agreement.

8.7 Without limiting the generality of any of the rights and remedies conferred upon the Bank in this Agreement, the Bank may, after the occurrence of an Event of Default and to the full extent permitted by applicable law: (i) take immediate possession of the Collateral, either personally or by means of a receiver appointed by a court of competent jurisdiction; (ii) at the Bank’s option, use, operate, manage and control the Collateral in any lawful manner; (iii) collect and receive all rents, income, revenue, earnings, issues and profits therefrom; and (iv) maintain, repair, renovate, alter or remove the Collateral as the Bank may determine in its sole discretion.

IX. INDEMNIFICATION

9.1 Indemnification. The Borrower agrees to pay, reimburse, indemnify and hold harmless, the Bank and its Affiliates and each of their respective directors, officers, employees, agents and representatives from and against any and all actions, reasonable costs, damages, reasonable disbursements, reasonable expenses (including reasonable attorneys’ fees), judgments, liabilities, losses, obligations, penalties and suits of any kind or nature whatsoever with respect to:

(i) the development, preparation, execution, performance, administration, enforcement, interpretation, amendment, modification, waiver or consent of any of the Loan Documents;

(ii) the exercise of any right or remedy granted in any of the Loan Documents, the collection or enforcement of any of the Obligations and the proof or allowability of

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any claim arising under any of the Loan Documents, whether in any bankruptcy or receivership proceeding or otherwise;

(iii) any claim of third parties, and the prosecution or defense thereof, arising out of or in any way connected with any of the Loan Documents; and

(iv) any and all search, recording and filing fees and taxes, and any and all liabilities with respect thereto, or resulting from any delay in paying stamp and other taxes, if any, which may be payable or determined to be payable in connection with the Loan Documents.

Notwithstanding the foregoing, the Bank shall not be entitled to any indemnification with respect to its own gross negligence, willful misconduct or fraud.

X. MISCELLANEOUS

10.1 Notice. All notices and other communications given to or made upon any party hereto in connection with this Agreement shall, except as otherwise expressly herein provided, be in writing and hand delivered, sent by certified mail, return receipt requested or reputable overnight courier providing a receipt against delivery or faxed (so long as, concurrently with sending a notice by fax, a party also sends the notice by any other means permitted hereunder) to the respective parties, as follows:

Bank:	Sterling National Bank
	650 Fifth Avenue
	New York, New York 10019
	Attention: Mr. Thomas Braunstein
	Telecopy: (212) 575-3442
- with a copy to -
	Wolff & Samson PC
	One Boland Drive
	West Orange, New Jersey 07052
	Attention: Laurence M. Smith, Esq.
	Telecopy: (973) 530-2221
Borrower:	Medallion Financial Corp.
	437 Madison Avenue
	New York, New York 10022
	Attention: Alvin Murstein
	Telecopy: (212) 328-2121

36

- with a copy to –
	Medallion Financial Corp.
	437 Madison Avenue
	New York, New York 10022
	Attention: Michael C. Carroll, Esq.
	Telecopy: (212) 328-3614
- with a copy to –
	Medallion Business Credit, LLC
	437 Madison Avenue
	New York, New York 10022
	Attention: Gerald J. Grossman, Esq.
	Telecopy: (609) 524-4013

or to such changed address as may be fixed by notice. All such notices and other communications shall, except as otherwise expressly herein provided, be effective when received by the party to whom properly addressed, the written receipt by any employee of any such party constituting sufficient evidence of such receipt.

10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.

10.3 Survival of Agreements. All agreements, representations and warranties made herein, and in any certificates delivered pursuant hereto, shall survive the execution and delivery of this Agreement and the Revolving Credit Note and the making of any Advances.

10.4 Amendment. No modification, amendment or waiver of any provision of this Agreement or the Revolving Credit Note, nor consent to any departure by the Borrower shall in any event be effective unless the same shall be in writing and signed by the party granting such modification, amendment or waiver, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

10.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Bank, all future holders of the Revolving Credit Note and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under this Agreement, the Revolving Credit Note or the other Loan Documents without the prior written consent of the Bank, which may be granted or withheld by the Bank in its sole and absolute discretion. This Agreement, the Revolving Credit Note and the other Loan Documents

37

may be endorsed, assigned or transferred in whole or in part by the Bank, and any such holder or assignee of the same shall succeed to and be possessed of the rights and powers of the Bank under all of the same to the extent transferred and assigned. The Bank may grant participations in all or any portion of its interest in the indebtedness evidenced by the Revolving Credit Note, and in such event the Borrower shall continue to make payments due under the Revolving Credit Note to the Bank and the Bank shall have the sole responsibility of allocating and forwarding such payments in the appropriate manner and amounts.

10.6 Severability. In case any one or more of the provisions contained in this Agreement or the Revolving Credit Note should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.

10.7 Counterparts. This Agreement may be executed by the parties hereto in any number of separate counterparts and all such counterparts taken together shall constitute one and the same original instrument.

10.8 Governing Law; No Third Party Rights. This Agreement and the Revolving Credit Note and the obligations of the parties hereunder and thereunder shall be governed by and construed and interpreted in accordance with the law of the State of New York. This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit, priority or interest in, under or because of the existence of, this Agreement.

10.9 Pledge to the Federal Reserve. The Bank may at any time pledge all or any portion of its rights under the Loan Documents including any portion of the Revolving Credit Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release the Bank from its obligations under any of the Loan Documents.

10.10 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. AFTER CONSULTATION WITH COUNSEL, THE BORROWER AND THE BANK HEREBY WAIVE THEIR RIGHT TO A TRIAL BY JURY IN CONNECTION WITH LITIGATION INVOLVING THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS AND HEREBY AGREE THAT, IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. THE BORROWER AND THE BANK HEREBY CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK IN ANY LITIGATION ARISING HEREUNDER, AND IRREVOCABLY WAIVE ALL DEFENSES TO THE PERSONAL JURISDICTION OF SUCH COURTS, INCLUDING, WITHOUT LIMITATION, DEFENSES BASED UPON THE INCONVENIENCE OF SUCH FORUMS AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND FURTHER AGREES THAT SERVICE OF ANY

38

SUCH PROCESS MAY BE EFFECTED, IN ADDITION TO ANY OTHER MEANS PERMITTED BY THE APPLICABLE RULES OF COURT, BY MAILING SUCH PROCESS CERTIFIED MAIL, RETURN RECEIPT REQUESTED OR BY REPUTABLE OVERNIGHT COURIER PROVIDING A RECEIPT AGAINST DELIVERY TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 10.1 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE BORROWER’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE BANK OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date set forth on the first page hereof.

MEDALLION FINANCIAL CORP.
By:	/s/ Alvin Murstein
	Name: Alvin Murstein
	Title:   Chairman & Chief Executive Officer
STERLING NATIONAL BANK
By:	/s/ Thomas Braunstein
	Name: Thomas Braunstein
	Title:   Vice President

39

STATE OF NEW YORK	)
	:	ss.:
COUNTY OF NEW YORK	)

On the      day of                     , 2004, before me, the undersigned, personally appeared                                              , personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

Notary Public

STATE OF NEW YORK	)
	:	ss.:
COUNTY OF NEW YORK	)

On the      day of                     , 2004, before me, the undersigned, personally appeared                                              , personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

Notary Public

Schedules and Exhibits

to

Loan and Security Agreement

by and between

Medallion Financial Corp.

and

Sterling National Bank

Exhibits

Exhibit A - Form of Borrowing Base Certificate

Schedules

Schedule I	-	Underlying Loans
Schedule II	-	Permitted Indebtedness
Schedule III	-	Permitted Liens
Schedule IV	-	Subsidiaries
Schedule V	-	Pending or Threatened Litigation
Schedule VI	-	Offices
Schedule VII	-	Intellectual Property

Exhibit A

Form of Borrowing Base Certificate

BORROWING BASE CERTIFICATE

Reference is made to the Loan and Security Agreement dated                         , 2004 (the “Loan Agreement”) between Medallion Financial Corp. (the “Borrower”) and Sterling National Bank (the “Bank”). Capitalized terms used in this Certificate and not otherwise defined shall have the meanings give to such terms in the Loan Agreement.

ELIGIBLE UNDERLYING LOANS:

Taxicab Medallion Loans (      %*)

Medallion Financial Corp.

Medallion Funding Corp.

Medallion Business Credit LLC

Asset-Based Loans (      %*)

Medallion Financial Corp.

Medallion Funding Corp.

Medallion Business Credit LLC

Taxicab Medallion Related Loans (      %*)

Medallion Financial Corp.

Medallion Funding Corp.

Medallion Business Credit LLC

Other loans (      %*)

Medallion Financial Corp.

Medallion Funding Corp.

Medallion Business Credit LLC

AGGREGATE NET PRINCIPAL AMOUNT
of all Eligible Underlying Loans owned by
the Borrower and all Pledgors (as more
particularly described on the attached spread sheets)

ADVANCE RATE

BORROWING BASE

OUTSTANDING LOAN BALANCE

AVAILABILITY/(OVERADVANCE)

* Represents the ratio, expressed as a percentage, that (i) the aggregate net principal amount owned by the Borrower and all Pledgors in such type of loan bears to (ii) the aggregate net principal amount owned by the Borrower and all Pledgors in all Eligible Underlying Loans.

** Represents the aggregate net principal amount owned by such entity in such loan.

The Borrower certifies that the foregoing information is true, correct and complete as of the date of this Certificate. The Borrower understands that the Bank will rely upon the information set forth in this Certificate in making an Advance to the Borrower under the Loan Agreement.

Date:	MEDALLION FINANCIAL CORP.
	By:
		Name:
		Title:

Schedule I

Underlying Loans

Schedule II

Permitted Indebtedness

Letter of Credit in the amount of $30,000 payable to 126 Street Parking Associates, c/o Murray Hill Properties LLC and AB Properties, 1140 Avenue of the Americas, New York, New York 10036.

Schedule III

Permitted Liens

Schedule IV

Subsidiaries

Medallion Funding Corp.

Medallion Business Credit, LLC

Medallion Capital, Inc.

Business Lenders, LLC

Medallion Bank

Medallion Taxi Media, Inc.

Medallion Media Japan, Ltd.

Freshstart Venture Capital Corp.

MedOreo Corp., Inc.

Schedule V

Pending or Threatened Litigation

None

Schedule VI

Offices and Locations of Books and Records

437 Madison Avenue

38th Floor

New York, New York 10022

11-49 44th Drive

Long Island City, New York 11101

15 Lewis Street

Hartford, Connecticut 06103

116 Village Boulevard

Suite 200

Princeton, New Jersey 08540

Schedule VII

Intellectual Property

EX-31.1

Exhibit 31.1

CERTIFICATIONS

Certification of Alvin Murstein

I, Alvin Murstein, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Medallion Financial Corp.;

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004
By:	/s/ Alvin Murstein
	Alvin Murstein Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Larry D. Hall

I, Larry D. Hall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Medallion Financial Corp.;

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2004
By:	/s/ Larry D. Hall
	Larry D. Hall Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medallion Financial Corp. (the “Company”) for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

By:	/s/ Alvin Murstein
	Chairman and Chief Executive Officer

Date: August 9, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medallion Financial Corp. (the “Company”) for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

By:	/s/ Larry D. Hall
	Senior Vice President and Chief Financial Officer

Date: August 9, 2004