10KSB

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

                                   FORM 10-KSB
(Mark One)

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

                   For the fiscal year ended December 31, 2005

                                       OR

   |_|                TRANSITION REPORT UNDER SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from ____________ to ______________
                          Commission File Number 0-631

                            WEBFINANCIAL CORPORATION
                            ------------------------
                 (Name of small business issuer in its charter)

                Delaware                                         56-2043000
                --------                                         ----------
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

        590 Madison Avenue, 32nd Floor
             New York, New York                                     10022
             ------------------                                     -----
(Address of principal executive offices)                          (Zip Code)

                    Issuer's telephone number: (212) 520-2320

       Securities registered under Section 12(b) of the Exchange Act: None
         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of Class)

      Check  whether  the issuer is not  required  to file  reports  pursuant to
Section 13 or 15(d) of the Exchange Act.

                                 Yes |_| No |X|

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      Indicate  by check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes |_| No |X|

            Issuer's revenues for its most recent fiscal year: $1,571,000

      Based upon the closing price of the registrant's  Common Stock,  $.001 par
value (the "Common Stock") on April 21, 2006, the aggregate  market value of the
560,119  shares  of  Common  Stock  held by  non-affiliates  of the  issuer  was
$6,721,428.  Solely  for  the  purposes  of  this  calculation,  shares  held by
directors,  officers and ten percent  stockholders  of the registrant  have been
excluded. Such exclusion should not be deemed a determination or an admission by
the issuer that all such individuals are, in fact, affiliates of the issuer.

      As of April 21, 2006,  2,183,366 shares of the  registrant's  Common Stock
were issued and outstanding. All share ownership and share price information set
forth in this Form 10-KSB has been  adjusted to reflect the reverse stock split,
unless otherwise noted.

                    Documents incorporated by reference: None

    Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|



                                TABLE OF CONTENTS

                                     PART I                                Page No.
                                                                           --------

Item 1.       Description of Business                                          2

Item 2.       Description of Property
                                                                               9

Item 3.       Legal Proceedings                                                9

Item 4.       Submission of Matters to a Vote of Security Holders             10

                                     PART II

Item 5.       Market for Common Equity, Related Stockholder Matters and
              Small Business Issuer Purchases of Equity Securities            11

Item 6.       Management's Discussion and Analysis or Plan of Operation       11

Item 7.       Financial Statements                                            24

Item 8.       Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                        24

Item 8A.      Controls and Procedures                                         24

Item 8B.      Other Information                                               24

                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control
              Persons; Compliance with Section 16(a) of the Exchange Act      25

Item 10.      Executive Compensation                                          28

Item 11.      Security Ownership of Certain Beneficial Owners and
              Management and Related Stockholder Matters                      29

Item 12.      Certain Relationships and Related Transactions                  31

Item 13.      Exhibits                                                        32

Item 14.      Principal Accountant Fees and Services                          32

Signatures

Exhibit Index



PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

      WebFinancial  Corporation (formerly Rose's Holdings,  Inc. and referred to
herein as the "Company"),  was  incorporated in 1997 to act as a holding company
for Rose's Stores,  Inc., an operator of general merchandise discount stores. On
December 2, 1997, the Company sold all of the outstanding capital stock of Roses
Stores, Inc.

      On August 31, 1998, the Company  acquired,  through  WebFinancial  Holding
Corporation  ("WebFinancial Holding"), a wholly-owned subsidiary of the Company,
90%  of the  outstanding  common  stock  of  WebBank,  a  Utah  industrial  loan
corporation,  pursuant to an assignment  from Praxis  Investment  Advisers,  LLC
("PIA")  of  a  stock  purchase  agreement,  between  PIA  and  Block  Financial
Corporation ("Block"),  relating to the purchase by PIA of all of the issued and
outstanding shares of common stock of WebBank.  Pursuant to the assignment,  the
Company paid Block $5,071,000  (including $288,000 of acquisition costs) for the
shares of WebBank's common stock.

      On August 31, 1998, the Company formed Praxis  Investment  Advisers,  Inc.
("Praxis") and together with WebFinancial Holding and Andrew Winokur, the holder
of the 10% of  Praxis  not  owned  by the  Company,  entered  into a  management
agreement.   The   management   agreement   provided   that  Praxis  could  make
recommendations  to and consult  with the  management  and board of directors of
WebBank  about the  deployment  of WebBank's  capital,  the  development  of its
business  lines,  its  acquisition  of  assets  and  its  distributions  to  its
stockholders.  During  2000,  the  Company  significantly  reduced  the level of
operations of Praxis and terminated the management agreement.

      On  May  26,  1999,  the  Company   formed  a  wholly  owned   subsidiary,
WebFinancial  Government  Lending,  Inc., to hold and service U.S. Department of
Agriculture loans. In April 2000,  WebFinancial  Government Lending  transferred
the  majority of its loan  portfolio to WebBank in exchange for 28% of WebBank's
common stock.  WebFinancial  Government Lending has not actively engaged in loan
originations since that time.

      On February 1, 2006, WebFinancial purchased from Andrew Winokur and Nicole
Cohen Winokur their shares of common stock of WebBank. As a result, WebFinancial
now owns 100% of WebBank.

      The principal  executive offices of the Company are located at 590 Madison
Avenue,  32nd Floor, New York, New York 10022. The Company's telephone number is
(212) 520-2320.

BUSINESS

      The Company, through its operating subsidiaries, operates in niche banking
markets.   WebBank   provides   commercial   and  consumer   specialty   finance
transactions.  WebBank is  authorized  by the Federal  Deposit  Insurance Act to
charge  interest  (including  periodic  rates,  late fees and  prepayment  fees)
allowed  by Utah law on loans  made to  borrowers  who  reside  anywhere  in the
country.  Any inconsistent state law limits are preempted by federal law, except
for loans  made in states  that have opted out of the  preemption.  WebBank is a
small,  business oriented  institution  insured by the Federal Deposit Insurance
Corporation  ("FDIC") and  examined  and  regulated by the FDIC and the State of
Utah Department of Financial Institutions.

      As discussed in Note 2 of the Notes to Consolidated  Financial Statements,
on January 31, 2005, the FDIC and the Department of Financial  Institutions  for
the State of Utah issued to WebBank an Order to Cease and Desist  (the  "Order")
in connection with alleged  violations of certain banking  regulations.  WebBank
consented to the issuance of the Order without  admitting or denying the alleged
charges.  The Order  required  WebBank to comply  with a number of  requirements
which  include,  but is not  limited  to,  increasing  the number of  directors,
increasing  board  involvement,   hiring  new  executive  officers,  creating  a
three-year  strategic plan, charging off or collecting certain classified loans,
revising and adopting  various  policies,  developing and adopting a budget plan
and a capital  plan that is designed  to  maintain an adequate  level of Capital
protection  for  the  kind of and  quality  of  assets  held  by the  bank,  and
establishing and implementing procedures for affiliate  transactions.  The Order
also immediately prohibited certain actions such as purchasing factored accounts
receivable until proper procedures and policies are in place, extending


                                       2


additional credit to substandard borrowers, and paying cash dividends. The Order
further prohibited  WebBank from issuing brokered  certificates of deposit in an
aggregate  amount  greater than the amount  outstanding on the effective date of
the Order,  which was  $7,465,000.  The effective date of the Order was February
10, 2005, and the due dates for the requirements ranged from 10 days to 360 days
from the effective date with the majority to be achieved  within 120 days of the
Order.  See "Risk  Factors-Our  failure  to  comply  with the Order to Cease and
Desist  issued  to  WebBank  would  have  a  negative   effect  on  our  ongoing
operations."

      WebBank  believes  that during the period since the issuance of the Order,
it has  provided  all  information  required  by the  Order on a  timely  basis.
WebBank's  compliance with the Order was reviewed by the FDIC and the Department
of  Financial  Institutions  for the State of Utah during the annual  Safety and
Soundness  examination  conducted in September  2005.  The examiners  noted in a
letter  dated  February  2006 that  WebBank's  fourth  quarter  progress  report
indicates the Bank has made  substantial  progress  towards  compliance with the
Order based on the results of the recent joint examination,  however, also noted
that management  properly  recognizes  there are several  remaining  issues that
require  further  action,  including  the  successful  execution of a three-year
business plan that was presented to and approved by the  regulators  during June
2005.  The  Order  will  remain  in  place  until  it is  modified,  terminated,
suspended, or set aside by the FDIC and the Department of Financial Institutions
for the State of Utah. The time frame  remaining for the Order to be in place is
not known at this time.

      On July 27, 2005, the FDIC and the Department of Financial Institutions of
the State of Utah  granted  WebBank a waiver  from  restrictions  imposed on the
issuance of brokered  certificates of deposit. The waiver allows WebBank to hold
brokered deposits up to an aggregate of $20,000,000  through January 1, 2007. At
that time the waiver will  expire,  and WebBank  expects to submit a new request
for approval of the use of brokered deposits.

      Part of the business plan of WebBank represents a non-traditional approach
to generating  growth within the context of the  regulatory  standards of safety
and soundness.  Prudent  business goals and protection of WebBank's  charter are
the key elements of the  Company's  business  strategy for WebBank.  Pursuant to
this  strategy,  WebBank  currently  focuses  primarily in the lines of business
described below:

      o     GOVERNMENT  GUARANTEED  LENDING.  There are two  different  types of
            Government Guaranteed Lending offered by WebBank:

            o     USDA BUSINESS AND INDUSTRY (B&I) LENDING. This is a commercial
                  loan  product  of which 70% to 90% is  guaranteed  by the full
                  faith and credit of the Federal  government.  The loan program
                  is administered by the United States Department of Agriculture
                  to assist  businesses  located in rural  areas  (under  50,000
                  population)  to  promote  industrial   modernization  and  job
                  creation.  WebBank had approximately $3,500,000 and $4,800,000
                  of B&I loans  outstanding  as of  December  31, 2005 and 2004,
                  respectively,  and  continues to service loans in its existing
                  portfolio and for several other investors.

            o     SMALL  BUSINESS  ADMINISTRATION  (SBA)  LENDING.  During 2005,
                  WebBank  formed a division  to source and  service  SBA loans.
                  These  commercial  loans are  guaranteed 75% by the full faith
                  and credit of the Federal  government and are  administered by
                  the Small  Business  Administration.  WebBank  started its SBA
                  lending in the fourth quarter and had approximately $1,200,000
                  of SBA loans outstanding as of December 31, 2005.

      o     FEE  FOR  SERVICE  LENDING.  This is a form  of  unsecured  consumer
            lending that operates  under an  arrangement  between  WebBank and a
            third party. A third party company is engaged to source these loans.
            The loan is underwritten to WebBank's credit standards and is funded
            by  WebBank.  The third  party  purchases  each loan  shortly  after
            origination.  As of  December  31,  2005 and  2004  only one fee for
            service  arrangement was in place.  During 2004,  WebBank terminated
            another fee for service  arrangement  which represented less than 5%
            of the Company's  revenues in 2004. It is management's  intention to
            pursue strategic relationships that at a minimum provide monthly fee
            income, but more desirably result in generation of earning assets.

      o     ASSET BASED LENDING.  WebBank plans to enter this market during 2006
            through a combination of leasing,  loan participations and potential
            acquisition  of a company  with  strong  management  and an existing
            track  record.  Areas of focus will include  financing of equipment,
            inventory and receivables.


                                       3


      During 2004, the following line of business was suspended:

      o     ACCOUNTS  RECEIVABLE  FACTORING.  On December 30, 2004, WebBank sold
            its remaining accounts receivable  financing portfolio at book value
            with no gain or loss  recorded  on the sale.  See Item 12,  "Certain
            Relationships  and Related  Transactions"  for a description of this
            transaction.   From  early  2002  to  December  30,  2004,  accounts
            receivable  factoring   constituted   WebBank's  principal  line  of
            business. Factoring is a form of collateral-based commercial lending
            in which companies sell their  receivables to a lender,  principally
            to secure working capital.  The receivables are paid directly to the
            lender.   During  those  years,  WebBank  was  engaged  in  accounts
            receivable factoring utilizing two sourcing and servicing companies.
            One of the  two  accounts  receivable  programs  was  terminated  in
            February  2004,  and the other was  terminated on December 30, 2004,
            simultaneously  with  the  sale  of  the  portfolio.   The  accounts
            receivable  factoring  arrangement  that was  terminated in December
            2004 generated revenue and income in fiscal 2004 which accounted for
            (a)  substantially  all of the revenue and income  generated  by the
            accounts  receivable  factoring operating segment and (b) 64% of the
            consolidated revenues for the year ended December 31, 2004.

      The  Company  continues  to  evaluate  its  different  business  lines and
consider various  alternatives to maximize the aggregate value of its businesses
and increase  stockholder value,  including seeking  acquisitions  and/or merger
transactions, as well as product line extensions, additions and/or divestitures.
WebBank's  acquisition  of any new business line as well as additional  factored
accounts  receivable are subject to certain  limitations in the Order (See "Risk
Factors-  Our  failure to comply  with the Order to Cease and  Desist  issued to
WebBank would have a negative  effect on our ongoing  operations"  and Note 2 to
the Consolidated Financial  Statements).  No firm commitments have been realized
and no binding letters of intent have been signed at this time.  There can be no
assurance that the Company will be able to accomplish any of these  alternatives
and be profitable.


                                       4


DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL

      The following is a presentation  of the Company's  average  balance sheets
for the years ended December 31, 2005 and 2004 (in thousands):

                                                           Average Balances
                                                        Year Ended December 31,
                                                      -------------------------
                                                        2005             2004
                                                        ----             ----

ASSETS
Interest bearing deposits in other banks              $ 13,894         $  8,360
Federal funds sold                                          --            1,289
Investment securities                                    3,096            1,617
Loans                                                    6,476            8,641
Purchased receivables
   Accounts receivable factoring                            --            7,096
   Other                                                    --              146
                                                      -------------------------
     Total interest earning assets                      23,466           27,149

Allowance for credit losses                               (306)          (1,310)
Goodwill                                                    --            1,376
Investments                                              2,898              700
Other Assets                                             1,235            2,363
                                                      -------------------------

  Total assets                                        $ 27,293         $ 30,278
                                                      =========================

LIABILITIES
NOW/MMA deposits                                      $    137         $    316
Certificates of deposits                                 3,150            9,957
                                                      -------------------------
   Total interest bearing liabilities                    3,287           10,273

Non interest bearing demand deposits                         1              288
Other liabilities                                          533              417
                                                      -------------------------
   Total liabilities                                     3,821           10,978

Minority interests                                         372              478

EQUITY
Common stock and paid-in-capital                        47,649           42,130
Accumulated deficit                                    (25,357)         (23,706)
Accumulated other comprehensive income                     808              398
                                                      -------------------------
     Total Equity                                       23,100           18,822
                                                      -------------------------

     Total Liabilities and Equity                     $ 27,293         $ 30,278
                                                      =========================

      See  "Management's  Discussion  and Analysis or Plan of Operation"  for an
analysis of the Company's net interest margin with respect to yields on interest
earning  assets and rates on interest  bearing  liabilities  for the years ended
December 31, 2005 and 2004.


                                       5


INVESTMENTS

      The following table represents the book value of the Company's investments
at December 31, 2005 and 2004 (in thousands):

                                                              December 31,
                                                              ------------
                                                          2005             2004
                                                          ----             ----
Obligations of states and political subdivisions        $    40          $    40
Mortgage backed securities                                   44               50
Equity securities                                         2,575            2,622
                                                        ------------------------
     Total                                              $ 2,659          $ 2,712
                                                        ========================

      The following  table  indicates  the  respective  maturities  and weighted
average  yields of the  Company's  investment  portfolio  at  December  31, 2005
(dollars in thousands):

                                                                  Due in one year or less          Due after one year to five years
                                                                --------------------------         --------------------------------
                                                                Amount       Average yield            Amount        Average yield
                                                                ------       -------------            ------        -------------

Obligations of states and political subdivisions                 $ 40            2.25%                 $  --             0.00%
Mortgage backed securities                                         --              --                     --               --

                                                            Due after five years to ten years            Due after ten years
                                                            ---------------------------------         ---------------------------
                                                                 Amount      Average yield            Amount        Average yield
                                                                 ------      -------------            ------        -------------

Obligations of states and political subdivisions                 $  --             --                  $  --               --
Mortgage backed securities                                          --             --                     44             6.28%

LOAN PORTFOLIO

      The Company engages,  primarily through its WebBank subsidiary, in several
lending  programs.  See  "Description of Business." The following table presents
various  categories of loans  contained in the Company's  loan portfolio and the
total amount of all loans, including nonaccruing loans, at December 31, 2005 and
2004 (in thousands):

                                                                December 31,
                                                                ------------
                                                           2005            2004
                                                           ----            ----
Commercial, financial and agricultural                    $7,663          $5,906
Installment loans to individuals                              --              44
                                                          ----------------------
     Totals                                               $7,663          $5,950
                                                          ======================

      The following table presents various  categories of loans contained in the
Company's loan  portfolio and the maturity and interest  sensitivity of loans at
December  31,  2005.  Commercial  revolving  credit  and  installment  loans  to
individuals, which have no stated maturity, are shown as due in one year or less
(in thousands):

                                                       Due in one year or      Due after one year
                                                        less (Revolving)       through five years     Due after five years
                                                        ----------------       ------------------     --------------------

Commercial, financial and agricultural                      $ 3,050                   $ 79                 $ 4,534


                                       6


      The following table presents various  categories of loans contained in the
Company's  loan  portfolio  by interest  sensitivity  at  December  31, 2005 (in
thousands):

                                                     Loans with         Loans with floating or
                                                    predetermined            adjustable
                                                    interest rates          interest rates
                                                    --------------          --------------

Commercial, financial and agricultural                 $                        $ 4,613

      The  following   table  presents  risk  elements  in  the  loan  portfolio
represented by nonaccruing, past due and restructured loans at December 31, 2005
and 2004 (in thousands). There were no foreign loans in the portfolio.

                                                                  December 31,
                                                                  ------------
                                                                 2005       2004
                                                                 ----       ----
Nonaccrual loans                                                 $148       $600
Accruing loans past due 90 days or more                            --         --
Troubled debt restructurings not shown above                       --         --
                                                                 ---------------
     Total                                                       $148       $600
                                                                 ===============

Interest on nonaccrual loans above:
   Amount if interest had been accrued during period             $ 25       $107
   Amount of interest accrued during period                      $ --       $ --

      Accrual of  interest  is  discontinued  on a loan when the loan is 90 days
past due or when management  believes,  after considering  economic and business
conditions and collection  efforts,  that the borrower's  financial condition is
such that  collection  of interest is doubtful.  Interest  income on  nonaccrual
loans is credited to income only to the extent  interest  payments are received.
Loans are restored to accrual of interest when delinquent  payments are received
in full.  Additionally,  the Company uses the cost recovery accounting method to
recognize interest income on impaired loans.

DEPOSITS

      The Company  offers,  through its WebBank  subsidiary,  a limited range of
deposit products.  All of the Company's deposit products,  with the exception of
certificates of deposit,  are with business customers.  For a full discussion of
the Company's  certificates of deposit, see "Risk Factors - Reliance on brokered
certificates  of  deposit  could  have a negative  effect on our  liquidity  and
operating results."

      The  following  table  shows  the  average  amount  and  rate  on  deposit
categories  in excess of 10% of  average  total  deposits  for the years  ending
December 31, 2005 and 2004 (in thousands).  The Company had no foreign  deposits
during these periods.

                                                         Average Amount for Year
                                                           Ended December 31,
                                                           ------------------
                                                          2005             2004
                                                          ----             ----
Non interest bearing demand deposits                    $     1          $   288
NOW/MMA deposits                                            137              316
Certificates of deposit                                   3,150            9,957
                                                        ------------------------
     Total deposits                                     $ 3,288          $10,561
                                                        ========================


                                       7


The following table indicates  amounts of time certificates of deposit and their
respective maturities as of December 31, 2005 (in thousands):

                                                      Average Rate Paid for Year
                                                          Ended December 31,
                                                          ------------------
                                                        2005             2004
                                                        ----             ----
Non interest bearing demand deposits                     N/A              N/A
NOW/MMA deposits                                        1.46%            2.22%
Certificates of deposit                                 2.32%            2.38%
     Total deposits                                     2.28%            2.38%

             Remaining Term                                              Amount
             --------------                                              ------
Three months or less                                                    $     --
Over three months through six months                                         999
Over six months through twelve months                                         --
Over twelve months                                                            --
                                                                        --------
   Total                                                                $    999
                                                                        ========

RETURN ON EQUITY AND ASSETS

      Returns on average consolidated assets and average consolidated equity for
the years ended December 31, 2005 and 2004 were as follows:

                                                       Year Ended December 31,
                                                       -----------------------
                                                       2005               2004
                                                       ----               ----

Return on average assets                              (4.97)%            (3.07)%
Return on average equity                              (5.85)%            (4.94)%
Dividend payout                                        0.00%              0.00%
Average equity to average assets                      84.90%             62.17%

COMPETITION

      The banking and financial  services  industry is highly  competitive.  The
increasingly  competitive  environment is primarily  attributable  to changes in
regulation,  changes  in  technology  and  product  delivery  systems,  and  the
accelerating  pace of  consolidation  among financial  services  providers.  The
Company competes for loans, deposits, and customers with other commercial banks,
thrift  institutions,  securities and brokerage  companies,  mortgage companies,
insurance companies,  finance companies,  money market funds, credit unions, and
other nonbank  financial service  providers.  Many of these competitors are much
larger in total  assets  and  capitalization,  have  greater  access to  capital
markets and offer a broader range of financial services than the Company.

REGULATION

      WebBank is regulated by Federal and state banking  agencies  including the
FDIC and the State of Utah  Department of Financial  Institutions.  As a result,
WebBank is subject to various  regulatory capital  requirements  administered by
the  Federal  and  state  banking  agencies.  Failure  to meet  minimum  capital
requirements can result in the initiation of certain actions by regulators that,
if  undertaken,  could  have a  direct  material  effect  on  WebBank's  and the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action,  WebBank must meet specific
capital  guidelines  that involve  quantitative  measures of  WebBank's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  WebBank's  capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings,  and other  factors.  Management  believes  that, as of December 31,
2005, WebBank met all capital adequacy requirements to which it is subject.

      As discussed in Note 2 of the Notes to Consolidated  Financial Statements,
on January 31, 2005, the FDIC and the Department of Financial Institutions for


                                       8


the State of Utah issued to WebBank an Order to Cease and Desist  (the  "Order")
in connection with alleged  violations of certain banking  regulations.  WebBank
consented to the issuance of the Order without  admitting or denying the alleged
charges.  The Order  required  WebBank to comply  with a number of  requirements
which  include,  but is not  limited  to,  increasing  the number of  directors,
increasing  board  involvement,   hiring  new  executive  officers,  creating  a
three-year  strategic plan, charging off or collecting certain classified loans,
revising and adopting  various  policies,  developing and adopting a budget plan
and a capital  plan that is designed  to  maintain an adequate  level of Capital
protection  for  the  kind of and  quality  of  assets  held  by the  bank,  and
establishing and implementing procedures for affiliate  transactions.  The Order
also immediately prohibited certain actions such as purchasing factored accounts
receivable  until  proper  procedures  and  policies  are  in  place,  extending
additional credit to substandard borrowers, and paying cash dividends. The Order
further prohibited  WebBank from issuing brokered  certificates of deposit in an
aggregate  amount  greater than the amount  outstanding on the effective date of
the Order,  which was  $7,465,000.  The effective date of the Order was February
10, 2005, and the due dates for the requirements ranged from 10 days to 360 days
from the effective date with the majority to be achieved  within 120 days of the
Order.  See "Risk  Factors-Our  failure  to  comply  with the Order to Cease and
Desist  issued  to  WebBank  would  have  a  negative   effect  on  our  ongoing
operations."

      WebBank  believes  that during the period since the issuance of the Order,
it has  provided  all  information  required  by the  Order on a  timely  basis.
WebBank's  compliance with the Order was reviewed by the FDIC and the Department
of  Financial  Institutions  for the State of Utah during the annual  Safety and
Soundness  examination  conducted in September  2005.  The examiners  noted in a
letter  dated  February  2006 that  WebBank's  fourth  quarter  progress  report
indicates the Bank has made  substantial  progress  towards  compliance with the
Order based on the results of the recent joint examination,  however, also noted
that management  properly  recognizes  there are several  remaining  issues that
require  further  action,  including  the  successful  execution of a three-year
business plan that was presented to and approved by the  regulators  during June
2005.  The  Order  will  remain  in  place  until  it is  modified,  terminated,
suspended, or set aside by the FDIC and the Department of Financial Institutions
for the State of Utah. The time frame  remaining for the Order to be in place is
not known at this time.

      On July 27, 2005, the FDIC and the Department of Financial Institution for
the State of Utah  granted  WebBank a waiver  from  restrictions  imposed on the
issuance of brokered  certificates of deposit. The waiver allows WebBank to hold
brokered deposits up to an aggregate of $20,000,000  through January 1, 2007. At
that time the waiver will  expire,  and WebBank  expects to submit a new request
for approval of the use of brokered deposits.

EMPLOYMENT

      As of April 21,  2006,  the  Company  had 10  employees,  all of whom were
full-time  employees.  The Company  believes  that its  employee  relations  are
satisfactory.   Steel  Partners,   Ltd.  ("SPL")  provides  certain  management,
consulting  and  advisory  services  to the  Company  pursuant  to a  Management
Agreement.  James  Henderson,  the Company's Chief Executive  Officer,  provides
management, accounting and financial services to WebBank pursuant to an Employee
Allocation  Agreement  between  WebBank and SPL. In  addition,  certain  WebBank
employees provide  accounting and lending services to the Company pursuant to an
Employee  Allocation  Agreement  between  WebBank and the Company.  See "Certain
Relationships and Related Transactions."

ITEM 2. DESCRIPTION OF PROPERTY

      The Company  occupies  office space  located at 590 Madison  Avenue,  32nd
Floor, New York, New York 10022 pursuant to a Management Agreement with SPL. See
"Certain   Relationships  and  Related   Transactions."   The  Company  has  the
non-exclusive  right to use the office  space along with SPL and  several  other
entities.

      On March 20, 2000,  WebBank  entered into a lease for 4,630 square feet of
headquarters office space in Salt Lake City, Utah. The term of the lease expired
on March 19,  2005.  Since that date,  WebBank  has been  leasing the space on a
month-to-month basis and will continue to do so until such time it enters into a
new lease.

      The  Company  believes  that the above  facilities  are  adequate  for its
current needs and that suitable additional space will be available as required.

ITEM 3. LEGAL PROCEEDINGS

      In January 2000, Andrew Winokur, a former executive officer,  director and
stockholder of Praxis Investment Advisors, Inc. ("Praxis"), one of the Company's
subsidiaries, filed a lawsuit in the Superior Court of the State of California,


                                       9


County  of Napa.  The  lawsuit  alleged  that  Praxis  breached  its  employment
agreement with Mr. Winokur.  The lawsuit also asserted  claims for  interference
with contract and unjust enrichment based upon his alleged wrongful termination.
The lawsuit  sought  damages of an  unspecified  amount and compliance by Praxis
with the termination pay-out provisions in Mr. Winokur's employment agreement.

      On March 4, 2002,  the lawsuit was submitted to binding  arbitration.  The
panel  found no breach of  contract  and no  intentional  interference  with Mr.
Winokur's  contractual  rights.  However,  the panel found that Mr.  Winokur was
potentially  entitled to certain  amounts  under his  employment  agreement.  On
February 1, 2006,  WebFinancial  purchased  from Mr.  Winokur  and Nicole  Cohen
Winokur  their  shares of  common  stock of  WebBank.  In  connection  with this
transaction,  the lawsuit was dismissed and the parties released each other from
any  liability  of any kind and nature in  connection  with any  matter  arising
through the date of the transaction,  including any actions under the employment
agreement.  As a result  of this  transaction,  the  Company  now  owns  100% of
WebBank.

      As discussed in Note 2 of the Notes to Consolidated  Financial Statements,
on January 31, 2005, the FDIC and the Department of Financial  Institutions  for
the State of Utah  issued to WebBank an Order to Cease and Desist in  connection
with alleged violations of certain banking regulations. WebBank consented to the
issuance of the Order  without  admitting  or denying the alleged  charges.  The
Order required  WebBank to comply with a number of  requirements  which include,
but is not limited to,  increasing  the number of  directors,  increasing  board
involvement,  hiring new  executive  officers,  creating a three-year  strategic
plan, charging off or collecting certain classified loans, revising and adopting
various policies,  developing and adopting a budget plan and a capital plan that
is designed to maintain an adequate level of Capital  protection for the kind of
and  quality  of assets  held by the bank,  and  establishing  and  implementing
procedures for affiliate  transactions.  The Order also  immediately  prohibited
certain actions such as purchasing  factored  accounts  receivable  until proper
procedures and policies are in place, extending additional credit to substandard
borrowers,  and paying cash dividends. The Order further prohibited WebBank from
issuing brokered certificates of deposit in an aggregate amount greater than the
amount outstanding on the effective date of the Order, which was $7,465,000. The
effective  date of the Order was February  10,  2005,  and the due dates for the
requirements  ranged from 10 days to 360 days from the  effective  date with the
majority  to be  achieved  within 120 days of the Order.  See "Risk  Factors-Our
failure  to comply  with the Order to Cease and Desist  issued to WebBank  would
have a negative effect on our ongoing operations."

      WebBank  believes  that during the period since the issuance of the Order,
it has  provided  all  information  required  by the  Order on a  timely  basis.
WebBank's  compliance with the Order was reviewed by the FDIC and the Department
of  Financial  Institutions  for the State of Utah during the annual  Safety and
Soundness  examination  conducted in September  2005.  The examiners  noted in a
letter  dated  February  2006 that  WebBank's  fourth  quarter  progress  report
indicates the Bank has made  substantial  progress  towards  compliance with the
Order based on the results of the recent joint examination,  however, also noted
that management  properly  recognizes  there are several  remaining  issues that
require  further  action,  including  the  successful  execution of a three-year
business plan that was presented to and approved by the  regulators  during June
2005.  The  Order  will  remain  in  place  until  it is  modified,  terminated,
suspended, or set aside by the FDIC and the Department of Financial Institutions
for the State of Utah. The time frame  remaining for the Order to be in place is
not known at this time.

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

      On  December  14,  2005,  the  Company  held its 2005  Annual  Meeting  of
Shareholders.  At the annual  meeting,  the  shareholders  (a) elected  five (5)
directors, and (b) ratified the appointment of Grant Thornton LLP as independent
accountants of the Company for the fiscal year ended December 31, 2005. The vote
on such matters was as follows:

        (a)  Election of Directors             For          Withheld
             ---------------------             ---          --------
             James R. Henderson              2,007,218          899
             Jack L. Howard                  2,006,857        1,260
             Howard Mileaf                   2,007,680          437
             Joseph L. Mullen                2,007,686          431
             Mark E. Schwarz                 2,007,416          701

                                                                                 For         Against     Abstain
                                                                                 ---         -------     -------

        (b)  Ratification of Appointment of Independent Accountants           2,007,837        -0-         280


                                       10


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF EQUITY SECURITIES

      The Company's  Common Stock is listed on the NASDAQ  SmallCap Market under
the symbol  "WEFN." The table below sets forth the high and low sales  prices of
the Common Stock for the periods  indicated on the NASDAQ SmallCap  Market.  The
prices have been adjusted to reflect a 1-for-4  reverse stock split  effected by
the Company on April 5, 2005.

                               Year Ended December 31,   Year Ended December 31,
                               -----------------------   -----------------------
                                        2005                     2004
                                        ----                     ----
                                  High         Low          High         Low
                                  ----         ---          ----         ---
1st Quarter                     $ 10.00      $  8.64       $13.88      $ 9.40
2nd Quarter                     $ 10.88      $  8.76       $11.76      $ 9.76
3rd Quarter                     $ 13.50      $ 11.13       $10.76      $ 9.08
4th Quarter                     $ 13.07      $ 12.00       $10.84      $ 8.88

      As of April 21,  2006,  there were 201 holders of record of the  Company's
Common Stock.

      On July 14, 2004, the Company issued to  stockholders of record as of July
9, 2004 (the  "Record  Date") one right for each share of Common  Stock owned on
the Record Date (the "Offering").  Each right entitled shareholders of record to
purchase  one share of the  Company's  Common Stock at a  subscription  price of
$9.00 per  share.  The  rights  expired on August  13,  2004.  All  rights  were
exercised in the Offering.  Accordingly,  the Company raised  approximately $9.8
million,  before  expenses,  and an additional  1,091,716 shares of Common Stock
were issued to shareholders who exercised their rights.

      At the 2004 annual meeting of shareholders  held on December 15, 2004, the
Company's  shareholders  approved a reverse split of the Company's  common stock
and a  reduction  of the  Company's  authorized  number of shares of common  and
preferred stock. At that time, neither the final amounts nor the effective dates
were determined for the approved actions.  On March 9, 2005, the Company's Board
of  Directors  approved  a 1-for-4  reverse  stock  split,  a  reduction  of the
Company's  authorized  number  of  shares of common  stock  from  50,000,000  to
5,000,000 shares,  and a reduction of the Company's  authorized number of shares
of preferred stock from  10,000,000 to 500,000 shares.  The reverse split became
effective on April 5, 2005 for  shareholders  of record on April 4, 2005.  After
giving effect to the reverse split,  there were  approximately  2,183,433 common
shares issued and outstanding.  The reductions of authorized number of shares of
common and preferred  stock became  effective on April 5, 2005 but are reflected
in the accompanying financial statements for all periods presented.

      The Company paid no cash dividends on its Common Stock during the last two
fiscal  years.  The Company  intends to retain any future  earnings  for working
capital needs and to finance  potential  future  acquisitions and presently does
not intend to pay cash dividends on its Common Stock for the foreseeable future.
As discussed in more detail in Note 2 of the Notes to the Consolidated Financial
Statements, WebBank was issued an Order to Cease and Desist on January 31, 2005,
which among other things,  prohibits  WebBank from paying cash dividends without
the written  consent of the FDIC and the State of Utah  Department  of Financial
Institutions.

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

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004.

      The  Company  recorded  a net loss of  $(1,378,000),  or $(.63) per common
share, for the year ended December 31, 2005, compared to net loss of $(930,000),
or $(.62) per common share,  for the year ended  December 31, 2004. A summary of
comparative  changes in the major  components  of the net loss  between  the two
years is shown below:


                                       11


      INTEREST  INCOME.  Interest income  decreased by $2,463,000,  or 70%, from
2004 to 2005. This decrease was primarily due to a $2,470,000, or 100%, decrease
in interest and fees from purchased factoring receivables. On December 30, 2004,
WebBank sold its remaining purchased  factoring  receivables  portfolio.  During
2004,  the  average  balance  of  outstanding  purchased  factoring  receivables
remained  fairly  constant  at  $7,096,000,  resulting  in  interest  income  of
$2,470,000.  Interest  income  on  interest  bearing  deposits  in  other  banks
increased  by $298,000,  or 505%,  because the  proceeds  from the  subscription
rights offering and the sale of the purchased  factoring  receivable  portfolio.
Interest  income on loans  decreased by $239,000,  or 27%, due to a reduction in
the commercial loan balances.  All other  categories of interest income remained
relatively stable between years.

      INTEREST  EXPENSE.  Interest expense  decreased by $169,000,  or 69%, from
2004 to 2005.  All of the  Company's  interest  expense was  incurred by WebBank
during both years. WebBank's average deposits decreased from $10,273,000 in 2004
to $3,287,000  in 2005,  and the average  interest  rate paid on those  deposits
decreased  from 2.38% to 2.28%.  WebBank did not renew  several of its  maturing
certificates  of deposit.  The balances  outstanding on  certificates of deposit
declined in 2005 and were  $8,722,000  and $999,000 for the years ended December
31, 2004 and 2005, respectively. NOW/MMA average balances declined between years
due to the  termination  of a fee for service  program  related to student loans
that required a certain amount of funds be maintained in a deposit account.

      The following is an analysis of the Company's net interest  margin for the
years ended  December 31, 2005 and 2004 with  respect to each major  category of
interest earning asset and interest bearing liability (dollars in thousands):

                                                                              Interest        Average
                                                         Average Amount    Income/Expense    Yield Rate
                                                         --------------    --------------    ----------
                    2005
                    ----
INTEREST EARNING ASSETS
Interest bearing deposits in other banks                     $ 13,894           $   357         2.57%
Investment securities                                           3,096                61         1.97%
Loans                                                           6,476               635         9.81%
                                                             --------------------------
  TOTAL INTEREST EARNING ASSETS                              $ 23,466           $ 1,053         4.49%
                                                             ==========================

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                             $    137           $     2         1.46%
Certificates of deposit                                         3,150                73         2.32%
                                                             --------------------------
   TOTAL INTEREST BEARING LIABILITIES                        $  3,287           $    75         2.28%
                                                             ==========================

NET INTEREST INCOME                                                             $   978
                                                                                =======
NET INTEREST MARGIN                                                                             4.17%
                                                                                              ======


                                       12


                    2004
                    ----
INTEREST EARNING ASSETS
Interest bearing deposits in other banks                     $  8,360           $    59         0.71%
Federal funds sold                                              1,289                20         1.55%
Investment securities                                           1,617                81         5.01%
Loans                                                           8,641               874        10.11%
Purchased receivables
   Accounts receivable factoring                                7,096             2,470        34.81%
   Other                                                          146                12         8.22%
                                                             --------------------------
  TOTAL INTEREST EARNING ASSETS                              $ 27,149           $ 3,516        12.95%
                                                             ==========================

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                                $ 316           $     7         2.22%
Certificates of deposit                                         9,957               237         2.38%
                                                             --------------------------
   TOTAL INTEREST BEARING LIABILITIES                        $ 10,273           $   244         2.38%
                                                             ==========================

NET INTEREST INCOME                                                             $ 3,272
                                                                                =======
NET INTEREST MARGIN                                                                            12.05%
                                                                                              ======

      The following  table  represents the effect of changes in volume  (average
balances)  and  interest  rates on interest  income and  interest  expense  when
comparing the year 2005 to the year 2004. The effect of the change in volume has
been  determined  by applying  the  previous  year rate to the change in average
balances  between  the two  periods.  The  effect of the change in rate has been
determined  by applying the previous  year volume to the change in rates between
the two periods.  Changes  resulting  from a mix of  volume/rate  variances were
distributed proportionately between volume and rate based on the relative values
of the volume and rate  variances to the total mix variance.  The results of the
analysis are presented below (in thousands):

                                                            Year Ended December 31, 2005 Compared to 2004
                                                            ---------------------------------------------
                                                           Due to Volume     Due to Rate       Total Change
                                                           -------------     -----------       ------------

INCREASE (DECREASE) IN INTEREST INCOME                                                                  -
Interest bearing deposits in other banks                     $      60        $     238         $     298
Federal funds sold                                                 (20)               -               (20)
Investment securities                                               47              (67)              (20)
Loans                                                             (213)             (26)             (239)
Purchased receivables
   Accounts receivable factoring                                (2,470)               -            (2,470)
   Other                                                           (12)               -               (12)
                                                             --------------------------------------------
   TOTAL INTEREST INCOME                                     $  (2,608)       $     145         $  (2,463)
                                                             ============================================

INCREASE (DECREASE) IN INTEREST EXPENSE
NOW/MMA deposits                                             $      (3)       $      (2)        $      (5)
Certificates of deposit                                           (158)              (6)             (164)
                                                             --------------------------------------------
   TOTAL INTEREST EXPENSE                                    $    (161)       $      (8)        $    (169)
                                                             ============================================

      PROVISION FOR CREDIT  LOSSES.  The credit loss  provision  increased  from
$177,000 in 2004 to $290,000 in 2005.  The primary  reason for the  increase was
related to an  adjustment of $62,000 in the specific  reserve on one  commercial
loan and an additional  writedown of $115,000 to another  commercial  loan.  The
Company's  commercial loan portfolio increased from approximately  $5,950,000 at
the end of 2004 to  $7,663,000  at the end of  2005.  Increase  in the  specific
reserve and $427,000 in net charge-offs  resulted in a net $137,000  decrease in
the allowance for credit losses.  As a result of the above  factors,  the credit
loss provision increased between years.


                                       13


      An analysis of the  Company's  allowance for credit losses and credit loss
experience is furnished in the following  table for the years ended December 31,
2005 and 2004 (in thousands):

                                                        Year Ended December 31,
                                                        -----------------------
                                                          2005           2004
                                                          ----           ----
Balance at beginning of year                            $    321       $  1,302

Charge-offs by category
   Commercial, financial and agricultural                    427            454
   Installment loans to individuals                           --             11
   Purchased receivables                                      --             --
      Accounts receivable factoring                           --            643
                                                        -----------------------
         Total charge-offs                                   427          1,108

Recoveries by category
   Purchased receivables
      Accounts receivable factoring                           --             65
                                                        -----------------------
         Total recoveries                                     --             65
                                                        -----------------------

Net charge-offs                                              427          1,043

Provision charge to operations                               290             62
                                                        -----------------------

Balance at end of year                                  $    184       $    321
                                                        =======================

Ratio of net charge-offs to average loans
   outstanding during the year                              4.82%          6.57%
                                                        =======================

      At  December  31,  2005 and 2004,  the  allowance  for  credit  losses was
allocated as follows (dollars in thousands):

                                                                December 31,                       December 31,
                                                                    2005                               2004
                                                                    ----                               ----
                                                            Amount of      % of loans in       Amount of      % of loans in
                                                          allowance by      category to      allowance by      category to
Balance at End of Year Applicable to:                       category        total loans        category        total loans
- -------------------------------------                       --------        -----------        --------        -----------

Commercial, financial and agricultural                           $ 184             100%             $ 313           99.26%
Installment loans to individuals                                     -               0%                 8            0.74%
                                                          ---------------------------------------------------------------
   Totals                                                        $ 184          100.00%             $ 321          100.00%
                                                          ===============================================================

      The  allowance  for  credit  losses  is  established   upon   management's
evaluation of the potential  credit losses in the Company's loan  portfolio.  In
analyzing the adequacy of the Company's allowance,  management considers its own
review as well as the results of independent external credit reviews, changes in
the composition and volume of the loan portfolio,  levels of non-performing  and
charge-off  loans,  local and national economic  conditions,  and other factors.
Performing  loans are evaluated  under the  guidelines of Statement of Financial
Accounting  Standards  ("SFAS")  5  and  other  current  accounting  literature.
Performing commercial, financial, and agricultural loans are evaluated on a loan
by  loan  basis.  Other  performing  loans  are  evaluated  on a  pooled  basis.
Nonperforming  and other  impaired  loans are  evaluated on a loan by loan basis
under the guidelines of SFAS 114. (See "Critical  Accounting  Issues - Allowance
for Credit  Losses" for  further  details  regarding  the  determination  of the
allowance).


                                       14


      NONINTEREST  INCOME.  Noninterest income decreased from $1,305,000 in 2004
to $518,000 in 2005, a change of $787,000, or 60%. The majority of the decrease,
or $650,000,  was due to a reduction in  servicing  fees  generated in the prior
year from  factoring  accounts  receivable.  This  revenue  was  generated  from
servicing  fees charged to investors that  participated  with WebBank in several
accounts receivable factoring  transactions.  On December 30, 2004, WebBank sold
its  remaining  purchased  factoring  receivables  portfolio  and  therefore  no
Noninterest  Income was derived in 2005 from these  activities In January 2005 a
program  that issued  private  labeled  credit  cards was ended,  resulting in a
decrease of $157,000.  Fees  related to this  program were  $165,000 in 2004 and
$8,000 in 2005.

      NONINTEREST  EXPENSES.  Noninterest  expense  decreased from $5,018,000 in
2004 to $2,454,000 in 2005, a change of  $2,564,000,  or 51%.  WebBank booked an
impairment  on goodwill of  $1,380,000  and $0 for the years ended  December 31,
2004 and  2005,  respectively.  The write  off was the  result of a third  party
valuation  test  performed in accordance  with SFAS 142. The absence of a market
proxy for the value of WebBank  resulted in reliance on an income  approach  for
the valuation.  However, the sale of the accounts receivable factoring portfolio
combined  with  WebBank's  Cease and  Desist  Order  (see Note 2 of the Notes to
Consolidated  Financial  Statements) caused uncertainty regarding the timing and
nature of replacing  that product line.  Therefore,  projections  of future cash
flows could not support the  remaining  book value of goodwill.  (See  "Critical
Accounting  Issues - Goodwill" for further details  regarding the goodwill write
off).  WebBank's  Broker  Fees on  Factored  Accounts  Receivable  decreased  by
$1,150,000. WebBank sold its remaining purchased factoring receivables portfolio
and  therefore no such expense was incurred in 2005.  WebBank  Salaries  expense
decreased by $215,000 due to a reduction  in staff  during the  restructure  and
Professional  and Legal expenses  increased  $198,000  related  primarily to the
Order to Cease and Desist.

      INCOME  TAXES.  Income tax  expense of $218,000  was  recorded in 2005 and
$491,000  in 2004.  The income tax expense in 2005 was  primarily  the result of
changes in the net  deferred  tax asset from 2004 to 2005.  The net deferred tax
asset  decreased by $214,000  from 2004 to 2005.  The income tax expense in 2004
was  primarily  the  result  of the  nonductibility  of the  goodwill  write off
discussed  in the  previous  section on  noninterest  expenses.  (See  "Critical
Accounting Issues - Deferred Taxes" for further details regarding changes in the
valuation allowance for deferred taxes).

INTEREST RATE RISK

      Movements  in interest  rates can  significantly  impact the  interest the
Company  earns on  loans  and  investments  as well as the  interest  it pays on
deposits and other borrowings.  The Company monitors the risk through the use of
gap measurement.  Gap measurement  analyzes the difference between the amount of
assets  that  reprice  during  specific  periods  of  time  and  the  amount  of
liabilities that reprice during the same corresponding  periods. This provides a
relative measure of the impact on net interest income from future changes in the
direction  of interest  rates.  Using gap  measurement,  if the Company has more
assets repricing or subject to change during a period of time than  liabilities,
it is asset sensitive. If more liabilities reprice or are subject to change than
assets,  it is  liability  sensitive.  As of December  31,  2005,  the  interest
sensitivity of WebBank for the following periods was as follows:


                                       15


                                                                       Over Three    Over One
                                                              Three     Through        Year
                                                              Months     Twelve      Through     Over Five  Non-Interest
                                                             or Less     Months     Five Years     Years      Bearing       Total
                                                             -------     ------     ----------     -----      -------       -----

                       ASSETS
Interest-bearing deposits in other financial institutions    $ 1,521          --           --          --          --      $ 1,521
Securities available for sale                                      6          18           16          --          --           40
Securities held to maturity                                       --          40            4          --          --           44
Loans, net                                                       102         405        1,755       2,198          --        4,460
Noninterest earning assets, net                                   --          --           --          --         755          755

                                                             ---------------------------------------------------------------------
 Total Assets                                                $ 1,629     $   463      $ 1,775     $ 2,198     $   755      $ 6,820
                                                             =====================================================================

         LIABILITIES AND SHAREHOLDERS EQUITY
Noninterest bearing deposits                                 $    --     $    --      $    --     $    --     $    --      $    --
Interest-bearing deposits                                         --         999           --          --          --          999
Other liabilities                                                 --          --           --          --         979          979
Shareholders' equity                                              --          --           --          --       4,958        4,958

                                                             ---------------------------------------------------------------------
Total liabilities and shareholders equity                    $    --     $   999      $    --     $    --     $ 5,937      $ 6,936
                                                             =====================================================================

Interest rate sensitivity gap                                $ 1,629     $  (536)     $ 1,775     $ 2,198     $(5,182)

Cumulative interest rate sensitivity gap                     $ 1,629     $ 1,093      $ 2,868     $ 5,066     $  (116)

Cumulative % of rate sensitive assets in repricing period      23.89%      30.67%       56.70%      88.93%     100.00%

Repricing gap % for repricing period                             N/A       46.35%         N/A         N/A       12.72%

      The  Cumulative  Repricing  GAP %'s above,  which are  greater  than 100%,
indicate that WebBank is asset  sensitive for all cumulative  repricing  periods
presented.  The Company's focus has been to remain asset sensitive in periods of
historically  low interest rates.  This has been  accomplished by lending almost
exclusively  on a  variable  rate  basis and  extending  the  maturities  of the
Company's  brokered  certificates of deposit as necessary to create the level of
interest  sensitivity  the Company  desires.  As rates rise, the Company's loans
will  reprice more quickly on average  than the deposit  base,  creating  larger
interest  margins and higher interest  income.  If interest rates decrease,  the
opposite  effect will occur,  however to a lesser degree.  Downside  protections
include the fact that 77% of the loans in the  commercial  loan  portfolio  have
interest rate floors.

MARKET RISK

      The Company  invests in securities  from time to time which expose it to a
risk of loss arising from adverse  changes in prices of those  securities.  Some
investments  are of a  fixed  income  variety  such  as  U.S.  Treasuries,  U.S.
Agencies, and municipal securities.  Other investments are of the equity variety
such as securities of public companies that are publicly traded.  In both cases,
the  securities  are accounted for under the guidelines of SFAS 115. The Company
classifies its securities as either  "available for sale," which are recorded at
fair value or "held to maturity,"  which are recorded at cost.  The Company does
not  generally  engage in practices  that would  require  classification  of its
securities   as   "trading."   The   Company   recognized   gains  on  sales  of
available-for-sale  securities of $40,000 and $1,000 in the years 2005 and 2004,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

      Liquidity risk is the possibility  that the Company's cash flows might not
be adequate to fund its ongoing  operations and meet its obligations in a timely
and cost effective manner. The Company monitors liquidity risk primarily through
GAP  methodology,  that is, the  measurement  of how quickly  its assets  mature
versus how quickly its liabilities mature. If more assets mature in a given time
period  than  liabilities,  the  Company  is asset  sensitive.  The  more  asset
sensitive  the Company is, the more  liquid it is because the  existing  funding
sources are  available to replace any assets that run off. A sample of WebBank's
liquidity  positions for the next six months and one year from December 31, 2005
are shown below:


                                       16


                                                         Six Months     One Year
                                                         ----------     --------
Cumulative Total Assets Maturing ($000)                   $ 1,766       $ 2,088
Cumulative Total Liabilities Maturing ($000)              $   999       $   999
Cumulative Maturity GAP ($000)                            $   768       $ 1,090
Cumulative Maturity GAP (%)                                176.89%       209.18%

      The Cumulative Maturity GAP %'s for the next six and twelve months,  which
are  greater  than 100%,  indicate  that  WebBank is asset  sensitive  for those
periods.  The Bank has tried to be matched or slightly asset  sensitive in order
to moderate liability risk. The Bank anticipates its assets will grow during the
next year and it will  continue to be matched or slightly  asset  sensitive as a
result of focusing on asset growth and matching or extending  the  maturities of
the Company's brokered  certificates of deposit as necessary to create the level
of liquidity  it desires,  taking into  consideration  the levels of other risks
such as interest rate risk.

      At December 31, 2005 and 2004,  the  Company's  cash and cash  equivalents
totaled $8,521,000 and $22,181,000  respectively.  The decrease in cash and cash
equivalent  balances  between  periods  reflects  a)  reduction  in  outstanding
certificates  of deposits of $7,723,000 b) increase in outstanding  loans net of
principal  collected  of  $2,136,000  and c) and an increase in other  assets of
$3,518,000  due primarily to an investment of $3,396,000 in a real estate master
limited partnership.

      The Company invests from time to time portions of its unallocated  cash to
investments  which are not associated with WebBank and the Company  believes are
prudent  and  provide  appropriate  risk/reward  opportunities.  Many  of  these
investments  have been and currently  are illiquid.  During the third quarter of
2005, the Company made an investment,  as a limited partner,  of $3,396,000 in a
newly formed real estate master limited  partnership (RELP). The RELP can invest
in certain  Japanese  real estate  assets such as hotels,  social  buildings and
other real estate  properties.  There are currently 4 investors in the RELP. The
$3,396,000  invested  by the  Company,  along  with  investments  from the other
partners, was used to purchase two Japanese hotels. One of those hotels requires
significant  renovations and the RELP is seeking financing for those renovations
on behalf of the RELP.  The Company has  committed to invest up to $6,000,000 in
the RELP.  The  sourcing of the hotel  properties,  the direct  oversight of the
management  of the hotels as well as securing any  necessary  financing  for the
hotels owned by the RELP is being  performed  by a  professional  Japanese  real
estate  advisory  company.  The market for these types of  Japanese  real estate
investments is considered highly illiquid.  In addition to the investment in the
RELP, the Company has three other investments totaling $1,200,000.  Two of these
are  equity   investments  in  a  limited   partnership  and  limited  liability
corporation  totaling  $200,000,  and are also considered to be highly illiquid.
Both of these  investments  represent a small  percentage  of  ownership  in the
related entities and are accounted for under the cost method of accounting.  The
third  investment  in ACDI.OB is  related to stock  purchased  through a private
placement and subject to Rule 144 of the  Securities  Exchange Act of 1934 (Rule
144).  Furthermore,  the stock is  subject to a voting  restriction  that has no
expiration  date.  In order to sell any  shares of this stock the  Company  must
receive  written  approval  from the issuing  company.  Due to the voting  right
restriction  the  Company  cannot  reasonably  expect to sell any shares of this
stock in the upcoming year. As of December 31, 2005 the investment, or 4,000,000
shares, is recorded at a cost of $1,000,000 and considered to be illiquid due to
registration  restrictions,  voting  restrictions  and limited trading  volumes.
Subsequent to year end, the Company  received  approval to have the voting right
restriction removed on 800,000 shares in two separate transactions.  On February
14, 2006, the Company exercised warrants to purchase 76,320 restricted shares of
the  investment  for $38. In February  2006,  the  Company  sold  300,000 of the
restricted  shares for a gain of $741. On March 23, 2006, the Company  exercised
warrants to purchase an additional  100,000  restricted shares of the investment
for $50. During April of 2006, the Company sold 461,700 of the restricted shares
for a gain of $1,327 and 38,300  shares  were used to cover a short  position on
this same security in another  investment  account held by the Company.  Despite
these  subsequent  events the  Company  cannot  reasonably  estimate if and when
additional  voting right  restrictions  will be removed and it will  continue to
account for this investment at cost. At December 31, 2005, the  unrestricted per
share market price was $2.54.

      Funding for WebBank is obtained  primarily from brokered  certificates  of
deposit obtained through brokers and from a $1,000,000  unsecured line of credit
with a local  correspondent  bank.  The Order  restricts  the amount of brokered
certificates  of  deposit  that  WebBank  is  allowed  to  issue  to the  amount
outstanding on the effective date of the Order, which is $7,465,000. However, on
July  27,  2005,  the FDIC and the Utah  Department  of  Financial  Institutions
granted WebBank a waiver from  restrictions  imposed on the issuance of brokered
certificates of deposit.  The waiver allows WebBank to hold brokered deposits up
to an aggregate of $20,000,000  through January 1, 2007. At that time the waiver
will expire, and WebBank expects to submit a new request for approval of the use
of  brokered  deposits.  As of  December  31,  2005,  WebBank  had  $999,000  of
outstanding  brokered  certificates of deposit. See "Risk Factors-Our failure to
comply  with the  Order to Cease  and  Desist  issued to  WebBank  would  have a
negative  effect  on our  ongoing  operations"  and  Note 2 of the  Notes to the
Consolidated Financial Statements.

      Management  believes that the Company's  current cash and cash  equivalent
balances and expected  operating  cash flows are adequate to meet the  Company's
liquidity needs through at least the next 12 months.


                                       17


      The Company and SPL, an entity controlled by the Company's former Chairman
and Chief Executive Officer, devote significant time to exploration of potential
acquisition and other business opportunities. There can be no assurance that the
Company will be able to acquire an  additional  business,  or that such business
will be  profitable.  In order to finance an  acquisition,  the  Company  may be
required to incur or assume indebtedness or issue securities.

OFF-BALANCE SHEET ARRANGEMENTS

      The  Company  is  periodically  a  party  to  financial  instruments  with
off-balance  sheet  risk.  In the normal  course of  business,  these  financial
instruments include commitments to extend credit in the form of loans or through
letters of credit.  Those  instruments  involve to varying degrees,  elements of
credit and interest rate risk in excess of the amount  recognized on the balance
sheet.  The  contract  amounts  of  those  instruments  reflect  the  extent  of
involvement the Company has in particular classes of financial instruments.

      The Company's  exposure to credit loss in the event of  nonperformance  by
the other party to the financial  instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policy in making commitments and conditional  obligations as it does
for on-balance sheet instruments.

      At December 31, 2005 and 2004, the Company's  undisbursed  commercial loan
commitments totaled $0. For the same periods, the Company's undisbursed consumer
credit card loan commitments totaled $0.

      Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since  certain of the  commitments  are  expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash  requirements.  WebBank  evaluates each customer's  credit
worthiness on a case-by-case  basis. The amount of collateral obtained if deemed
necessary by WebBank upon  extension of credit is based on  management's  credit
evaluation of the borrower.

CRITICAL ACCOUNTING ISSUES

ALLOWANCE FOR CREDIT LOSSES

      Management  utilizes a comprehensive loan grading system to determine risk
potential in its loan  portfolio.  Determination  of the allowance is inherently
subjective  as it  requires  significant  estimates,  including  the amounts and
timing of  expected  future cash flows on impaired  loans,  estimated  losses on
pools  of  homogeneous   loans  based  on  historical   loss   experience,   and
consideration  of current  economic  trends,  all of which may be susceptible to
significant change. The amount of allowance for credit losses assigned to a loan
or group of loans is determined by the category of loan as described below:

      o     The allowance for credit losses for non-impaired commercial loans is
            calculated  on a loan by loan basis at  origination  and  reaffirmed
            with each  periodic  review.  Each loan is assigned a grade  ranging
            from  1  (excellent)  to  7  (substandard).  Historical  losses  and
            expectations for probable losses by loan grade are used to determine
            the amount of allowance  assigned.  Where  historical  losses do not
            reflect  current  trends  or  are  skewed  due to  the  size  of the
            portfolio, other methods may be employed.

            The above  methodology  is used for  non-impaired  commercial  loans
            ranging from grade 1  (excellent)  to grade 7  (substandard).  Loans
            graded 8 (doubtful) or 9 (loss), are considered  impaired loans. The
            allowance for credit losses for impaired  loans is calculated  using
            the guidelines of SFAS 114, "Accounting for Creditors for Impairment
            of a Loan." A loan is considered impaired if it is probable that the
            Company   will  not  collect  all  amounts  due   according  to  the
            contractual  terms of the original  loan  agreement.  The  preferred
            methodology  for  calculating   impairment  under  SFAS  114  is  to
            calculate the present value of expected cash flows from the loan and
            subtract  that  from  the  current  book  value  of  the  loan.  The


                                       18


            difference,  if positive,  requires additional  allowance for credit
            losses.  If the loan is collateral  dependent,  another  methodology
            used is to  determine  the  market  value  of the  collateral,  less
            selling  expenses,  and subtract that from the current book value of
            the loan. The difference, if positive, requires additional allowance
            for credit losses.

      o     The  allowance  for  credit  losses  for SBA  loans  is  based  on a
            percentage of  outstanding  loans which takes into  consideration  a
            combination  of  historical  loss  experience,   overall   portfolio
            performance, collateral, and current trends.

EQUITY SECURITIES AVAILABLE FOR SALE

      The  Company,  both  directly  and  through its  WebBank  subsidiary,  has
investments in equity securities.  Available-for-sale securities are recorded at
fair value. Unrealized holding gains or losses on available-for-sale  securities
are excluded from earnings and reported,  until realized,  in accumulated  other
comprehensive income (loss) as a separate component of stockholders' equity, net
of  tax.  A  decline  in  the  market   value  of  any   available-for-sale   or
held-to-maturity  security  below cost that is deemed "other than  temporary" is
charged to earnings  resulting in the  establishment of a new cost basis for the
security.  Determination  of  whether a decline  in market  value is other  than
temporary may be  subjective  because it requires  significant  estimates of the
projected financial condition of the issuer, of the industry in which the issuer
operates, and of local,  regional, and national economies.  See Notes 1 and 3 of
the  Notes  to  Consolidated  Financial  Statements  for a  description  of  the
methodology  used by the Company to determine  the cost and fair value of equity
securities available for sale.

GOODWILL

      At December 31,  2004,  a third party  valuation  test was  performed,  on
goodwill in  accordance  with SFAS 142.  The  absence of a market  proxy for the
value of WebBank  resulted in reliance on an income  approach for the valuation.
However,  the sale of the accounts receivable  factoring portfolio combined with
WebBank's  Order to Cease and  Desist  (see Note 2 of the Notes to  Consolidated
Financial  Statements)  caused  uncertainty  regarding  the timing and nature of
replacing that product line.  Therefore,  projections of future cash flows could
not support the value of goodwill,  and the remaining $1,380,000 of goodwill was
written off as of December 31, 2004.

DEFERRED INCOME TAXES

      The Company uses the  liability  method of  accounting  for income  taxes.
Under the liability method, deferred tax assets and deferred tax liabilities are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective  tax bases and operating  loss and tax credit carry  forwards.
Deferred tax assets and deferred tax  liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and deferred tax  liabilities  of a change in tax rates is  recognized in
income in the period that includes the enactment date.

      From its inception in 1998 through the end of 2001, WebBank  experienced a
history of inconsistent  earnings which made it "more likely than not" that some
portion or all of its deferred tax assets  would not be realized.  Therefore,  a
valuation  allowance for deferred tax assets was  established in accordance with
SFAS 109. As of December 31, 2003, the Company determined that, based on the two
previous  year's  earnings  and the  prospect  for  similar  performance  in the
foreseeable future, it was "more likely than not" that all of WebBank's deferred
tax assets would be realized. As a result, the amount of the valuation allowance
remaining  at WebBank  at that time was  reversed  and a  deferred  tax asset of
$757,000 was recognized.

      As of December 31, 2004 and 2005, the Company  determined that the lack of
new lines of business  to replace  the  accounts  receivable  factoring  line of
business made it "more likely than not" that the net  operating  loss portion of
the deferred tax asset would not be realized.  Therefore,  a valuation allowance
was established to cover the portion of WebBank's deferred tax assets related to
its  remaining  net  operating  loss  portion,  leaving a net deferred tax asset
balance of $89,000 and $303,000 for the years ended  December 31, 2005 and 2004,
respectively.  See  Notes  1 and  13 of  the  Notes  to  Consolidated  Financial
Statements for a further  description of the methodology  used by the Company to
determine the deferred tax valuation allowance.


                                       19


IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      SFAS  123R  is  a  revision  of  SFAS  123,  "Accounting  for  Stock-Based
Compensation" and supersedes APB 25, "Accounting for Stock Issued to Employees."
This  Statement  will  require  the  Company to  recognize  the cost of employee
services received in share-based payment transactions based on the fair value of
the shares awarded.  As stated in Note 1 of the Notes to Consolidated  Financial
Statements,  the Company currently  measures  compensation costs for stock-based
payments as prescribed by APB 25. While APB 25 generally resulted in recognition
of no  compensation  cost,  SFAS 123R will  typically  result in  recognition of
compensation  cost.  The  Company  is  required  to  adopt  SFAS  123R as of the
beginning of 2006. The Company does not expect the adoption of SFAS 123R to have
a material  impact on its financial  condition or results of operations  for the
year ending December 31, 2006.

      The  American   Institute  of  Certified  Public  Accountants  has  issued
Statement of Position 03-3, ("SOP 03-3"),  "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer".  SOP 03-3 requires acquired loans, including
debt  securities,  to be  recorded  at the  amount  of the  purchaser's  initial
investment and prohibits carrying over valuation  allowances from the seller for
those individually-evaluated loans that have evidence of deterioration in credit
quality since origination,  and it is probable all contractual cash flows on the
loan will be unable to be  collected.  SOP 03-3 also  requires the excess of all
undiscounted  cash  flows  expected  to be  collected  at  acquisition  over the
purchaser's  initial  investment  to  be  recognized  as  interest  income  on a
level-yield basis over the life of the loan.  Subsequent increases in cash flows
expected to be collected are recognized  prospectively  through an adjustment of
the  loan's  yield over its  remaining  life,  while  subsequent  decreases  are
recognized as impairment.  Loans carried at fair value,  mortgage loans held for
sale, and loans to borrowers in good standing under revolving credit  agreements
are excluded  from the scope of SOP 03-3.  The  guidance is effective  for loans
acquired in fiscal years  beginning  after  December 15,  2004.  Acquired  loans
within  the scope of SOP 03-3 will be  recorded  at their  net fair  value.  The
adoption of this accounting standard by the Company had no current effect on the
financial statements.

                           FORWARD-LOOKING STATEMENTS

THE FOLLOWING  IMPORTANT  FACTORS,  AMONG OTHERS,  COULD CAUSE ACTUAL RESULTS TO
DIFFER  MATERIALLY  FROM THOSE INDICATED BY  FORWARD-LOOKING  STATEMENTS MADE IN
THIS ANNUAL REPORT ON FORM 10-KSB AND  PRESENTED  ELSEWHERE BY  MANAGEMENT.  ALL
FORWARD-LOOKING  STATEMENTS  INCLUDED IN THIS DOCUMENT ARE BASED ON  INFORMATION
AVAILABLE  TO THE  COMPANY  ON THE  DATE  HEREOF,  AND THE  COMPANY  ASSUMES  NO
OBLIGATION  TO  UPDATE  ANY  SUCH  FORWARD-LOOKING   STATEMENTS.   A  NUMBER  OF
UNCERTAINTIES  EXIST THAT COULD AFFECT THE COMPANY'S FUTURE  OPERATING  RESULTS,
INCLUDING, WITHOUT LIMITATION,  GENERAL ECONOMIC CONDITIONS, CHANGES IN INTEREST
RATES, THE COMPANY'S ABILITY TO ATTRACT  DEPOSITS,  AND THE COMPANY'S ABILITY TO
CONTROL COSTS.  BECAUSE OF THESE AND OTHER FACTORS,  PAST FINANCIAL  PERFORMANCE
SHOULD NOT BE  CONSIDERED AN  INDICATION  OF FUTURE  PERFORMANCE.  THE COMPANY'S
FUTURE  OPERATING  RESULTS  MAY VARY  SIGNIFICANTLY.  INVESTORS  SHOULD  NOT USE
HISTORICAL  TRENDS TO  ANTICIPATE  FUTURE  RESULTS  AND SHOULD BE AWARE THAT THE
TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO WIDE  FLUCTUATIONS
IN RESPONSE TO  QUARTERLY  VARIATIONS  IN OPERATING  RESULTS AND OTHER  FACTORS,
INCLUDING THOSE DISCUSSED BELOW.

RISK FACTORS

      The  following  paragraphs  discuss  certain  factors  that may affect the
Company's  financial  condition  and  operations  and  should be  considered  in
evaluating us. For the purposes of the following paragraphs,  unless the context
otherwise  requires,  the  terms  "we,"  "us" and  "our"  refer to  WebFinancial
Corporation.

OUR FAILURE TO COMPLY WITH THE ORDER TO CEASE AND DESIST ISSUED TO WEBBANK WOULD
HAVE A NEGATIVE EFFECT ON OUR ONGOING OPERATIONS.

      As discussed in Note 2 of the Notes to Consolidated  Financial Statements,
on January 31, 2005, the FDIC and the Department of Financial  Institutions  for
the State of Utah  issued to WebBank an Order to Cease and Desist in  connection
with alleged violations of certain banking regulations. WebBank consented to the
issuance of the Order  without  admitting  or denying the alleged  charges.  The
Order required  WebBank to comply with a number of  requirements  which include,
but is not limited to,  increasing  the number of  directors,  increasing  board
involvement,  hiring new  executive  officers,  creating a three-year  strategic
plan, charging off or collecting certain classified loans, revising and adopting
various policies,  developing and adopting a budget plan and a capital plan that
is designed to maintain an adequate level of Capital  protection for the kind of
and  quality  of assets  held by the bank,  and  establishing  and  implementing


                                       20


procedures for affiliate  transactions.  The Order also  immediately  prohibited
certain actions such as purchasing  factored  accounts  receivable  until proper
procedures and policies are in place, extending additional credit to substandard
borrowers,  and paying cash dividends. The Order further prohibited WebBank from
issuing brokered certificates of deposit in an aggregate amount greater than the
amount outstanding on the effective date of the Order, which was $7,465,000. The
effective  date of the Order was February  10,  2005,  and the due dates for the
requirements  ranged from 10 days to 360 days from the  effective  date with the
majority to be achieved within 120 days of the Order.

      WebBank  believes  that during the period since the issuance of the Order,
it has  provided  all  information  required  by the  Order on a  timely  basis.
WebBank's  compliance  with  the  Order  was  reviewed  by the FDIC and the Utah
Department  of Financial  Institutions  during the annual  Safety and  Soundness
examination  conducted in September  2005. The examiners noted in a letter dated
February 2006 that WebBank's  fourth quarter  progress report indicates the Bank
has made  substantial  progress  towards  compliance with the Order based on the
results of the recent joint  examination,  however,  also noted that  management
properly  recognizes  there are several  remaining  issues that require  further
action,  including the successful  execution of a three-year  business plan that
was presented to and approved by the regulators during June 2005. The Order will
remain in place until it is modified, terminated, suspended, or set aside by the
FDIC and the  Department of Financial  Institutions  for the State of Utah.  The
time frame  remaining for the Order to be in place is not known at this time. As
long as WebBank is subject to the Order,  failure to comply with the Order would
have a negative effect on our ongoing operations.

OUR  BUSINESS  COULD BE HARMED IF NEW LINES OF BUSINESS ARE NOT  IMPLEMENTED  TO
REPLACE THE FORMER ACCOUNTS RECEIVABLE FACTORING BUSINESS LINE.

      As discussed in the section  entitled  "Description of Business",  WebBank
sold its remaining accounts receivable  factoring portfolio on December 30, 2004
and terminated its remaining accounts receivable factoring  arrangements.  Prior
to that date, accounts receivable factoring constituted WebBank's principal line
of business.  WebBank was engaged in accounts receivable factoring utilizing two
sourcing and servicing  companies.  One of the two accounts receivable factoring
programs  was  terminated  in February  2004,  and the other was  terminated  on
December  30, 2004.  The  accounts  receivable  factoring  arrangement  that was
terminated in December 2004 accounted for  approximately 47% of our consolidated
revenues for the year ended December 31, 2004.  During 2005 WebBank  focused its
efforts on complying with the Order,  restructuring management, and developing a
business plan for the future. The Bank added Small Business Administration Loans
to its Government Lending Portfolio in the fourth quarter of 2005. The Bank will
continue to  implement  the  business  plan it  developed  and add  products and
services in 2006; however, future earnings are dependent on management's ability
to successfully implement the business plan.

RELIANCE ON BROKERED CERTIFICATES OF DEPOSIT COULD HAVE A NEGATIVE EFFECT ON OUR
LIQUIDITY AND OPERATING RESULTS.

      Our  funding  depends  primarily  on  brokered  certificates  of  deposit.
Brokered  certificates  of deposit are time  deposits,  generally  in amounts of
$100,000 or less,  placed in a bank by a broker.  The broker receives a fee from
the  bank  and/or  the  depositor  for  providing  this  intermediary   service.
Depositors  that  invest in  brokered  certificates  of  deposit  are  generally
interest  rate  sensitive  and  well  informed  about  alternative  markets  and
investments. Consequently, funding with brokered certificates of deposit may not
provide the same stability to a bank's deposit base as traditional  local retail
deposit  relationships.  Because of our  dependence  on the market for  brokered
certificates  of deposit (100% and 97% of WebBank's  total  deposits at December
31, 2005 and 2004,  respectively),  our liquidity may be negatively  impacted if
that funding  source  experiences  supply  difficulties  due to loss of investor
confidence  or a flight  to higher  quality  investments  such as U.S.  Treasury
securities. In addition, only banks that are determined to be "well capitalized"
by their  regulatory  agencies are permitted to issue brokered  certificates  of
deposit without  restriction.  Under the Order,  restrictions on the issuance of
brokered  certificates  of deposit  have been placed on WebBank  which  prohibit
WebBank from issuing  brokered  certificates  of deposit in an aggregate  amount
greater than the amount outstanding on the effective date of the Order, which is
$7,465,000.  The Bank has the ability to petition for an increase each year. The
Order discussed in Note 2 of the Notes to Consolidated  Financial Statements may
restrict the amount of brokered  certificates of deposit that WebBank is allowed
to issue.

      On  July  27,  2005,  the  FDIC  and  the  Utah  Department  of  Financial
Institutions  granted WebBank a waiver from restrictions imposed on the issuance
of brokered  certificates of deposit. The waiver allows WebBank to hold brokered
deposits up to an  aggregate of  $20,000,000  through  January 1, 2007.  At that
time,  the waiver will  expire and  WebBank  expects to submit a new request for
approval of the use of brokered deposits.


                                       21


      Our operating  results may be negatively  impacted by a change in interest
rates required to obtain brokered certificates of deposit. An explanation of how
this could negatively  impact "rate  differentials" is provided in the following
risk factor entitled  "Changes in interest rates could have a negative effect on
our  operating  results." In general,  increases  in interest  rates on brokered
certificates of deposit will reduce our operating income. Increases in the rates
we pay for  brokered  certificates  of deposit  could  occur  because of various
reasons  including  shifts in the Treasury  yield curve, a loss of confidence in
the market for brokered certificates of deposit, or a deterioration of WebBank's
financial condition.

CHANGES IN INTEREST RATES COULD HAVE A NEGATIVE EFFECT ON OUR OPERATING RESULTS.

      Our earnings depend substantially on "rate  differentials,"  which are the
differences  between the rates we earn on loans,  securities  and other  earning
assets,  and the interest rates we pay on deposits and other  borrowings.  These
rates are  highly  sensitive  to many  factors  which are  beyond  our  control,
including general economic  conditions and the policies of various  governmental
and regulatory authorities. Changes in interest rates impact the level of loans,
deposits  and  investments,  the credit  profile of  existing  loans,  the rates
received on loans and securities and the rates paid on deposits and  borrowings.
Significant  fluctuations  in interest rates may adversely  affect our financial
condition and results of operations.

SIGNIFICANT  NEW LAWS OR CHANGES IN EXISTING LAWS OR MONETARY  POLICY  EFFECTING
THE  BANKING  INDUSTRY  COULD HAVE A MATERIAL  ADVERSE  AFFECT ON OUR RESULTS OF
OPERATIONS.

      Our  banking  subsidiary,  WebBank,  is  subject to  extensive  government
regulation  and  supervision  under various  state and federal  laws,  rules and
regulations, primarily under the rules and regulations of the FDIC and the State
of Utah  Department of Financial  Institutions.  These laws and  regulations are
designed primarily to protect depositors, borrowers, and the Bank Insurance Fund
of the FDIC.  WebBank's  regulators  maintain  significant  authority  to impose
requirements  on  WebBank's  operations,  such as  limiting  its  activities  or
mandating  that it hold increased  capital.  For example,  WebBank's  regulators
recently required WebBank to obtain the prior non-objection of the FDIC and Utah
Department of Financial  Institutions before developing new lines of activity or
expanding  existing  lines of activity,  as well as before making changes to its
board of directors or senior executive  officers.  Objections to WebBank's lines
of business,  enactment of  significant  new laws,  changes in existing  laws or
repeals of existing laws may cause WebBank's  results to change  materially.  In
addition,  federal  monetary  policy,  particularly  as implemented  through the
Federal  Reserve  System,  such as  changes  in  interest  rates,  could  affect
WebBank's financial  condition.  Changes in interest rates can affect the number
of loans  WebBank  originates,  as well as the  value  of its  loans  and  other
interest-earning  assets and the  ability to realize  gains on the sale of those
assets and  liabilities.  Prevailing  interest  rates also  affect the extent to
which  borrowers  prepay loans owned by WebBank.  When interest rates  increase,
borrowers  are less likely to prepay  their loans,  and vice versa.  WebBank may
then be  required  to  invest  funds  generated  by  those  prepayments  at less
favorable interest rates.  Increases in interest rates could hurt the ability of
borrowers who have loans with floating  interest  rates to meet their  increased
payment  obligations.  If those  borrowers were not able to make their payments,
then  WebBank  could suffer  losses,  and its level of  performing  assets would
decline.

WE  FACE  SUBSTANTIAL  COMPETITION  IN OUR  INDUSTRY  SECTOR  FROM  BANKING  AND
FINANCIAL  INSTITUTIONS  THAT HAVE LARGER AND GREATER  FINANCIAL  AND  MARKETING
CAPABILITIES, WHICH MAY HINDER OUR ABILITY TO COMPETE SUCCESSFULLY.

      The banking and financial services businesses in our lines of business are
highly  competitive.  The  increasingly  competitive  environment is a result of
changes in regulation,  changes in technology and product delivery systems,  and
the accelerating pace of consolidation  among financial services  providers.  We
compete with many different banking and financial institutions, including:

      o     commercial and savings banks and savings and loan associations;
      o     credit unions;
      o     finance companies;
      o     brokerage and investment banking firms; and
      o     asset-based non-bank lenders.


                                       22


      All of  these  entities  are  branches  or  subsidiaries  of  much  larger
organizations affiliated with statewide, regional or national banking companies,
and as a result may have greater resources and lower cost of funds. There can be
no assurance that we will be able to compete effectively in the future.

WE COULD  SUSTAIN  LOSSES  IF WE  INCORRECTLY  ASSESS  THE  CREDITWORTHINESS  OF
BORROWERS, GUARANTORS OR RELATED PARTIES.

      Our  earnings  are  significantly  affected  by our  ability  to  properly
originate,  underwrite  and  service  loans.  We  could  sustain  losses  if our
borrowers,  guarantors or related parties fail to perform in accordance with the
terms of  their  loans.  We have  adopted  underwriting  and  credit  monitoring
procedures and credit policies,  including the  establishment  and review of the
allowance  for credit  losses,  that  management  believes  are  appropriate  to
minimize this risk by assessing the likelihood of nonperformance,  tracking loan
performance  and   diversifying  our  credit   portfolio.   These  policies  and
procedures,  however,  may not  prevent  unexpected  losses  that could hurt our
business and financial condition.

WE MAY BE  SUBJECT  TO  CREDIT  AND  INTEREST  RATE  RISK IN EXCESS OF AN AMOUNT
RECOGNIZED ON OUR BALANCE SHEET.

      We are  periodically  a party to financial  instruments  with  off-balance
sheet  risk.  In the normal  course of  business,  these  financial  instruments
include  commitments to extend credit in the form of loans or through letters of
credit.  Those instruments  involve, to varying degrees,  elements of credit and
interest rate risk in excess of the amount  recognized on the balance sheet. Our
exposure to credit loss in the event of nonperformance by the other party to the
financial  instrument  for  commitments  to extend credit is  represented by the
contractual  amount  of those  instruments.  Commitments  to extend  credit  are
agreements  to  lend  to a  customer,  provided  there  is no  violation  of any
condition  established  in  the  contract.   Commitments  generally  have  fixed
expiration dates or other termination  clauses and may require payment of a fee.
Since  certain of the  commitments  are expected to expire  without  being drawn
upon, the total  commitment  amounts do not  necessarily  represent  future cash
requirements.   We  use  the  same  credit  policy  in  making  commitments  and
conditional  obligations as we do for on-balance sheet instruments.  We evaluate
each  customer's  credit  worthiness  on a  case-by-case  basis.  The  amount of
collateral  obtained,  if deemed necessary upon extension of credit, is based on
management's  credit evaluation of the borrower.  At December 31, 2005 and 2004,
we had no undisbursed  commercial loan  commitments or consumer credit card loan
commitments.

WE MAY EXPAND INTO NEW  NON-BANKING  ACTIVITIES,  WHICH WOULD EXPOSE US TO RISKS
ASSOCIATED WITH NEW BUSINESSES.

      We continue to consider new business opportunities,  both bank-related and
otherwise. We believe that an acquisition can help create value for stockholders
through  increased  growth,  as well  as the  utilization  of our net  operating
losses.   Accordingly,  we  may  expand  our  operations  into  new  non-banking
activities in the future.  Although we have experience in providing bank-related
services,  this  expertise  may not  assist  us in  expansion  into  non-banking
activities.  As a  result,  we may be  exposed  to  risks  associated  with  new
businesses,  such as (1) a lack of market and product  knowledge or awareness of
other  industry  related  matters  and (2) an  inability  to attract  and retain
qualified employees with experience in these non-banking activities.

WARREN G. LICHTENSTEIN,  OUR FORMER CHAIRMAN AND FORMER CHIEF EXECUTIVE OFFICER,
THROUGH HIS  AFFILIATION  WITH STEEL PARTNERS II, L.P., HAS THE ABILITY TO EXERT
SIGNIFICANT  INFLUENCE  OVER OUR  OPERATIONS  AND MAY HAVE INTERESTS THAT DIFFER
FROM THOSE OF OUR SHAREHOLDERS.

      Mr.  Lichtenstein,  as the sole managing  member of the general partner of
Steel Partners II, L.P.  ("Steel"),  is deemed to beneficially own the shares of
our Common Stock owned by Steel. As of April 21, 2006, Steel  beneficially owned
1,611,522  shares of our Common  Stock  which,  together  with the shares  owned
directly by Mr. Lichtenstein,  represents approximately 73.8% of our outstanding
Common Stock. Mr.  Lichtenstein,  as sole managing member of the general partner
of Steel,  has sole  investment and voting control over the shares  beneficially
owned by Steel and thus has the ability to exert significant  influence over our
policies and affairs,  including  the election of our Board of Directors and the
approval of any action  requiring a shareholder  vote, such as amendments to our
Certificate of Incorporation and approving mergers or sales of substantially all
of our assets,  as well as matters where the interests of Mr.  Lichtenstein  and
Steel may differ from the interests of our other shareholders in some respects.


                                       23


ITEM 7. FINANCIAL STATEMENTS

      See the Company's Consolidated Financial Statements beginning on page F-1.

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

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      Disclosure controls are procedures that are designed with the objective of
ensuring  that  information  required to be disclosed in the  Company's  reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such
as this Form 10-KSB,  is reported in accordance with the rules of the Securities
and Exchange Commission ("SEC").  Disclosure controls are also designed with the
objective of ensuring that such  information is accumulated and  communicated to
management, including the Chief Executive Officer and Chief Financial Officer as
appropriate to allow timely decisions regarding required disclosure.

      In connection  with the audit of the financial  statements,  the Company's
independent auditors discovered and communicated material weaknesses in internal
controls.  A material weakness is a significant  deficiency that results in more
than a remote  likelihood that a material  misstatement of the annual or interim
financial statements will not be prevented or detected.  The material weaknesses
discovered  involved a segregation  of duties  regarding the general  ledger and
financial applications data processing system (the "System"). A similar weakness
was  addressed  during 2004 and  corrected  during 2005 by having  staff  member
perform an independent  review of system  maintenance  records on a daily basis.
During the second and third quarters of 2005 the CFO of WebBank  performed these
independent  reviews.  However,  during the fourth  quarter of 2005 the CFO left
WebBank. Due to limited staff in the Bank, the Bank President assumed his review
of  the  daily  system  maintenance   records.   The  Bank  President  also  had
administrator  access  to  the  accounting  system  that  generated  the  system
maintenance record reports. In the first quarter of 2006 a new CFO was hired and
the review was  immediately  transferred  to the CFO. Based on the above actions
taken to date,  the  Company  believes  that it has  taken  sufficient  steps to
address this weakness.

      As of the end of the  period  covered  by this Form  10-KSB,  the  Company
carried out an evaluation  under the supervision and with the  participation  of
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Securities Exchange Act
Rules 13a-15(e) and 15d-15(e).

      Based upon that evaluation, except for the material weakenesses identified
by the Company's  independent  auditors as discussed  above, the Chief Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures are effective and sufficient to insure that  information
required  to be  disclosed  in the  reports  that the  Company  files  under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods specified by the SEC's rules and regulations.  There were no significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect these controls subsequent to the date of their evaluation.

      A control system,  no matter how well conceived and operated,  can provide
only  reasonable,  not absolute,  assurance  that the  objectives of the control
system are met. Because of the inherent  limitations in all control systems,  no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud, if any, within a company have been detected.

      Certifications  of the Chief Executive Officer and Chief Financial Officer
regarding, among other items, disclosure controls and procedures are included as
exhibits to this Form 10-KSB.

ITEM 8B. OTHER INFORMATION

      None


                                       24


PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS

      The following  sets forth the name,  age,  present  principal  occupation,
employment and material occupations,  positions, offices and employments for the
past five years as of April 21, 2006, for the directors of the Company.  Members
of the Board of Directors are elected at the annual meetings of shareholders and
serve  until  their  respective  successors  shall  have been duly  elected  and
qualified.

NAME AND AGE               OCCUPATION AND OTHER DIRECTORSHIPS
- ------------               ----------------------------------

Jack L. Howard (45)        Mr.  Howard has served as Chairman of the Board since
                           June 2005,  as a director of the  Company  since 1996
                           and as its Vice President  since December 1997.  From
                           December 1997 to May 2000,  Mr. Howard also served as
                           Secretary,  Treasurer and Chief Financial  Officer of
                           the  Company.   Mr.  Howard  has  been  a  registered
                           principal  of Mutual  Securities,  Inc., a registered
                           broker-dealer,  since 1989.  Mr. Howard has served as
                           the  Vice   President  and  Vice  Chairman  of  Steel
                           Partners,  Ltd.  ("SPL"),  a management  and advisory
                           company that  provides  management  services to Steel
                           and  its  affiliates,  since  December  2003.  He has
                           served as Chairman  of the Board and Chief  Executive
                           Officer of Gateway Industries,  Inc.  ("Gateway"),  a
                           provider of database  development and web site design
                           and  development  services,  since  February 2004, as
                           Vice  President of Gateway since December 2001 and as
                           a director  of Gateway  since May 1994.  He is also a
                           director of BNS Co. ("BNS"), a real estate management
                           company,  WHX Corporation  ("WHX"), a holding company
                           and   CoSine    Communications,    Inc.,   a   global
                           telecommunications  equipment  supplier.  Mr.  Howard
                           devotes  such  time  to  the  business   affairs  and
                           operations  of the Company as he deems  necessary  to
                           perform his duties,  which changes from time to time,
                           but generally does not exceed 50% of his time.

James R. Henderson (48)    Mr.  Henderson  has  served as a  director  and Chief
                           Executive  Officer of the Company since June 2005, as
                           President and Chief Operating  Officer of the Company
                           since  November  2003,  and was the Vice President of
                           Operations from September 2000 through December 2003.
                           He has served as a director of the WebBank subsidiary
                           since March 2002 and was the acting  Chief  Executive
                           Officer from November 2004 to May 2005. He has served
                           as a  director  and Chief  Operating  Officer  of the
                           WebFinancial  Holding  Corporation  subsidiary  since
                           January  2000.  He has  served as a  director  of BNS
                           since June 2004 and as a director and Chairman of Del
                           Global    Technologies    Corp.,   a   designer   and
                           manufacturer   of  medical   imaging  and  diagnostic
                           systems,   since   November   2003   and  May   2005,
                           respectively.  Mr.  Henderson  has  served  as a Vice
                           President  of SPL and its  predecessor  since  August
                           1999.  He has also  served as  President  of  Gateway
                           since  December  2001.  Mr.  Henderson  served  as  a
                           director of ECC  International  Corp., a manufacturer
                           and marketer of  computer-controlled  simulators  for
                           training   personnel  to  perform   maintenance   and
                           operator   procedures  on  military   weapons,   from
                           December  1999 to September  2003 and as acting Chief
                           Executive  Officer  from July 2002 to March 2003.  He
                           has  served  as a  director  of SL  Industries,  Inc.
                           ("SL"),   a  designer  and  producer  of  proprietary
                           advanced systems and equipment for the power and data
                           quality  industry,  since January 2002.  From January


                                       25


                           2001  to  August  2001,  Mr.   Henderson   served  as
                           President  of MDM  Technologies,  Inc., a direct mail
                           and marketing company that was principally controlled
                           by the Company's  former Chief Executive  Officer and
                           Chairman.  Mr.  Henderson  devotes  such  time to the
                           Company's business affairs and operations as he deems
                           necessary to perform his duties,  which  changes from
                           time to time,  but  generally  does not exceed 50% of
                           his time.

Joseph L. Mullen (59)      Mr.  Mullen has served as a director  of the  Company
                           since 1995. Since January 1994, Mr. Mullen has served
                           as Managing Partner of Li Moran International,  Inc.,
                           a management  consulting company,  and has functioned
                           as a senior officer  overseeing the  merchandise  and
                           marketing  departments for such companies as Leewards
                           Creative Crafts Inc., Office Depot of Warsaw,  Poland
                           and Camelot Music.

Mark E. Schwarz (45)       Mr.  Schwarz  has served as a director of the Company
                           since July 2001. Mr.  Schwarz is the Chairman,  Chief
                           Executive  Officer and Portfolio Manager of Newcastle
                           Capital   Management,   L.P.,  a  private  investment
                           management  firm  he  founded  in  1993  that  is the
                           general  partner  of  Newcastle  Partners,   L.P.,  a
                           private  investment  firm.  Mr. Schwarz has served as
                           Chairman of the Board of Hallmark Financial Services,
                           Inc.,  a property  and  casualty  insurance  company,
                           since October 2001 and as its Chief Executive Officer
                           since January  2003. He currently  serves as Chairman
                           of the Board of Bell  Industries,  Inc.,  a  computer
                           systems integrator, Pizza Inn, Inc., a franchisor and
                           food and supply  distributor,  and New Century Equity
                           Holdings Corp., an asset  management  company,  and a
                           director of Nashua  Corporation,  a specialty  paper,
                           label  and  printing  supplies  manufacturer,   Vesta
                           Insurance Group,  Inc., a holding company for a group
                           of insurance companies, and SL.

Howard Mileaf (69)         Mr.  Mileaf has served as a director  of the  Company
                           since  December  2002.  He  has  been a  director  of
                           Neuberger  Berman Mutual Funds since 1985. Mr. Mileaf
                           has served as a director  of WHX from  August 2002 to
                           August  2005.  From May 1993 to  December  2001,  Mr.
                           Mileaf served as Vice  President and General  Counsel
                           of WHX.

EXECUTIVE OFFICERS

      The following  sets forth the name,  age,  present  principal  occupation,
employment and material occupations,  positions, offices and employments for the
past five years as of April 21, 2006, for the executive  officers of the Company
who are not also directors of the Company.

NAME AND AGE               OCCUPATION AND OTHER DIRECTORSHIPS
- ------------               ----------------------------------

Glen M. Kassan (62)        Mr.  Kassan  has  served  as  Vice  President,  Chief
                           Financial  Officer and Secretary of the Company since
                           June 2000. He has served as Executive  Vice President
                           of SPL and its  predecessor  since  June  2001 and as
                           Vice President of its  predecessor  from October 1999
                           through May 2001. Mr. Kassan has served as a director
                           of SL since  January 2002 and as its  President  from
                           February  2002 to August 2005.  Mr. Kassan has served
                           as a director  of WHX since July 2005 and as its Vice
                           Chairman of the Board,  Chief  Executive  Officer and
                           Secretary since October 2005. Mr. Kassan is currently
                           a  director  of  United  Industrial  Corporation,   a
                           company principally focused on the design, production
                           and support of defense  systems and a manufacturer of
                           combustion  equipment  for biomass and refuse  fuels.


                                       26


                           Mr.  Kassan has served as Vice  Chairman of the Board
                           of Directors of  Caribbean  Fertilizer  Group Ltd., a
                           private   company   engaged  in  the  production  and
                           distribution of agricultural  products in Puerto Rico
                           and Jamaica, since June 2000. Mr. Kassan devotes such
                           time to the business  affairs and  operations  of the
                           Company as he deems  necessary to perform his duties,
                           which changes from time to time,  but generally  does
                           not exceed 50% of his time.

AUDIT COMMITTEE FINANCIAL EXPERT

      The  Board  of  Directors  has  a  separately-designated   standing  audit
committee,  established in accordance  with Section  3(a)(58)(A) of the Exchange
Act, comprised of Howard Mileaf, Joseph L. Mullen and Mark E. Schwarz. The Board
has determined  that Howard Mileaf has the requisite  education,  background and
experience to be considered an audit committee  "financial  expert" as that term
is defined by the SEC and is  "independent" as the term is used in Item 7(d) (3)
(iv) of Schedule 14A under the Exchange Act..

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section  16(a) of the Exchange Act requires the  Company's  directors  and
executive  officers,  and persons who own more than 10% of a registered class of
the  Company's  equity  securities,  to file  with the SEC  initial  reports  of
ownership  and reports of changes in  ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater-than 10% shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a)  forms  they  file.  Based  solely  upon a review of copies of such  forms
received by it, or written  representations  from certain reporting persons, the
Company believes that, during the fiscal year ended December 31, 2005, there was
compliance  with all Section 16(a) filing  requirements  applicable to officers,
directors, and greater-than 10% shareholders.

CODE OF CONDUCT AND ETHICS

      The Company  has adopted a Code of Conduct and Ethics that  applies to the
Company's  principal executive officer,  principal financial officer,  and other
persons performing  similar functions.  A copy of the Code of Conduct and Ethics
has been  filed as an exhibit to the  Company's  Form  10-KSB for the year ended
December 31, 2003. A copy of the Code of Ethics is available without charge upon
written request to: Corporate Secretary,  WebFinancial Corporation,  590 Madison
Avenue, 32nd Floor, New York, New York, 10022.

RECOMMENDATION OF DIRECTOR NOMINEES BY SHAREHOLDERS

      The Nominating  and Governance  Committee  considers  recommendations  for
director  nominees by shareholders that are properly received in accordance with
the Company's Guidelines For Nominating And Evaluating  Candidates For The Board
of Directors and applicable rules and regulations of the SEC. There have been no
material changes to the Company's procedures by which shareholders may recommend
director  nominees since such  procedures  were last disclosed by the Company in
its  Schedule  14A in  connection  with the  Company's  2005  annual  meeting of
shareholders.


                                       27


ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

The following table sets forth  information  concerning the compensation paid by
the Company  during the fiscal years ended  December 31, 2005,  2004 and 2003 to
James R. Henderson, the Company's current Chief Executive Officer, and Warren G.
Lichtenstein,  the  Company's  former Chief  Executive  Officer.  Mr.  Henderson
replaced  Mr.  Lichtenstein  as Chief  Executive  Officer of the Company in June
2005. No other executive officer of the Company received annual  compensation in
excess of $100,000 during the fiscal year ended December 31, 2005.

                                                               Long-Term
                                                             Compensation
                                                       -------------------------

                                                                      All Other
                                                                    Compensation
     Name and Principal Position                        Year             ($)
- --------------------------------------                 ------       ------------
James R. Henderson                                      2005          20,500(1)
Current Chief Executive Officer                         2004          14,300(1)
                                                        2003          13,200(1)

Warren G. Lichtenstein                                  2005         310,000(2)
Former Chief Executive Officer                          2004         310,000(2)
                                                        2003         310,000(2)

- ----------
(1)   Represents director fees received by James R. Henderson from WebBank.

(2)   Represents  aggregate  management fees earned by SPL, an entity controlled
      by Warren Lichtenstein,  from the Company in exchange for office space and
      certain management,  consulting and advisory services.  James Henderson is
      an employee of SPL and in that capacity  performed services in the area of
      management,  accounting and finances for WebBank.  Mr.  Henderson's salary
      and the cost of certain  other  benefits  for his  services to WebBank are
      allocated  between WebBank and SPL based on the percentage of time devoted
      by Mr.  Henderson to WebBank  matters.  For information  relating to these
      arrangements, see "Certain Relationships and Related Transactions."

AGGREGATED SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END SAR VALUES

The following table sets forth  information  regarding the fiscal year-end value
of unexercised  Stock  Appreciation  Rights ("SARs") of WebBank held by James R.
Henderson, the current Chief Executive Officer of the Company.

                                 Number of Securities Underlying           Value Of Unexercised In-The-Money
                                  Unexercised SARs At FY-End (#)                  SARs At FY-End ($)
Name                              Exercisable / Unexercisable(1)              Exercisable / Unexercisable
- --------------------------       -------------------------------           ---------------------------------

James R. Henderson                          10,000 / 0                                   0 / 0

(1)   On March 1, 2000,  WebBank  awarded James R. Henderson  10,000 SARs.  Upon
      exercise of the SARs, Mr. Henderson is entitled to receive an amount equal
      to the difference between two times the book value of a share of WebBank's
      common stock on the exercise date less two times $4.91,  the book value of
      a share of WebBank's  common stock at the end of the month  preceding  the
      grant  date,  multiplied  by  10,000.  All of  Mr.  Henderson's  SARs  are
      currently exercisable.

STOCK OPTIONS

None of the Company's  executive  officers  were granted any options  during the
fiscal year ended December 31, 2005.


                                       28


EMPLOYMENT AGREEMENTS

The Company  currently  has no employment  agreements,  compensatory  plans,  or
arrangements with any executive officer.

DIRECTOR COMPENSATION

During 2005 and through  April 21, 2006,  members of the Board of Directors  who
were  non-employee  directors  received a retainer  fee of $3,000 per quarter in
cash for their  services  as a director,  as well as meeting  fees of $1,000 per
meeting of the Board and $500 per meeting of a  committee  of the Board ($375 to
the extent such committee  meeting was held on the same day as a Board meeting),
subject to any elections  which may have been made by any directors  pursuant to
the terms of the Long Term Stock Incentive Plan (the "Plan"). Effective April 1,
2005,  the  Board  of  Directors,  at the  recommendation  of  the  Compensation
Committee,  increased  the  non-employee  director  retainer  fee to $5,000  per
quarter and changed the committee meeting fee to $500 per meeting,  irrespective
of whether such  committee  meeting is held on the same day as a Board  meeting,
subject to any  elections  which may be made by any  directors  pursuant  to the
terms of the Plan.  Officers who are  directors do not receive a retainer fee or
per meeting  compensation.  Howard Mileaf,  as chairman of the audit  committee,
receives an additional chairman's fee of $2,500 per quarter.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following  table sets forth  information  as of April 21, 2006 regarding the
beneficial  ownership of the Common Stock by each person known by the Company to
own  beneficially  more than 5% of the Common  Stock,  by each  director  of the
Company, by the current and former Chief Executive Officer, and by all directors
and executive officers as a group.

                                             Amount and Nature of
            Name and Address               Beneficial Ownership (1)      Percent of Class
            ----------------               ------------------------      ----------------

Warren G. Lichtenstein
c/o Steel Partners II, L.P.
590 Madison Avenue, 32nd Floor                  1,611,522  (2)                  73.8%
New York, New York  10022

Steel Partners II, L.P.
590 Madison Avenue, 32nd Floor
New York, New York  10022                       1,610,897                       73.8%

Jack L. Howard
c/o Mutual Securities, Inc.
590 Madison Avenue, 32nd Floor
New York, New York 10022                         10,654    (3)                    *

James R. Henderson
c/o Steel Partners II, L.P.
590 Madison Avenue, 32nd Floor                     -0-                            *
New York, New York 10022

Joseph L. Mullen
c/o Li Moran International, Inc.
611 Broadway, Suite 722
New York, New York  10012                         3,626    (4)                    *

Mark E. Schwarz
c/o Newcastle Capital Management, L.P.
300 Crescent Court, Suite 1110
Dallas, Texas 75201
                                                  2,587    (5)                    *

Howard Mileaf
64 Brookdale Court
Highland Park, New Jersey 08904
                                                   239     (6)                    *
All directors and executive officers
as a group (five persons)                        17,106    (7)                    *


                                       29


- ----------
*Less than 1%

(1)   A person is deemed to be the beneficial  owner of voting  securities  that
      can be acquired  by such  person  within 60 days after April 21, 2006 upon
      the  exercise  of  options,  warrants  or  convertible  securities.   Each
      beneficial  owner's  percentage  ownership is  determined by assuming that
      options,  warrants or convertible  securities that are held by such person
      (but  not  those  held  by  any  other  person)  and  that  are  currently
      exercisable  (i.e.,  that are  exercisable  within 60 days after April 21,
      2006) have been exercised.  Unless  otherwise  noted, the Company believes
      that all persons named in the table have sole voting and investment  power
      with respect to all shares beneficially owned by them.

(2)   Consists  of  (i)  625  shares  of  Common  Stock  owned  directly  by Mr.
      Lichtenstein;  and (ii)  1,610,897  shares of Common Stock owned by Steel,
      which is also separately  listed in the security  ownership  table. As the
      sole managing member of the general partner of Steel, Mr. Lichtenstein has
      sole voting and investment power over the 1,610,897 shares owned by Steel.
      Mr. Lichtenstein  disclaims  beneficial  ownership of the shares of Common
      Stock  owned by Steel  except  to the  extent  of his  pecuniary  interest
      therein.

(3)   Consists of (i) 9,104 shares of Common Stock owned directly by Mr. Howard;
      (ii) 750 shares of Common Stock owned by Mr.  Howard in joint tenancy with
      his spouse; and (iii) 800 shares of Common Stock owned by JL Howard, Inc.,
      a New York corporation controlled by Mr. Howard.

(4)   Consists of (i) 1,071  shares of Common  Stock;  and (ii) 2,555  shares of
      Common Stock issuable upon the exercise of options within 60 days of April
      21, 2006 granted to Mr. Mullen.

(5)   Consists of 2,587  shares of Common  Stock  issuable  upon the exercise of
      options within 60 days of April 21, 2006 granted to Mr. Schwarz.

(6)   Consists  of 239 shares of Common  Stock  issuable  upon the  exercise  of
      options within 60 days of April 21, 2006 granted to Mr. Mileaf.

(7)   Includes the shares and options held by  Directors  and the current  Chief
      Executive Officer named in the security ownership table.

EQUITY COMPENSATION PLAN INFORMATION

                                                                                 Number of securities remaining
                                     Number of securities                         available for future issuance
                                       to be issued upon     Weighted-average       under equity compensation
                                           exercise of        exercise price of     plans (excluding securities
                                      outstanding options   outstanding options      reflected in column (a)
        Plan Category                         (a)                   (b)                        (c)
        -------------                         ---                   ---                        ---

Equity compensation plans
approved by security holders (1)             5,744                 $9.26                     243,194

Equity compensation plans
not approved by security                       0                   $0.00                        0
holders

Total                                        5,744                 $9.26                     243,194

- ----------
(1)   Consists of the Plan.


                                       30


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Pursuant to a management agreement (the "Management Agreement"),  approved
by a majority of the Company's disinterested directors,  between the Company and
Steel Partners  Services,  Ltd. ("SPS"),  a predecessor of SPL (and subsequently
assigned  to SPL),  SPL  provides  the  Company  with  office  space and certain
management,  consulting  and  advisory  services.  The  Management  Agreement is
automatically  renewable on an annual basis unless  terminated  by either party,
for any reason,  upon at least 60 days written notice. The Management  Agreement
also provides that the Company shall indemnify,  save and hold SPL harmless from
and against  any  obligation,  liability,  cost or damage  resulting  from SPL's
actions  under  the terms of the  Management  Agreement,  except  to the  extent
occasioned  by  gross  negligence  or  willful  misconduct  of  SPL's  officers,
directors or employees.

      Pursuant to an Employee Allocation  Agreement between WebBank and SPS (and
subsequently  assigned  to SPL)  dated  March 15,  2001 (the  "First  Allocation
Agreement"), James Henderson, an employee of SPL and an executive officer of the
Company, performed services in the area of management,  accounting and finances,
and  identified  business  opportunities,  and such  other  services  reasonably
requested by WebBank.  Effective October 1, 2004, WebBank and SPL entered into a
new Employee Allocation  Agreement (the "Second Allocation  Agreement") pursuant
to which Mr.  Henderson  continues to perform the same services for WebBank.  In
consideration  of the  services  performed  by Mr.  Henderson  under the  Second
Allocation  Agreement,  Mr.  Henderson's  salary and the cost of  certain  other
benefits are allocated  between  WebBank and SPL based on the percentage of time
devoted by Mr. Henderson to WebBank matters. Unless agreed to by both parties in
writing, the amount paid by WebBank to SPL under the Second Allocation Agreement
in any calendar year may not exceed $100,000.  The Second  Allocation  Agreement
will  continue in force until  terminated  by either of the parties upon 30 days
written notice.

      Prior to March 26, 2002, the original  counterparty to both the Management
Agreement and the First Allocation  Agreement was SPS. As of March 26, 2002, the
Management  Agreement and the First  Allocation  Agreement  described above were
assigned by SPS to SPL and the employees of SPS became  employees of SPL. Warren
Lichtenstein,  the largest beneficial owner of securities of the Company and the
Company's prior Chairman and prior Chief Executive  Officer,  is an affiliate of
SPL based on his ownership of SPL,  directly and through Steel, and by virtue of
his  positions as Chairman,  President and Chief  Executive  Officer of SPL. Mr.
Lichtenstein is the sole managing  member of the general  partner of Steel.  Mr.
Lichtenstein disclaims beneficial ownership of the shares of common stock of SPL
owned by Steel (except to the extent of his pecuniary interest in such shares of
common stock).

      In consideration of the services rendered under the Management  Agreement,
SPL  charges  the  Company a fixed  monthly  fee  totaling  $310,000  per annum,
adjustable  annually upon agreement of the Company and SPL. In  consideration of
the services  provided  under the First and Second  Allocation  Agreements,  SPL
charged  WebBank  $100,000 per annum during the previous two fiscal  years.  The
fees payable by WebBank are  included in the fees  payable by the Company  under
the Management  Agreement.  The Company  believes that the cost of obtaining the
type and quality of services rendered by SPL under the Management  Agreement and
the First and Second Allocation Agreements is no less favorable than the cost at
which the Company and  WebBank,  respectively,  could  obtain from  unaffiliated
entities.

      During the fiscal year ended  December  31,  2005,  SPL billed the Company
fees with  respect to fiscal 2005 of $310,000 for  services  rendered  under the
Management  Agreement.  Included in these fees was $100,000  paid by WebBank for
services rendered under the Second Allocation Agreement.  During the fiscal year
ended December 31, 2004, SPL billed the Company fees with respect to fiscal 2004
of $310,000 for services  rendered under the Management  Agreement.  Included in
these fees was $100,000  paid by WebBank for services  rendered  under the First
and Second  Allocation  Agreements.  The fees payable by WebBank are included in
the fees payable by the Company under the Management Agreement.

      Pursuant to a sourcing and servicing agreement (the "Rockland  Agreement")
between WebBank and Rockland Credit Finance LLC ("Rockland"), Rockland performed
both sourcing and servicing  functions on behalf of WebBank related to WebBank's
accounts  receivable  factoring program.  John Fox, the owner of Rockland,  is a
former employee of WebBank.  Rockland earned  $1,188,000 and $1,019,000 in total
management fees under the terms of the Rockland  Agreement during 2004 and 2003,
respectively.  Management  fees were  paid  quarterly  and  accrued  monthly  by
WebBank.  Notices of  termination  were  issued  with  respect  to the  Rockland
Agreement and other accounts receivable factoring and service  arrangements.  On
December  30, 2004,  Rockland  exercised  its option to purchase  from WebBank a
portfolio of accounts  receivable  (the  "Receivables")  in connection  with the


                                       31


termination  of  the  Rockland  Agreement  between  WebBank  and  Rockland.  The
Receivables  were purchased at book value from WebBank  pursuant to that certain
Asset Purchase and Assignment and Assumption Agreement for an aggregate purchase
price of $5,791,395,  subject to certain  specified  adjustments.  Specifically,
Rockland  purchased  specified  factoring  accounts  held  by  WebBank,  all  of
WebBank's  right,  title and interest under specified  factoring  agreements and
participation  agreements and other  agreements,  arrangements,  commitments and
understandings related thereto or to the Receivables, all of which were acquired
by WebBank pursuant to the Rockland Agreement (the  "Contracts").  Rockland also
assumed  and agreed to pay and  perform  all  obligations  of WebBank  under the
Contracts and otherwise in respect of the purchased  assets arising on and after
the closing date.

ITEM 13. EXHIBITS

See Exhibit Index immediately following the signature page.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES:

      The  aggregate  fees billed for each of the last two fiscal  years of 2005
and 2004 for professional  services rendered by Grant Thornton LLP for the audit
of the annual financial statements of the Company and its subsidiary WebBank and
the review of the financial  statements  included in the Company's  Forms 10-QSB
for such fiscal years were approximately $158,000 and $140,000, respectively.

AUDIT-RELATED FEES:

      The  aggregate  fees billed for each of the last two fiscal  years of 2005
and 2004 for assurance and related services  rendered by Grant Thornton LLP were
approximately $4,000 and $52,000, respectively. The audit-related fees billed in
2004 related to the Company's common stock subscription rights offering.

TAX FEES:

      The  aggregate  fees billed for each of the last two fiscal  years of 2005
and 2004 for  professional  services  rendered  by  Grant  Thornton  LLP for tax
compliance,  tax advice and tax  planning  for the  Company  and its  subsidiary
WebBank  were  approximately  $35,000 and $8,000,  respectively.  An increase of
$28,000  in the 2005  fees was due to the  analysis  and  evaluation  of the tax
consequences  associated  with an  investment  in a real estate  master  limited
partnership (See Note 17, Investments).

ALL OTHER FEES:

      No fees were billed for each of the last two fiscal years of 2005 and 2004
for  products  and  services  of Grant  Thornton  LLP,  other than the  services
reported above.

PRE-APPROVAL POLICIES AND PROCEDURES:

      All  audit  and  non-audit  services  to be  performed  by  the  Company's
independent  auditors  must be  approved  in  advance  by the  Audit  Committee.
Consistent with applicable law,  limited amounts of services,  other than audit,
review or attest  services,  may be approved by one or more members of the Audit
Committee pursuant to authority delegated by the Audit Committee,  provided each
such  approved  service  is  reported  to the full Audit  Committee  at its next
meeting.

      All of the  engagements  and  fees for the  Company's  fiscal  year  ended
December 31, 2005 were  preapproved by the Audit  Committee.  In connection with
the audit of the  Company's  Financial  Statements  for the  fiscal  year  ended
December 31, 2005, Grant Thornton LLP only used full-time, permanent employees.

      The Audit Committee has considered whether the provision by Grant Thornton
LLP of the services  covered by the fees other than the audit fees is compatible
with  maintaining  Grant  Thornton's   independence  and  believes  that  it  is
compatible.


                                       32


                                   SIGNATURES

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

Date: April 21, 2006                             WEBFINANCIAL CORPORATION
      --------------

                                                 By:  /s/ James R. Henderson
                                                     ---------------------------
                                                 James R. Henderson
                                                 Chief Executive Officer

                                POWER OF ATTORNEY

      WebFinancial  Corporation  and each of the  undersigned  do hereby appoint
James R. Henderson and Jack L. Howard,  and each of them singly, its or his true
and lawful  attorney to execute on behalf of  WebFinancial  Corporation  and the
undersigned  any and all  amendments to this Annual Report on Form 10-KSB and to
file the same with all  exhibits  thereto  and  other  documents  in  connection
therewith with the Securities  and Exchange  Commission.  Each of such attorneys
shall have the power to act hereunder with or without the other.

      In accordance  with the Exchange Act of 1934,  this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the date indicated.

Signature                                                     Date
- ---------                                                     ----


James R. Henderson                                            April 21, 2006
- --------------------------------------------                  --------------
James R. Henderson                                            Date
Chief Executive Officer and Director
(Principal Executive Officer)


Jack L. Howard                                                April 21, 2006
- --------------------------------------------                  --------------
Jack L. Howard                                                Date
Chairman and Director


Glen M. Kassan                                                April 21, 2006
- --------------------------------------------                  --------------
Glen M. Kassan                                                Date
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


Howard Mileaf                                                 April 21, 2006
- --------------------------------------------                  --------------
Howard Mileaf, Director                                       Date


Joseph L. Mullen                                              April 21, 2006
- --------------------------------------------                  --------------
Joseph L. Mullen, Director                                    Date


Mark E. Schwarz                                               April 21, 2006
- --------------------------------------------                  --------------
Mark E. Schwarz, Director                                     Date



                                  EXHIBIT INDEX

3.1         Amended and Restated  Certificate of Incorporation - Incorporated by
            reference to Exhibit 3.1 to Registration Statement on Form S-3 filed
            October 10, 2003.

3.2         Certificate  of  Amendment  of  Certificate   of   Incorporation   -
            Incorporated by reference to Exhibit 3.2 to  Registration  Statement
            on Form S-3 filed October 10, 2003.

3.3         Certificate  of  Amendment  of  Certificate   of   Incorporation   -
            Incorporated  by reference to Exhibit 3.1 to Current  Report on Form
            8-K filed April 7, 2005.

3.4         By-laws - Incorporated  by reference to Exhibit I-5 to  Registration
            Statement on Form 8-A12G filed March 27, 1995.

10.1        Stock  Purchase  Agreement,  dated  January 20, 1998, by and between
            Praxis Investment Advisors,  Inc. and Block Financial  Corporation -
            Incorporated  by reference to Exhibit 1 to Quarterly  Report on Form
            10-Q filed September 17, 1998.

10.2        Form of Subscription  and Stockholders  Agreement,  dated August 31,
            1998,  by and among  Andrew  Winokur,  Rose's  International,  Inc.,
            WebBank  Corporation,  Praxis Investment  Advisors,  Inc. and Rose's
            Holdings, Inc. - Incorporated by reference to Exhibit 2 to Quarterly
            Report on Form 10-Q filed September 17, 1998.

10.3        Form of Assignment,  Transfer and Delegation  Agreement,  dated July
            1998, by and among Praxis Investment  Advisors,  LLC, Andrew Winokur
            and  Rose's  International,  Inc. -  Incorporated  by  reference  to
            Exhibit 3 to Quarterly Report on Form 10-Q filed September 17, 1998.

**10.4      Form of Employment  Agreement,  dated July 1998, by and among Praxis
            Investment  Advisors,  Inc.  and Andrew  Winokur -  Incorporated  by
            reference  to  Exhibit 4 to  Quarterly  Report  on Form  10-Q  filed
            September 17, 1998.

**10.5      Form of  Management  Agreement,  dated  1998,  by and  among  Rose's
            International, Inc., Andrew Winokur, and Praxis Investment Advisors,
            Inc. - Incorporated by reference to Exhibit 5 to Quarterly Report on
            Form 10-Q filed September 17, 1998.

**10.6      Rose's  Holdings,  Inc. Long Term Incentive  Plan - Incorporated  by
            reference to Appendix of Definitive  Proxy Statement on Schedule 14A
            filed December 6, 1998.

**10.7      Management Agreement, dated as of January 2000, between WebFinancial
            Corporation  and Steel Partners  Services,  Ltd. -  Incorporated  by
            reference to Exhibit 10.7 to the Annual  Report on Form 10-KSB filed
            March 30, 2004.

10.8        Asset  Purchase  and  Assignment  and  Assumption  Agreement  by and
            between WebBank and Rockland Credit Finance LLC dated as of December
            30, 2004 -  Incorporated  by  reference  to Exhibit  10.1 to Current
            Report on Form 8-K filed January 6, 2005.

10.9        Order to Cease and Desist dated January 31, 2005 -  Incorporated  by
            reference  to  Exhibit  99.1 to  Current  Report  on Form 8-K  filed
            February 2, 2005.

14.1        Code of Conduct and Ethics -  Incorporated  by  reference to Exhibit
            10.7 to Annual Report on Form 10-KSB filed March 30, 2004.

21.1        Subsidiaries  of  Registrant   (WebFinancial   Holding  Corporation;
            WebBank;  WebFinancial  Government Lending,  Inc.; Praxis Investment
            Advisors, Inc.; and Web Film Finance, Inc.)

*23.1       Consent of Grant Thornton LLP.

*31.1       Certification of Chief Executive  Officer pursuant to Section 302 of
            The Sarbanes-Oxley Act of 2002.



*31.2       Certification of Chief Financial  Officer pursuant to Section 302 of
            The Sarbanes-Oxley Act of 2002.

*32.1       Certification of Chief Executive  Officer pursuant to Section 906 of
            The Sarbanes-Oxley Act of 2002.

*32.2       Certification of Chief Financial  Officer pursuant to Section 906 of
            The Sarbanes-Oxley Act of 2002.

*     Filed herewith.
**    Indicates compensatory plan or arrangement.



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Report on Consolidated Financial Statements................     F-2

Report of Independent Registered Public Accounting Firm.................     F-3

Consolidated Statements of Financial Condition..........................     F-4

Consolidated Statements of Operations...................................     F-6

Consolidated Statement of Stockholders' Equity..........................     F-8

Consolidated Statements of Cash Flows...................................     F-9

Notes to Consolidated Financial Statements..............................    F-11


                                      F-1


            MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

The consolidated  financial statements on the following pages have been prepared
by management in  conformity  with  generally  accepted  accounting  principles.
Management  is  responsible  for the  reliability  and fairness of the financial
statements and other financial information included herein.

To meet its responsibilities with respect to financial  information,  management
maintains and enforces  internal  accounting  policies,  procedures and controls
which are designed to provide  reasonable  assurance that assets are safeguarded
and that  transactions  are properly  recorded and executed in  accordance  with
management's  authorization.  Management believes that the Company's  accounting
controls  provide  reasonable,  but  not  absolute,  assurance  that  errors  or
irregularities which could be material to the financial statements are prevented
or would be detected  within a timely period by Company  personnel in the normal
course of  performing  their  assigned  functions.  The  concept  of  reasonable
assurance  is based on the  recognition  that the cost of  controls  should  not
exceed the expected benefits.  Please see Item 8A - "Controls and Procedures" of
this Form 10-KSB for a detailed discussion of accounting control issues.

The  responsibility  of our  independent  auditors,  Grant  Thornton  LLP, is to
conduct  their audit in  accordance  with the  standards  of the Public  Company
Accounting Oversight Board (United States). In carrying out this responsibility,
they planned and  performed  their audit to obtain  reasonable  assurance  about
whether the  financial  statements  are free of material  misstatement,  whether
caused by error or fraud.

The Audit Committee of the Board of Directors met four times with management and
Grant Thornton LLP to discuss auditing and financial  matters and to assure that
each is carrying out its responsibilities.  Grant Thornton LLP has full and free
access to the Audit  Committee  and met with it by  telephone,  with and without
management being present, to discuss the results of their audit.


By: /s/ James R. Henderson
    --------------------------------------------
    James R. Henderson
    President and Chief Executive Officer
    (Principal Executive Officer)


By: /s/ Glen M. Kassan
    --------------------------------------------
    Glen M. Kassan
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)


                                      F-2


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Shareholders of WebFinancial Corporation

We have audited the accompanying  consolidated statements of financial condition
of  WebFinancial  Corporation and  subsidiaries  (a Delaware  corporation) as of
December  31,  2005  and  2004,  and  the  related  consolidated  statements  of
operations, stockholders' equity, and cash flows for the years then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we  engaged to perform  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  WebFinancial
Corporation  and  subsidiaries as of December 31, 2005 and 2004, and the results
of their  operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

As  discussed  in Note 2 to the  financial  statements,  WebBank is subject to a
formal  regulatory  order,  jointly  issued  by the FDIC and the  Department  of
Financial  Institutions for the State of Utah,  affecting the Bank's  operations
and  requiring  certain  actions.  WebBank  currently  does  not meet all of the
requirements of the regulatory  order,  which subjects them to certain mandatory
and  discretionary  actions by the  regulators.  These actions and  management's
plans in regard to these matters are also described in Note 2. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


/s/ GRANT THORNTON LLP

Salt Lake City, Utah
April 14, 2006


                                      F-3


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    (Amounts in thousands except share data)

                                                                     December 31,   December 31,
                                                                         2005           2004
                                                                         ----           ----

ASSETS
Cash and due from banks                                                $      3       $      4
Interest bearing deposits in other banks                                  8,518         22,177
                                                                       -----------------------
          Total cash and cash equivalents                                 8,521         22,181

Investment securities (note 3)
      Held-to-maturity (estimated fair value of $44 and $46
          at December 31, 2005 and 2004)                                     44             46
      Avaliable-for-sale                                                  2,615          2,666
                                                                       -----------------------
          Total investment securities                                     2,659          2,712

Loans, net (note 4)                                                       7,663          5,950
Allowance for credit losses (note 5)                                       (184)          (321)
                                                                       -----------------------
          Total loans, net                                                7,479          5,629

Foreclosed assets                                                            --            100
Premises and equipment, net (note 9)                                         16             21
Accrued interest receivable                                                 118             40
Deferred tax asset (note 13)                                                 89            303
Investments (note 17)                                                     4,596          1,200
Other assets (note 18)                                                      890            824
                                                                       -----------------------

                                                                       $ 24,368       $ 33,010
                                                                       =======================

                                   (continued)

               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-4


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
                    (Amounts in thousands except share data)

                                                                     December 31,   December 31,
                                                                         2005           2004
                                                                         ----           ----

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Certificates of deposit (note 7)                                    $    999       $  8,722
                                                                       -----------------------
         Total deposits                                                     999          8,722

Accrued interest payable                                                      2             --
Custodial payable - Commercial loans                                        722            154
Other liabilities                                                           458            326
                                                                       -----------------------
         Total liabilities before minority interest                       2,181          9,202

Minority interest                                                           311            399

Commitments and contingencies (notes 2, 8, 12, and 15)

Stockholders' Equity (notes 2, 11, 16, and 22)
   Preferred stock, 500,000 shares authorized, none issued                   --             --
   Common Stock, 5,000,000 shares authorized
       $.001 par value, 2,183,366 and 2,183,433 shares issued and
       outstanding at December 31, 2005 and 2004                              2              2
   Paid-in capital                                                       47,647         47,648
   Accumulated deficit                                                  (26,747)       (25,369)
   Accumulated other comprehensive income                                   974          1,128
                                                                       -----------------------

Total stockholders' equity                                               21,876         23,409
                                                                       -----------------------

                                                                       $ 24,368       $ 33,010
                                                                       =======================

               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-5


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (Amounts in thousands except share data

                                                                   Year ended    Year ended
                                                                  December 31,  December 31,
                                                                      2005          2004
                                                                      ----          ----

Interest income
   Loans, including fees                                            $   635       $   874
   Purchased receivables
     Accounts receivable factoring                                       --         2,470
     Other                                                               --            12
   Interest bearing deposits in other banks                             357            59
   Federal funds sold                                                    --            20
   Investment securities                                                 61            81
                                                                    ---------------------
        Total interest income                                         1,053         3,516

Interest expense
   Deposits                                                              75           244
                                                                    ---------------------
        Total interest expense                                           75           244
                                                                    ---------------------

        Net interest income before provision for credit losses          978         3,272

Provision for credit losses (note 5)                                    290            62
                                                                    ---------------------
        Net interest income after provision for credit losses           688         3,210

Noninterest income
   Gain on sale of securities (note 3)                                   40             1
   Gain on sale of other assets                                          79            15
   Fee income                                                           349           388
   Miscellaneous income (note 19)                                        50           902
                                                                    ---------------------
        Total noninterest income                                        518         1,305

Noninterest expenses (note 6)
   Salaries, wages, and benefits                                        582           797
   Professional and legal fees                                          792           594
   Unrealized loss on trading liabilities                                47            --
   Realized loss on trading liabilities                                  37            --
   Accounts receivable factoring management and broker fees              --         1,150
   Other management fees - related party (note 6)                       286           310
   Loss on impairment of goodwill (note 23)                              --         1,380
   Other general and administrative                                     710           787
                                                                    ---------------------
         Total noninterest expenses                                   2,454         5,018
                                                                    ---------------------

             Operating loss                                          (1,248)         (503)

Income tax expense (note 13)                                            218           491
                                                                    ---------------------

Loss before minority interest                                        (1,466)         (994)

Loss attributable to minority interests                                  88            64
                                                                    ---------------------

         Net loss                                                   $(1,378)      $  (930)
                                                                    =====================

                                   (continued)


                                      F-6


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
                    (Amounts in thousands except share data)

                                                           Year ended          Year ended
                                                          December 31,        December 31,
                                                              2005                2004
                                                              ----                ----

Loss per common share (note 10):
   Basic                                                 $       (0.63)      $       (0.62)
   Diluted                                               $       (0.63)      $       (0.62)

Weighted average number of common shares (note 10):
   Basic                                                     2,183,366           1,495,502
   Diluted                                                   2,183,366           1,495,502

               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-7


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

               YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31, 2004
                    (Amounts in thousands except share data)

                                                                                                    Accumulated
                                          Common stock                                                 Other             Total
                                          ------------              Paid-in         Accumulated    Comprehensive     Stockholders'
                                    Shares           Amount         Capital          Deficit       Income (loss)         Equity
                                    ------           ------         -------          -------       -------------         ------

Balance at January 1, 2004         1,091,717       $        1      $   36,609       $  (22,974)      $       55       $   13,691

Common stock subscription
rights offering:
  Proceeds, net                    1,091,716                1           9,574               --               --            9,575
  Rights dividend declared                --               --           1,465           (1,465)              --               --

Comprehensive income:
  Net loss                                --               --              --             (930)              --             (930)
  Unrealized holding gain
  arising during period,
  net of tax                              --               --              --               --            1,073            1,073
                                  ----------------------------------------------------------------------------------------------
Total comprehensive income                                                                                                   143
                                  ----------------------------------------------------------------------------------------------

Balance at December 31, 2004       2,183,433                2          47,648          (25,369)           1,128           23,409

Cash in lieu of shares from
reverese stock split                     (67)              --              (1)              --               --               (1)

Comprehensive loss:
  Net loss                                --               --              --           (1,378)              --           (1,378)
  Unrealized holding loss
  arising during period,
  net of tax                              --               --              --               --             (154)            (154)
                                  ----------------------------------------------------------------------------------------------
Total comprehensive loss                                                                                                (1,532)
                                  ----------------------------------------------------------------------------------------------
Balance at December 31, 2005       2,183,366       $        2      $   47,647       $  (26,747)      $      974       $   21,876
                                  ==============================================================================================

               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-8


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                                                                            Year ended      Year ended
                                                                                           December 31,    December 31,
                                                                                               2005            2004
                                                                                               ----            ----
Cash flows from operating activities:
Net loss                                                                                     $(1,378)        $  (930)
  Adjustments to reconcile net loss to net cash from operating activities:
    Minority interest                                                                            (88)            (64)
    Provision for credit losses                                                                  290              62
    Depreciation                                                                                  11              17
    Gain on sale of securities available for sale                                                (40)             (1)
    Gain on sale of foreclosed assets                                                            (46)             --
    Write down of foreclosed assets                                                               --             100
    Accretion of deferred loan fees, net                                                          (5)            (88)
    Amortization of other assets                                                                   2               3
    Amortization of servicing assets                                                              13              18
    Write off of goodwill                                                                         --           1,380
    Unrealized loss on trading liabilities                                                        47              --
    Deferred tax expense                                                                         214             454
  Change in operating assets and liabilities
    Accrued interest receivable                                                                  (78)            204
    Other assets                                                                                 (83)             53
    Other  liabilities                                                                           667             103
    Interest payable                                                                              (9)             --
                                                                                             -----------------------
        Net cash (used in) provided by operating activities                                     (483)          1,311
                                                                                             -----------------------

Cash flows from investing activities:
    Principal payments received on securities held to maturity                                     2               2
    Purchase of securities available for sale                                                   (234)         (1,293)
    Principal payments received on securities available for sale                                  37              23
    Proceeds from sale of securities available for sale                                          134               2
    Loans originated and principal collection, net                                            (2,136)          2,492
    Purchased accounts receivable factoring originated and principal collections, net             --           2,482
    Purchased accounts receivable factoring recoveries                                            --              65
    Proceeds from sale of purchased accounts receivable factoring portfolio                       --           4,227
    Purchased other receivables originated and principal collections, net                         --             268
    Proceeds from sale of foreclosed property and assets                                         146              --
    Purchase of premises and equipment                                                            (6)            (23)
    Purchase of investments                                                                   (3,396)         (1,000)
                                                                                             -----------------------
        Net cash (used in) provided by investing activities                                   (5,453)          7,245
                                                                                             -----------------------

                                   (continued)


                                      F-9


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                             (Amounts in thousands)

                                                                   Year ended      Year ended
                                                                  December 31,    December 31,
                                                                     2005             2004
                                                                     ----             ----

Cash flows from financing activities:
    Cash in lieu of shares from reserve split                            (1)              --
    Net proceeds from stock rights offerings                             --            9,575
    Net decrease in demand deposits                                      --             (206)
    Net decrease in NOW/MMA accounts                                     --             (347)
    Net decrease in certificates of deposit                          (7,723)          (2,642)
                                                                   -------------------------
        Net cash (used in) provided by financing activities          (7,724)           6,380
                                                                   -------------------------

Net (decrease) increase in cash and cash equivalents                (13,660)          14,936

Cash and cash equivalents at beginning of year                       22,181            7,245
                                                                   -------------------------

Cash and cash equivalents at end of year                           $  8,521         $ 22,181
                                                                   =========================

Supplemental disclosure of cash flow information:
    Cash paid for interest                                         $     95         $    258
    Cash paid for income taxes                                     $      4         $     37

Supplemental disclosure of additional non-cash activities:

.. At December 31,  2005,  the Company had a balance of net  unrealized  gains on
securities of $974, which is shown in accumulated other comprehensive  income on
the  statement  of  stockholders'   equity.  As  a  result,   accumulated  other
comprehensive  income was decreased by $154.  At December 31, 2004,  the Company
had a balance of net unrealized gains on securities of $1,128, which is shown in
accumulated other comprehensive income on the statement of stockholders' equity.
As a result,  accumulated  other  comprehensive  income was  increased by $1,073
during 2004.

               THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-10


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      ORGANIZATION--The  consolidated financial statements include the financial
statements  of  WebFinancial  Corporation  and  its  subsidiaries:  WebFinancial
Holding  Corporation   ("Holding"),   WebBank  ("WebBank"),   Praxis  Investment
Advisers,  Inc. ("Praxis"),  WebFinancial  Government Lending, Inc. ("Lending"),
and Web Film Financial, Inc. ("Film"),  collectively referred to as the Company.
At December 31, 2005,  WebFinancial  Corporation owned 93 percent of WebBank and
an unconsolidated individual owned 7 percent of WebBank.  Subsequent to December
31, 2005, the Company  acquired the minority  interest in WebBank.  See note 24.
WebBank  is a  Utah-chartered  industrial  loan  corporation,  and is subject to
comprehensive  regulation,  examination,  and supervision by the Federal Deposit
Insurance  Corporation  ("FDIC"),  and the State of Utah Department of Financial
Institutions.   WebBank  provides  commercial  and  consumer  specialty  finance
services.  Lending was organized to provide U.S.  Department of Agriculture loan
originations,  sales and servicing. Film was organized to finance the production
and  distribution  of a motion picture.  Both Film and Praxis are inactive.  All
significant intercompany balances have been eliminated in consolidation.

      BASIS  OF   PRESENTATION   AND  USE  OF   ESTIMATES--The   preparation  of
consolidated  financial  statements in  conformity  with  accounting  principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  financial  statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  A material estimate that is particularly  susceptible to significant
change in the near-term relates to the determination of the allowance for credit
losses and the valuation of real estate acquired in connection with foreclosures
or in  satisfaction  of  loans.  In  connection  with the  determination  of the
allowance for credit losses and the valuation of real estate, management obtains
independent appraisals for significant properties.

      CASH AND CASH  EQUIVALENTS--Cash  and cash  equivalents  include  cash and
noninterest bearing deposits in depository  institutions,  plus interest-bearing
deposits  with banks and  investments  in cash  management  funds.  The  Company
considers all highly liquid debt  instruments with maturities of three months or
less when purchased to be cash equivalents.  At December 31, 2005 and 2004, $500
of interest-bearing  deposits at WebBank were pledged to a correspondent bank to
cover ACH (Automated  Clearing House) risk. Cash equivalents are stated at cost,
which  approximates  market,  except for short positions in equities held in the
cash management funds which are recorded at fair value.  Unrealized and realized
gains or losses on short  positions  are  charged to  earnings  and  recorded as
"Unrealized  gain(loss)  on trading  liabilities"  or  "Realized  gain (loss) on
trading liabilities" respectively.

      INCOME  (LOSS)  PER  SHARE--Basic   income  (loss)  per  common  share  is
calculated  by  dividing  net  income by the  weighted-average  number of common
shares outstanding for the period.  Diluted income per common share reflects the
maximum  dilutive effect of common stock issuable upon exercise of stock options
and stock warrants. A loss per share is considered  antidilutive for purposes of
computing  diluted  income per  common  share.  If the  number of common  shares
outstanding  increases  as a  result  of a stock  dividend  or  stock  split  or
decreases as a result of a reverse stock split,  the  computations  of basic and
diluted  income per common  share are  adjusted  retroactively  for all  periods
presented to reflect that change in capital structure (see Note 10).

      INVESTMENT  SECURITIES--The  Company  classifies  its securities as either
available-for-sale  or held-to-maturity.  Held-to-maturity  securities are those
debt  securities  that the  Company  has the  ability  and  intent to hold until
maturity.  All other securities not included in held-to-maturity  are classified
as available-for-sale,  unless they are illiquid or have restrictions under Rule
144 (note 17).

      Held-to-maturity  securities are recorded at amortized cost,  adjusted for
the  amortization  or  accretion  of premiums or  discounts.  Available-for-sale
securities  are recorded at fair value.  Unrealized  holding  gains or losses on
available-for-sale  securities  are excluded from  earnings and reported,  until
realized,  in  accumulated  other  comprehensive  income  (loss)  as a  separate
component  of  stockholders'  equity.  A  decline  in the  market  value  of any
available-for-sale or held-to-maturity  security below cost that is deemed other
than temporary is charged to earnings  resulting in the  establishment  of a new
cost basis for the  security.  Premiums and  discounts are amortized or accreted
over the life of the related  security as an  adjustment  to the yield using the
effective-interest  method.  Dividend and  interest  income is  recognized  when
earned.    Realized   gains   and   losses   for   securities    classified   as
available-for-sale  or held-to-maturity are included in earnings and are derived
using the specific-identification method.


                                      F-11


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      INVESTMENTS  IN  REAL  ESTATE  LIMITED  PARTNERSHIPS  (RELP)--The  Company
evaluates both its ownership  percentage and its ability to exercise  control in
determining whether or not it should use the cost or equity method of accounting
for its  investment  in RELPs.  APB Opinion No. 18  recommends  a 20%  ownership
threshold;  however,  more recent  guidance by the SEC  requires  the use of the
equity  method  unless the  investor's  interest  "is so minor that the  limited
partner may have virtually no influence over partnership operating and financial
policies." The SEC further  concluded that real estate  investments by a limited
partner of more than 3 to 5 percent,  warrants the use of the equity  accounting
method.  The Company  currently has one investment in the RELP and its ownership
percentage  at  December  31, 2005 was 25.38%.  The  Company  accounts  for this
investment under the equity method of accounting.

      LOANS AND PURCHASED  RECEIVABLES--The  Company,  through  WebBank,  grants
mortgage,  commercial and consumer loans to customers. Loans that management has
the intent and ability to hold for the  foreseeable  future or until maturity or
pay-off  generally are reported at their outstanding  unpaid principal  balances
adjusted for charge-offs,  the allowance for loan losses,  and any deferred fees
or costs on originated loans. Interest income is accrued on the unpaid principal
balance.  Loan origination  fees, net of certain direct  origination  costs, are
deferred and  recognized  as an  adjustment  of the related loan yield using the
interest method.

      The accrual of interest on commercial  loans is  discontinued  at the time
the loan is 90 days delinquent  unless the credit is well-secured and in process
of collection.  Credit card loans and other personal loans are typically charged
off no later  than 180  days  past  due.  In all  cases,  loans  are  placed  on
nonaccrual  or  charged-off  at an earlier  date if  collection  of principal or
interest is considered doubtful.

      All  interest  accrued  but not  collected  for loans  that are  placed on
nonaccrual or charged-off is reversed against  interest income.  The interest on
these loans is accounted for on the cash-basis or  cost-recovery  method,  until
qualifying for return to accrual.  Loans are returned to accrual status when all
the principal and interest  amounts  contractually  due are brought  current and
future payments are reasonably assured.

      On December  30,  2004,  WebBank  sold its entire  portfolio  of purchased
receivables,   and  various  agreements  regarding  purchased  receivables  were
terminated.  Prior to that date,  WebBank  purchased  receivable  balances  from
customers at a discounted  rate. The  receivables to be purchased from any given
customer were determined  using WebBank's credit granting  policies.  Receivable
purchases had full recourse to the customer and were accounted for as a purchase
under the guidelines of SFAS 140. Purchased  receivables that management had the
intent  and  ability to hold for the  foreseeable  future or until  maturity  or
payoff were reported at their outstanding  unpaid principal  balances reduced by
any  charge-off or specific  valuation  accounts and net of any deferred fees or
costs on originated  loans,  or  unamortized  premiums or discounts on purchased
loans.

      The  Company  has  originated  loans to  customers  under a United  States
Department of  Agriculture  ("USDA")  program that  generally  provides for USDA
guarantees  of 70  percent to 90 percent  of each  loan.  The  Company  sold the
guaranteed  portion of each loan to a third party and retained the  unguaranteed
portion in its own portfolio.  Loans  held-for-sale  are carried at the lower of
cost or estimated market value in the aggregate.  There were no new loans booked
under the USDA program during 2004 and 2005.

      The Company is  required to retain a minimum of five  percent of each USDA
loan sold and to service the loan for the  investor.  Based on the specific loan
sale agreement  that the Company  enters into with the investor,  the difference
between  the yield on the loan and the yield paid to the buyer is the  servicing
fee. Loans serviced for others approximated  $10,448 and $14,849 at December 31,
2005 and 2004,  respectively.  These loans are not included in the  accompanying
statements of financial  condition.  Fees earned for servicing  loans for others
are  reported as income when the  related  loan  payments  are  collected,  less
amortization of the servicing asset. Loan servicing costs are charged to expense
as incurred.

      During  2005,  WebBank  formed a  division  to source  and  service  Small
Business  Administration  (SBA) loans. These commercial loans are guaranteed 75%
by the full faith and credit of the Federal  Government and are  administered by
the Small Business Administration. WebBank had approximately $1,200 of SBA loans
outstanding as of December 31, 2005.


                                      F-12


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      CREDIT RELATED FINANCIAL  INSTRUMENTS--In the ordinary course of business,
the Company has entered into commitments to extend credit, including commitments
under accounts receivable factoring and credit card arrangements. Such financial
instruments are recorded when they are funded (see note 15).

      LOAN  IMPAIRMENT--A  loan is considered  impaired  when,  based on current
information  and events,  it is probable that the Bank will be unable to collect
the  scheduled  payments of  principal  and interest  when due  according to the
contractual  terms of the loan  agreement.  Factors  considered by management in
determining  impairment  include  payment  status,  collateral  value,  and  the
probability of collecting  scheduled  principal and interest  payments when due.
Loans  that  experience  insignificant  payment  delays and  payment  shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment  shortfalls on a case-by-case  basis,  taking into
consideration  all of the  circumstances  surrounding the loan and the borrower,
including  the length of the delay,  the reasons for the delay,  the  borrower's
prior  payment  record,  and the  amount of the  shortfall  in  relation  to the
principal and interest owed.  Impairment is measured on a loan by loan basis for
commercial  loans by either the  present  value of  expected  future  cash flows
discounted at the loan's effective  interest rate, the loan's  obtainable market
price, or the fair value of the collateral if the loan is secured by collateral.

      Large  groups  of  smaller  balance  homogeneous  loans  are  collectively
evaluated for impairment.  Accordingly, the Company does not separately identify
individual consumer and finance receivables for impairment disclosures.

      ALLOWANCE   FOR  CREDIT   LOSSES--The   allowance  for  credit  losses  is
established  as losses are  estimated to have  occurred  through a provision for
credit  losses  charged to  earnings.  Credit  losses are  charged  against  the
allowance when management believes the  uncollectibility of a loan or receivable
balance  is  confirmed.  Subsequent  recoveries,  if any,  are  credited  to the
allowance.

      The  allowance  for  credit  losses is  evaluated  on a  regular  basis by
management and is based upon management's  periodic review of the collectibility
of the amounts due in light of historical  experience,  the nature and volume of
the loan portfolio, adverse situations that may affect the borrower's ability to
repay,  estimated  value of any underlying  collateral  and prevailing  economic
conditions.  This evaluation is inherently  subjective as it requires  estimates
that  are  susceptible  to  significant  revision  as more  information  becomes
available.

      The allowance for purchased  receivable losses, which is included with the
allowance for credit losses,  is increased by charges to income and decreased by
charge offs (net recoveries).  Management's  periodic evaluation of the adequacy
of the  allowance is based on the  Company's  past  purchased  receivables  loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the debtor's  ability to repay, the estimated value of any underlying
collateral and current economic  conditions.  Purchased  receivables are charged
off when they are 90 days  contractually past due, at which time the Company may
enforce the  recourse  agreement  to collect  from the  customer  the  remaining
outstanding balances.

      NONACCRUAL  LOANS--Accrual  of interest is discontinued on a loan when the
loan is 90 days past due or when management believes, after considering economic
and business  conditions and collection efforts,  that the borrower's  financial
condition is such that  collection of interest is doubtful.  Interest  income on
nonaccrual loans is credited to income only to the extent interest  payments are
received. Loans are restored to accrual of interest when delinquent payments are
received in full.  Additionally,  the Company uses the cost recovery  accounting
method to recognize interest income on impaired loans.

      PREMISES AND  EQUIPMENT--Premises and equipment are stated at cost, net of
accumulated   depreciation  and  amortization.   Depreciation  of  premises  and
equipment is computed by the  straight-line  method over estimated  useful lives
from one to five  years  for  book  purposes  and  accelerated  methods  for tax
purposes.  Leasehold  improvements  are amortized  over the terms of the related
leases or the estimated useful lives of the improvements,  whichever is shorter.
Useful lives of leasehold  improvements are between three and five years. Normal
recurring repair and maintenance costs are expensed as incurred.

      INCOME  TAXES--The  Company uses the liability  method of  accounting  for
income taxes.  Under the liability method,  deferred tax assets and deferred tax
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets


                                      F-13


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

and liabilities and their respective tax bases and operating loss and tax credit
carry  forwards.  Deferred tax assets and deferred tax  liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and deferred  tax  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

      GOODWILL--The  Company  evaluates  their  goodwill for impairment at least
annually at a reporting unit level. The Company  completed its annual evaluation
of impairment of goodwill and determined  that goodwill was impaired at December
31, 2004 (see Note 23).  The Company  had no recorded  goodwill at December  31,
2005.

      FORECLOSED   ASSETS--Assets   acquired  through,   or  in  lieu  of,  loan
foreclosures are held for sale and initially  recorded at fair value at the date
of  foreclosure,  establishing  a new cost  basis.  Subsequent  to  foreclosure,
periodic  valuations  are performed and the asset is carried at the lower of the
carrying  amount or fair value,  less cost to sell.  Revenue and  expenses  from
operations  and changes in the valuation  allowance are included in net expenses
from foreclosed assets.

      CUSTODIAL  PAYABLE-COMMERCIAL LOANS--As a result of foreclosure on certain
government  loans  the  Bank  is  responsible  to  liquidate  the  related  loan
collateral.  The Bank retains the  collections  until such time the  collections
efforts are substantially  complete.  Throughout the collection process the Bank
records a liability related to the collections that are due to the government on
the  guaranteed  portion of the loan.  At December 31, 2005 and 2004 the payable
was $722 and $154, respectively.

      ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED  ASSETS--The  Company  reviews its
long-lived  assets for impairment  whenever  events or changes in  circumstances
indicate  that  the  carrying  amount  of  an  asset  may  not  be  recoverable.
Recoverability  of  assets  held and used is  measured  by a  comparison  of the
carrying amount of the asset to future  undiscounted  net cash flows expected to
be generated by the asset.  If such assets are  considered  to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value less cost to
sell.

      COMPREHENSIVE INCOME (LOSS)--Accounting  principles generally require that
recognized revenue, expenses, gains and losses be included in net income (loss.)
Although certain changes in assets and liabilities, such as unrealized gains and
losses on securities available for sale, are reported as a separate component of
the equity  section of the  balance  sheet,  such  items,  along with net income
(loss), are components of comprehensive income.

      The  components  of other  comprehensive  income  (loss) and  related  tax
effects are as follows:

                                                        Year ended    Year ended
                                                           2005          2004
                                                           ----          ----

Unrealized holding (losses) gains on
available-for-sale securities                             $ (194)       $1,072
Gain on sale of securities in net income                      40             1
Reclassification adjustment-loss
included in net income                                        --            --
                                                          --------------------
Net unrealized holding (losses)gains                        (154)        1,073
Tax effect                                                    --            --
                                                          --------------------
Net-of-tax amount                                         $ (154)       $1,073
                                                          ====================

      STOCK-BASED   COMPENSATION--The   Company  has   applied  the   disclosure
provisions of SFAS 148,  "Accounting for  Stock-Based  Compensation - Transition
and  Disclosure - An Amendment  of FASB  Statement  No. 123" for the years ended
2005 and 2004.  Issued in December 2002, SFAS 148 amended SFAS 123,  "Accounting
for Stock Based Compensation" to provide alternative methods of transition for a
voluntary  change to the fair value based method of  accounting  for stock based
compensation.  As  permitted  by SFAS 148, the Company is allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of  accounting  prescribed  by  Accounting  Principles  Board  Opinion  No.  25,
Accounting  for Stock  Issued to  Employees,  whereby  compensation  cost is the
excess, if any, of the quoted market price of the stock at the grant date (or


                                      F-14


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

other  measurement  date) over the amount an  employee  must pay to acquire  the
stock.  Stock  options  issued  under the  Company's  stock  option plan have no
intrinsic value at the grant date, and under Opinion No. 25 no compensation cost
is recognized  for them. The Company has elected to continue with the accounting
methodology  in  Opinion  No.  25 and,  as a  result,  has  provided  pro  forma
disclosures  of net income and earnings per share and other  disclosures,  as if
the fair  value  based  method of  accounting  had been  applied.  The pro forma
disclosures  include  the effects of all awards  granted on or after  January 1,
1995. (See Note 10.)

The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value  recognition  provisions  of SFAS No. 123, as
amended by SFAS No. 148 to stock based compensation (amounts in thousands except
per share amounts):

                                                                    Year ended        Year ended
                                                                   December 31,      December 31,
                                                                       2005              2004
                                                                       ----              ----

Net loss                                   As reported              $ (1,378)          $  (930)
Total stock-based employee
compensation expense determined under
fair value based method for all awards net
of related tax effects                                                     -                 -
                                                                    --------------------------
                                           Pro forma                $ (1,378)          $  (930)
                                                                    ==========================
Basic and diluted net loss per share       As reported              $  (0.63)          $ (0.62)
                                           Pro forma                $  (0.63)          $ (0.62)

      No options  were  granted in 2005 or 2004.  If options had been granted in
either year, in determining  the pro forma amounts shown in the preceding  table
the fair value of each option grant would have been estimated on the date of the
grant  using the  Black-Scholes  option  pricing  model  with  weighted  average
assumptions for the year ended December 31 which would have included a risk-free
interest rate, expected dividend yield, expected lives, and expected volatility.
No options were  granted to  non-employees  for services  during the years ended
December 31, 2005 or 2004.

NEW  ACCOUNTING  PRONOUNCEMENTS  - The American  Institute  of Certified  Public
Accountants has issued Statement of Position 03-3, ("SOP 03-3"),  ACCOUNTING FOR
CERTAIN  LOANS OR DEBT  SECURITIES  ACQUIRED  IN A TRANSFER.  SOP 03-3  requires
acquired loans,  including debt securities,  to be recorded at the amount of the
purchaser's initial investment and prohibits carrying over valuation  allowances
from the seller for those  individually-evaluated  loans that have  evidence  of
deterioration  in credit  quality  since  origination,  and it is  probable  all
contractual cash flows on the loan will be unable to be collected. SOP 03-3 also
requires the excess of all  undiscounted  cash flows expected to be collected at
acquisition over the purchaser's initial investment to be recognized as interest
income on a level-yield basis over the life of the loan. Subsequent increases in
cash flows  expected to be collected  are  recognized  prospectively  through an
adjustment  of the  loan's  yield  over its  remaining  life,  while  subsequent
decreases are  recognized as impairment.  Loans carried at fair value,  mortgage
loans held for sale,  and loans to borrowers in good  standing  under  revolving
credit  agreements  are  excluded  from the scope of SOP 03-3.  The  guidance is
effective for loans acquired in fiscal years  beginning after December 15, 2004.
Acquired  loans  within the scope of SOP 03-3 will be recorded at their net fair
value.  The adoption of this  accounting  standard by the Company had no current
effect on the financial statements.

      In December 2004,  the FASB issued FASB Statement No. 123 (revised  2004),
"Shared-Based   Payment."   Statement   123(R)   addresses  the  accounting  for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.


                                      F-15


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

Statement  123(R)  requires an entity to recognize the grant-date  fair value of
stock options and share based compensation  issued to employees in the statement
of operations.  The revised Statement  generally requires that an entity account
for those transactions using the fair value method, and eliminates the intrinsic
value  method of  accounting  in APB Opinion No. 25, which was  permitted  under
Statement 123, as originally  issued.  The Company is evaluating the impact that
the adoption of SFAS 123R will have on the  consolidated  financial  statements.
The impact of adoption will be dependent on several  factors,  including but not
limited to, the Company's future stock-based compensation strategy.

2.    REGULATORY MATTERS

      On January 31, 2005, the Federal Deposit  Insurance  Corporation  ("FDIC")
and the  Department  of Financial  Institutions  for the State of Utah issued to
WebBank an Order to Cease and Desist (the  "Order") in  connection  with alleged
violations of certain banking regulations.  WebBank consented to the issuance of
the Order without  admitting or denying the alleged  violations of those banking
regulations.

      The Order required  WebBank to comply with a number of requirements  which
included,  but  were  not  limited  to,  increasing  the  number  of  directors,
increasing  board  involvement,   hiring  new  executive  officers,  creating  a
three-year  strategic plan, charging off or collecting certain classified loans,
revising and adopting  various  policies,  developing and adopting a budget plan
and a capital  plan that is designed  to  maintain an adequate  level of capital
protection  for  the  kind of and  quality  of  assets  held  by the  bank,  and
establishing and implementing procedures for affiliate  transactions.  The Order
also immediately prohibited certain actions such as purchasing factored accounts
receivable  until  proper  procedures  and  policies  are  in  place,  extending
additional credit to substandard borrowers, and paying cash dividends. The Order
further prohibited  WebBank from issuing brokered  certificates of deposit in an
aggregate  amount  greater than the amount  outstanding on the effective date of
the Order,  which is $7,465.  In  addition,  the Order  prohibited  WebBank from
paying cash dividends  without the written  consent of the FDIC and the State of
Utah Department of Financial  Institutions.  The effective date of the Order was
February 10, 2005, and the due dates for the requirements ranged from 10 days to
360 days from the  effective  date with the  majority to be achieved  within 120
days of the Order. As a result of the examination and the Order, WebBank charged
off 50% of all loans classified as Doubtful.  The chargeoff of $454 is reflected
as of December 31, 2004 in the accompanying financial statements.

      WebBank  believes  that during the period since the issuance of the Order,
it has  provided  all  information  required  by the  Order on a  timely  basis.
WebBank's  compliance with the Order was reviewed by the FDIC and the Department
of  Financial  Institutions  of the State of Utah  during the annual  Safety and
Soundness  examination  conducted in September  2005.  The examiners  noted in a
letter received in February 2006 that WebBank's  fourth quarter  progress report
indicates the Bank has made  substantial  progress  towards  compliance with the
Order based on the results of the recent joint examination,  however, also noted
that management  properly  recognizes  there are several  remaining  issues that
require  further  action,  including  the  successful  execution of a three-year
business plan that was presented to and approved by the  regulators  during June
2005.  The  Order  will  remain  in  place  until  it is  modified,  terminated,
suspended, or set aside by the FDIC and the Department of Financial Institutions
for the State of Utah. The time frame  remaining for the Order to be in place is
not known at this time.

      On  July  27,  2005,  the  FDIC  and  the  Utah  Department  of  Financial
Institutions  granted WebBank a waiver from restrictions imposed on the issuance
of brokered  certificates of deposit. The waiver allows WebBank to hold brokered
deposits up to an aggregate of $20,000 through January 1, 2007. At that time the
waiver will expire,  and WebBank expects to submit a new request for approval of
the use of brokered deposits.


                                      F-16


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

3.    INVESTMENT SECURITIES

      The amortized  cost and fair value of  securities,  with gross  unrealized
gains and losses are summarized as follows:

                                                                 December 31, 2005
                                                                  Held to Maturity
                                                                  ----------------
                                                                 Gross        Gross
                                                   Amortized  unrealized    unrealized  Estimated
                                                      cost       gains        losses    fair value
                                                      ----       -----        ------    ----------

Collateralized mortgage backed securities           $     4     $     -      $     -     $     4
State and municipal securities                           40           -            -          40
                                                    --------------------------------------------
                                                    $    44     $     -      $     -     $    44
                                                    ============================================

                                                                 Available for sale
                                                                 ------------------
Collateralized mortgage backed securities           $    40     $     -      $     -     $    40
Equity securities                                     1,601         974            -       2,575
                                                    --------------------------------------------
                                                    $ 1,641     $   974      $     -     $ 2,615
                                                    ============================================

                                                                 December 31, 2004
                                                                  Held to Maturity
                                                                  ----------------
                                                                 Gross        Gross
                                                   Amortized  unrealized    unrealized  Estimated
                                                      cost       gains        losses    fair value
                                                      ----       -----        ------    ----------

Collateralized mortgage backed securities           $     6     $     -      $     -     $     6
State and municipal securities                           40           -            -          40
                                                    --------------------------------------------
                                                    $    46     $     -      $     -     $    46
                                                    ============================================

                                                                 Available for sale
                                                                 ------------------
Collateralized mortgage backed securities           $    44     $     -      $     -     $    44
Equity securities                                     1,494       1,128            -       2,622
                                                    --------------------------------------------
                                                    $ 1,538     $ 1,128      $     -     $ 2,666
                                                    ============================================


                                      F-17


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      The amortized cost and estimated market value of investment  securities at
December 31, 2005, by contractual  maturity,  are shown below.  The  contractual
maturity  of   collateralized   mortgage   backed   securities  and  equity  are
indeterminable   or  not  applicable.   Expected   maturities  may  differ  from
contractual  maturities  because borrowers have the right to prepay  obligations
with or without penalties.

                                                      Held to maturity        Available for sale
                                                      ----------------        ------------------
                                                   Amortized   Estimated    Amortized   Estimated
                                                     cost     fair value       cost    fair value
                                                     ----     ----------       ----    ----------

Due within one year through five years              $    40     $    40      $     -     $     -
Mortgage backed securities not due at a
single maturity date, maturing through 2024               4           4           40          40
                                                    --------------------------------------------
                                                    $    44     $    44      $    40     $    40
                                                    ============================================

      No individual  securities  were in an unrealized loss position at December
31, 2005.

      Proceeds from  maturities,  calls,  and  principal  payments of securities
classified as available-for-sale were $37 in 2005 and $23 in 2004. Proceeds from
sale of securities  available-for-sale  were $134 in 2005 and $2 in 2004.  Gross
realized gains on the sales were $40 in 2005 and $1 in 2004. There were no gross
realized losses on sales in 2005 or 2004.

      The  Company  has  made  other   investments   which  are   classified  as
investments (see Note 17).

4.    LOANS

      Loans at December 31, 2005 and 2004 are summarized as follows:

                                                            2005          2004
                                                            ----          ----

Commercial loans                                         $  7,663      $  5,911
Installment loans                                              --            44
Deferred income                                                --            (5)
                                                         ----------------------
                                                         $  7,663      $  5,950
                                                         ======================

      Loans to thirteen  customers  comprise  approximately  99 percent of total
loans at December  31, 2005.  At December  31, 2005,  $3,050 of the loans in the
portfolio had a fixed  interest rate ($1,500 at December 31, 2004) and $0 of the
Company's  loans were unsecured  ($44 at December 31, 2004).  The ability of the
borrowers to repay their  obligations  is  dependent  upon  economic  conditions
within  their  respective  regions  as well as the  financial  condition  of the
borrowers.

      The  Company  had $148 and $600 of loans on which the  accrual of interest
has been discontinued or reduced at December 31, 2005 and 2004, respectively. If
income on those loans had been accrued,  such income would have approximated $25
and $107 for 2005 and 2004, respectively.


                                      F-18


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      The following is a summary of information pertaining to impaired loans:

                                                            2005          2004
                                                            ----          ----

Impaired loans without a valuation allowance             $     --      $     --
Impaired loans with a valuation allowance                     148           600
                                                         ----------------------
Total impaired loans                                     $    148      $    600
                                                         ======================

Valuation allowance related to impaired loans            $     19      $    119
                                                         ======================

      The valuation  allowance  for impaired  loans is included in the allowance
for credit losses in Note 5.

                                                            2005          2004
                                                            ----          ----
Average investment in impaired loans                      $    497      $  1,127
Interest income accrued on impaired loans                 $     --      $     --
Interest income recognized on a cash
basis on impaired loans                                   $     --      $     --

5.    ALLOWANCE FOR CREDIT LOSSES

      The allowance for credit losses is summarized as follows:

                                                        2005              2004
                                                        ----              ----
Beginning balance                                     $   321           $ 1,302
Additions:
    Provision for credit losses                           290                62
    Recoveries                                             --                65
Deduction-loan charge-offs                               (427)           (1,108)
                                                      -------------------------
Ending balance                                        $   184           $   321
                                                      =========================

      The Company  considers the  allowance for credit losses  adequate to cover
losses inherent in loans and loan commitments at December 31, 2005.  However, no
assurance  can be given that the  Company  will not, in any  particular  period,
sustain  credit losses that are sizable in relation to the amount  reserved,  or
that subsequent evaluations of the loan portfolio,  in light of the factors then
prevailing,  including economic conditions and the Company's ongoing examination
process and that of its regulators,  will not require  significant  increases in
the allowance for credit losses.

6.    RELATED PARTY TRANSACTIONS

      Pursuant to a management agreement (the "Management Agreement"),  approved
by a majority of the Company's disinterested directors,  between the Company and
Steel  Partners  Services,  Ltd.,  ("SPS") (and  subsequently  assigned to Steel
Partners, Ltd., ("SPL")), SPL provides the Company with office space and certain
management,  consulting  and  advisory  services.  The  Management  Agreement is
automatically  renewable on an annual basis unless  terminated  by either party,
for any reason,  upon at least 60 days written notice. The Management  Agreement
also provides that the Company shall indemnify,  save and hold SPL harmless from
and against  any  obligation,  liability,  cost or damage  resulting  from SPL's
actions  under  the terms of the  Management  Agreement,  except  to the  extent
occasioned  by  gross  negligence  or  willful  misconduct  of  SPL's  officers,
directors or employees.

      Pursuant to an Employee Allocation  Agreement between WebBank and SPS (and
subsequently  assigned  to SPL)  dated  March 15,  2001 (the  "First  Allocation
Agreement"), James Henderson, an employee of SPL and an executive officer of the
Company, performed services in the area of management,  accounting and finances,
and  identified  business  opportunities,  and such  other  services  reasonably
requested by WebBank.  Effective October 1, 2004, WebBank and SPL entered into a
new Employee Allocation  Agreement (the "Second Allocation  Agreement") pursuant
to which Mr.  Henderson  continues to perform the same services for WebBank.  In
consideration  of the  services  performed  by Mr.  Henderson  under the  Second


                                      F-19


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

Allocation  Agreement,  Mr.  Henderson's  salary and the cost of  certain  other
benefits are allocated  between  WebBank and SPL based on the percentage of time
devoted by Mr. Henderson to WebBank matters. Unless agreed to by both parties in
writing, the amount paid by WebBank to SPL under the Second Allocation Agreement
in any calendar year may not exceed $100. The Second  Allocation  Agreement will
continue in force until terminated by either of the parties upon 30 days written
notice.

      Prior to March 26, 2002, the original  counterparty to both the Management
Agreement and the First Allocation  Agreement was SPS. As of March 26, 2002, the
Management  Agreement and the First  Allocation  Agreement  described above were
assigned by SPS to SPL and the employees of SPS became  employees of SPL. Warren
Lichtenstein,  the largest beneficial owner of securities of the Company and the
Company's former Chairman and former Chief Executive Officer, is an affiliate of
SPL based on his ownership of SPL,  directly and through Steel, and by virtue of
his  positions as Chairman,  President and Chief  Executive  Officer of SPL. Mr.
Lichtenstein is the sole managing  member of the general  partner of Steel.  Mr.
Lichtenstein disclaims beneficial ownership of the shares of common stock of SPL
owned by Steel (except to the extent of his pecuniary interest in such shares of
common stock).

      In consideration of the services rendered under the Management  Agreement,
SPL charges the Company a fixed monthly fee totaling $310 per annum,  adjustable
annually upon agreement of the Company and SPL. In consideration of the services
provided under the First and Second Allocation  Agreements,  SPL charged WebBank
$100 per annum during the previous two fiscal years. The fees payable by WebBank
are included in the fees payable by the Company under the Management  Agreement.
The cost of obtaining the type and quality of services rendered by SPL under the
Management  Agreement and the First and Second Allocation  Agreements is no less
favorable  than the cost at which the Company and WebBank,  respectively,  could
obtain from unaffiliated entities.

      During the fiscal year ended  December  31,  2005,  SPL billed the Company
fees  with  respect  to  fiscal  2005 of $286 for  services  rendered  under the
Management  Agreement.  Included  in these  fees was $100  paid by  WebBank  for
services rendered under the Second Allocation Agreement.  During the fiscal year
ended December 31, 2004, SPL billed the Company fees with respect to fiscal 2004
of $310 for services rendered under the Management Agreement.  Included in these
fees was $100 paid by WebBank for services  rendered  under the First and Second
Allocation  Agreements.  The fees  payable by WebBank  are  included in the fees
payable by the Company under the Management Agreement.

      Pursuant to a sourcing and servicing agreement (the "Rockland  Agreement")
between WebBank and Rockland Credit Finance LLC ("Rockland"), Rockland performed
both sourcing and servicing  functions on behalf of WebBank related to WebBank's
accounts  receivable  factoring program.  John Fox, the owner of Rockland,  is a
former employee of WebBank.  Rockland  earned $0 and $1,150 in total  management
fees  under  the  terms  of  the  Rockland   Agreement  during  2005  and  2004,
respectively,  under the terms of the Rockland  Agreement.  Management fees were
paid  quarterly  and accrued  monthly by WebBank.  Notices of  termination  were
issued with  respect to the Rockland  Agreement  and other  accounts  receivable
factoring and service arrangements. On December 30, 2004, Rockland exercised its
option to  purchase  from  WebBank  a  portfolio  of  accounts  receivable  (the
"Receivables")  from WebBank in connection  with the termination of the Rockland
Agreement  between WebBank and Rockland.  The Receivables were purchased at book
value from WebBank  pursuant to that certain Asset  Purchase and  Assignment and
Assumption  Agreement  for an  aggregate  purchase  price of $5,791,  subject to
certain  specified  adjustments.   Specifically,  Rockland  purchased  specified
factoring  accounts held by WebBank,  all of WebBank's right, title and interest
under  specified  factoring  agreements and  participation  agreements and other
agreements,  arrangements,  commitments and understandings related thereto or to
the Receivables,  all of which were acquired by WebBank pursuant to the Rockland
Agreement (the "Contracts"). Rockland also assumed and agreed to pay and perform
all  obligations  of WebBank under the Contracts and otherwise in respect of the
purchased assets arising on and after the closing date.


                                      F-20


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

7.    CERTIFICATES OF DEPOSIT

      Certificates  of deposit at December 31, 2005 and 2004 are  summarized  as
follows:

                                         Weighted                      Weighted
                                       average rate      2005        average rate      2004
                                       ------------      ----        ------------      ----

Certificates of deposit
greater than $100                          4.20%      $   999            1.96%       $ 8,722
Other certificates of deposit                --            --              --             --
                                                      -------                        -------
                                           4.20%      $   999            1.96%       $ 8,722
                                                      =======                        =======

      Maturities  of  certificates  of deposit as of  December  31,  2005 are as
follows:

    Year ending December 31,
              2006                              $     999
                                                =========

8.    SHORT-TERM BORROWINGS

      In April 2002,  WebBank  obtained a secured  federal  funds line of credit
(the "line of  credit")  for $500 with a  commercial  bank.  The  interest  rate
approximated  the federal  funds  rate.  The  security  consisted  of  WebBank's
investment  portfolio of mortgage backed securities.  In March 2003, the secured
line of credit was replaced by an  unsecured  line of credit for the same amount
with the same bank. In May 2004,  the unsecured  line of credit was increased to
$1,000.  The line of credit was  utilized a total of 12 days  during  2004.  The
maximum  utilization  on any day was $310, and the maximum number of consecutive
days the line of credit  was  utilized  was 4 days.  The line of credit  was not
utilized in 2005. At December 31, 2005,  the line of credit was  available  with
the same terms.

9.    PREMISES AND EQUIPMENT

      Premises  and  equipment  balances  at  December  31,  2005  and  2004 are
summarized as follows:

                                                            2005          2004
                                                            ----          ----
Leasehold improvements                                   $     39      $     39
Furniture and equipment                                        98            92
                                                         ----------------------
                                                              137           131
Less accumulated depreciation and amortization               (121)         (110)
                                                         ----------------------

                                                         $     16      $     21
                                                         ======================


                                      F-21


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

10.   LOSS PER SHARE

      The  following  data was used in  computing  loss per  share  shown in the
Consolidated  Statements  of  Operations.  The  number  of  shares  used  in the
computation  of basic and diluted  income  (loss) per share for 2004 reflect the
retroactive  effect of the reverse stock split  described in Note 22 (amounts in
thousands except share data):

                                                                                 Year ended
                                                                                 ----------
                                                                           2005              2004
                                                                           ----              ----

Loss available to common shareholders                                  $    (1,378)      $      (930)
                                                                       =============================
                                   BASIC
Shares
        Common shares outstanding entire period                          2,183,366         1,091,717
        Weighted average common shares:
                 Issued during period                                           --           403,785
                 Canceled during period                                         --                --
                                                                       -----------------------------
Weighted average common shares outstanding during period - basic         2,183,366         1,495,502
                                                                       =============================
Loss per common share - basic                                          $     (0.63)      $     (0.62)
                                                                       =============================

                                  DILUTED
Shares
Weighted average common shares outstanding during period - basic         2,183,366         1,495,502
Dilutive effect on in the money stock options                                   --                --
                                                                       -----------------------------
Weighted average common share outstanding during period - diluted        2,183,366         1,495,502
                                                                       =============================
Loss per common share - diluted                                        $     (0.63)      $     (0.62)
                                                                       =============================

Potential dilutive shares not used in dilutive EPS:
  Outstanding stock options not in the money                                    --            8,712
  Outstanding stock options in the money but antidilutive
    because of net loss for the period                                       5,744            3,282

11.   STOCK OPTIONS

      The grants of certain stock-based incentives and other equity interests to
employees,  directors,  and consultants  were approved by the Board of Directors
under the Company's stock option plan. A maximum of 250,000 shares may be issued
under  the  plan.  The  options  are  vested  according  to  varied   schedules,
exercisable  when vested,  and expire five years from the date of  issuance.  At
December 31, 2005,  there were 243,194  options  remaining in the plan available
for granting. The following table summarizes stock option activity:


                                      F-22


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

                                                      Year ended December 31, 2005      Year ended December 31, 2004
                                                      ----------------------------      ----------------------------
                                                     Number of                        Number of
                                                      shares      Weighted average      shares       Weighted average
                                                    (1,000's)      Exercise Price     (1,000's)       Exercise Price
                                                    ---------      --------------     ---------       --------------

Options outstanding at beginning of year                 12             $11.60             23             $17.92
Options granted                                          --             $   --             --             $   --
Options cancelled                                        (6)            $13.75            (11)            $24.68
Options exercised                                        --             $   --             --             $   --
                                                    -------                           -------
Options outstanding at year end of year                   6             $ 9.26             12              11.60
                                                    =======                           =======
Options exercisable at end of year                        6             $ 9.26             12              11.60
Weighted average fair value of options
       granted during the year (all at market)                             N/A                               N/A

      The following table summarizes  information about stock options with fixed
terms outstanding at December 31, 2005.

                                        Options outstanding                  Options exercisable
                                        -------------------                  -------------------
                                  Number of        Weighted                     Number of
                                 outstanding       average       Weighted      exercisable    Weighted
                                  (000's) at      remaining      average        (000's) at    average
                                   December      contractual     exercise        December     exercise
  Range of Exercise Prices         31, 2005     Life in Years    price ($)       31, 2005     price ($)
  ------------------------         --------     -------------    ---------       --------     ---------
$6.00 to $8.40                           3           1.56           7.87               3         7.87
$10.20 to $12.13                         3           0.57          11.12               3        11.12
                                    ------                                        ------
                                         6                          9.26               6         9.26
                                    ======                                        ======

12.   EMPLOYEE BENEFITS

      WebBank has a 401(k) profit sharing plan,  covering employees who meet age
and service  requirements.  Plan  participants vest ratably and are fully vested
after five years of service.  WebBank matches employee  contributions up to five
percent of covered compensation at sixty percent of the employee's contribution.
Contributions  to the plan amounted to  approximately  $23 and $47 for the years
ended December 31, 2005 and 2004, respectively.

      The Bank has established Stock  Appreciation  Rights ("SAR's")  agreements
for certain  officers of the Bank. The agreements were established to reward the
executives  for past and future  services  performed  on behalf of the Bank,  by
providing each executive with supplemental income. The benefit amounts are based
on the  appreciation  in the book value of WebBank  stock from the grant date to
the date of exercise. The stock appreciation rights vest 50 percent on the third
anniversary  of the  grant  date  and the  remaining  50  percent  on the  fifth
anniversary  of the grant  date.  If the  ownership  of the Bank has a change in
control,  the rights become fully vested and exercisable.  During the year ended
December 31, 2005 and December 31, 2004, there was $0 and $3,  respectively,  in
compensation expense related to these agreements.

      During 2005 15,000 SAR's were granted,  no SAR's were granted in 2004. For
the year ending December 31, 2005 there were 85,000 SAR's outstanding,  of which
50,000 SAR's were vested.  The value of the exercisable and unexercisable  SAR's
granted is $0;  therefore,  no  adjustments  have been made to the  accompanying
financial statements.


                                      F-23


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

13.   INCOME TAXES

      Income tax expense consisted of the following:

                                                    2005             2004
                                                    ----             ----

      Current                                    $      4         $     37
      Deferred                                        214              454
                                                 --------         --------
                                                 $    218         $    491
                                                 ========         ========

      A reconciliation of income tax expense  (benefit)  computed at the federal
statutory rate of 34% is as follows:

                                                        2005              2004
                                                        ----              ----

Federal income taxes                                 $   (371)         $   (171)
State income taxes                                        (36)              (17)
Change in valuation allowance                             581               142
Alternative tax 2003 and 2004                              --                37
Write off of goodwill                                      --               514
Other                                                      44               (14)
                                                     --------------------------
                                                     $    218          $    491
                                                     ==========================

      The tax effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and liabilities were as follows:

                                           December 31, 2005   December 31, 2004
                                           -----------------   -----------------
Deferred tax assets
  Net operating loss carry forward              $ 15,045           $ 14,475
  Accrued vacation                                     1                  8
  Accrued bonus                                       19                 --
  Allowance for loan losses                           69                289
  Premises and equipment                              11                  6
                                                ---------------------------
    Total deferred tax assets                     15,145             14,778
    Less valuation allowance                     (15,056)           (14,475)
                                                ---------------------------
  Net deferred tax assets                       $     89           $    303
                                                ===========================

      The net  change  in the  total  valuation  allowance  for the  year  ended
December  31, 2005 was an increase of $581.  From its  inception in 1998 through
the end of 2001,  WebBank  experienced a history of inconsistent  earnings which
made it "more  likely  than not" that some  portion or all of its  deferred  tax
assets would not be realized.  Therefore, a valuation allowance for deferred tax
assets was  established in accordance with SFAS 109. As of December 31, 2004 and
2005, the Company  determined that the lack of new lines of business in the Bank
to replace the  accounts  receivable  factoring  line of business  made it "more
likely than not" that the net  operating  loss portion of the deferred tax asset
would not be realized. Therefore, a valuation allowance was established to cover
the  portion of  WebBank's  deferred  tax assets  related to its  remaining  net
operating loss portion, leaving a net deferred tax asset balance of $89 and $303
for the years ended December 31, 2005 and 2004, respectively.


                                      F-24


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      At December 31, 2005, the Company had net operating loss carry forwards of
approximately  $40,000 that are scheduled to expire from 2009 through 2021.  The
Company has treated such net operating  losses incurred prior to April 28, 1995,
when there was a material change in ownership of a 5% shareholder, in accordance
with Section  382(l)(5)  of the Internal  Revenue  Code.  As a result,  there is
approximately  $19,000 in net operating  losses incurred prior to April 28, 1995
as  well  as  $21,000  incurred  subsequent  to  April  28,  1995  available  as
carryovers.  All net operating  losses may be subject to certain  limitations on
utilization.

14.   DISCLOSURES ABOUT THE FAIR VALUES OF FINANCIAL INSTRUMENTS

      The following methods and assumptions were used to estimate the fair value
of each class of financial  instruments  for which it is practicable to estimate
that value:

CASH AND CASH EQUIVALENTS

      For those cash equivalents,  the carrying amount is a reasonable  estimate
of fair value. Securities that are held in a short position are recorded at fair
value as Cash and short term  investments on the balance sheet.  Fair values are
based on quoted market  prices,  if  available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

INVESTMENT SECURITIES

      For marketable equity securities held for investment purposes, fair values
are based on quoted market prices or dealer quotes. For other securities held as
investments,  fair value equals quoted market price,  if available.  If a quoted
market  price is not  available,  fair value is estimated  using  quoted  market
prices for similar securities.

INVESTMENTS

      These  investments  are  highly  illiquid  (see Note 17).  Because  of the
absence of active markets the carrying  amount is a reasonable  estimate of fair
value.

LOANS AND PURCHASED RECEIVABLES

      The  fair  value  of loans  and  purchased  receivables  is  estimated  by
discounting the future cash flows using the current rates at which similar loans
would  be made  to  borrowers  with  similar  credit  ratings  and for the  same
remaining maturities.

DEPOSITS

      The fair value of demand,  NOW, and MMMA deposits is the amount payable on
demand at the reporting date. The fair value of  fixed-maturity  certificates of
deposit is estimated using the rates  currently  offered for deposits of similar
remaining maturities.


                                      F-25


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

ACCRUED INTEREST RECEIVABLE AND PAYABLE

      The  carrying  amount of  accrued  interest  receivable  and  payable is a
reasonable  estimate  of fair  value  due to the  short  term  nature  of  these
instruments.

OTHER ASSETS - RECEIVABLE COMMERCIAL LOANS

      The carrying  amount of other assets -  receivable  commercial  loans is a
reasonable  estimate  of fair  value  due to the  short  term  nature  of  these
instruments.

CUSTODIAL PAYABLE - COMMERCIAL LOANS

      The  carrying  amount of the  custodial  payable -  commercial  loans is a
reasonable  estimate  of fair  value  due to the  short  term  nature  of  these
instruments.

The estimated fair values of the Company's financial instruments are as follows:

                                                                      2005                              2004
                                                                      ----                              ----
                                                        Carrying Amount    Fair Value     Carrying Amount    Fair Value
                                                        ---------------    ----------     ---------------    ----------

Financial assets:

   Cash and short-term investments                           $ 8,521        $ 8,521           $ 22,181       $ 22,181

   Investment securities                                       2,659          4,691              2,712          2,712

   Investments                                                 4,596          4,596              1,200          1,200

   Loans and purchased receivables                             7,663          7,633              5,950          5,950

   Less:  allowance for credit losses                           (184)            --               (321)            --
                                                             --------------------------------------------------------

   Total loans, net of allowance                               7,479          7,633              5,629          6,699

   Accrued interest receivable                                   118            118                 40             40

   Other assets - receivable commercial loans                    383            383                312            312

Financial liabilities:

   Deposits                                                      999          1,006              8,772          8,695

   Interest payable                                                2              2                 --             --

   Custodial payable - Commercial loans                          722            722                154            154

15.   COMMITMENTS AND CONTINGENCIES

LEASES

      The Company  leased office space in one building in 2005 and 2004 under an
operating lease agreement.  Rental expense for the years ended December 31, 2005
and 2004 were $110 and $109,  respectively.  At December  31,  2005,  the office
space is being leased on a month-to-month basis.

CREDIT-RELATED FINANCIAL INSTRUMENTS

      The Company is a party to financial  instruments  with  off-balance  sheet
risk.  In the normal course of business,  these  financial  instruments  include
commitments to extend credit in the form of loans or through  letters of credit.
Those  instruments  involve to varying degrees,  elements of credit and interest
rate risk in excess of the amount  recognized on the balance sheet. The contract
amounts of those  instruments  reflect the extent of involvement the Company has
in particular classes of financial instruments.


                                      F-26


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      The Company's  exposure to credit loss in the event of  nonperformance  by
the other party to the financial  instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policy in making commitments and conditional  obligations as it does
for on-balance sheet instruments.

      At December 31, 2005 and 2004, the Company's  undisbursed  commercial loan
commitments totaled $0. For the same periods, the Company's undisbursed consumer
credit card loan commitments totaled $0.

      Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since  certain of the  commitments  are  expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness on a case-by-case  basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on  management's  credit
evaluation of the borrower.

LITIGATION

      In January 2000, Andrew Winokur, a former executive officer,  director and
stockholder of Praxis Investment Advisors, Inc. ("Praxis"), one of the Company's
subsidiaries,  filed a lawsuit in the Superior Court of the State of California,
County  of Napa.  The  lawsuit  alleged  that  Praxis  breached  its  employment
agreement with Mr. Winokur.  The lawsuit also asserted  claims for  interference
with contract and unjust enrichment based upon his alleged wrongful termination.
The lawsuit  sought  damages of an  unspecified  amount and compliance by Praxis
with the termination pay-out provisions in Mr. Winokur's employment agreement.

      On March 4, 2002,  the lawsuit was submitted to binding  arbitration.  The
panel  found no breach of  contract  and no  intentional  interference  with Mr.
Winokur's  contractual  rights.  However,  the panel found that Mr.  Winokur was
potentially  entitled to certain  amounts  under his  employment  agreement.  On
February  1, 2006,  the Company  purchased  from Mr.  Winokur  and Nicole  Cohen
Winokur  their  shares of  Common  Stock of  WebBank.  In  connection  with this
transaction,  the lawsuit was dismissed and the parties released each other from
any  liability  of any kind and nature in  connection  with any  matter  arising
through the date of the  transaction,  including any claims under the employment
agreement. As a result of the transaction, the Company now owns 100% of WebBank.

16.   REGULATORY REQUIREMENTS

      WebBank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate  certain  actions by regulators  that, if undertaken,  could have a
direct  material  effect  on the  Bank's  financial  statements.  Under  capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Bank  must  meet  specific  capital  guidelines  that  involve  quantitative
measures of the Bank's assets, liabilities,  and certain off-balance sheet items
as calculated under regulatory accounting practices.  The Bank's capital amounts
and classification  are also subject to qualitative  judgments by the regulators
about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of Total and Tier I
capital (as defined in the  regulations) to  risk-weighted  assets (as defined),
and of Tier I capital (as defined) to average quarterly assets (as defined).

      The Order, as described in Note 2, requires WebBank to develop and adopt a
plan to meet and thereafter maintain minimum risk-based capital  requirements as
described in FDIC Rules and Regulations. However, The Order does not prescribe a
specific  minimum level of capital that the Bank needs to meet. As stated above,
minimum requirements are subject to qualitative  judgments by the regulators and
can be applied on a bank by bank basis.  While under the Order,  the Bank is not
considered well capitalized under Prompt Corrective Action Guidelines.


                                      F-27


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

Capital  amounts and ratios of WebBank as of the dates  indicated are summarized
as follows,  along with standard regulatory guidelines for banks having the same
risk  weighted and average  asset  levels as WebBank on those dates  (dollars in
thousands):

                                                                                        To Be
                                                                                      Adequately             To Be Well
                                                                                     Capitalized            Capitalized
                                                                                        Under                  Under
                                                                                        Prompt                 Prompt
                                                                                      Corrective             Corrective
                                                                                        Action                 Action
                                                               Actual                 Guidelines             Guidelines
                                                              ---------------------------------------------------------------------
                                                               Amount       Ratio       Amount       Ratio      Amount       Ratio
                                                               ------       -----       ------       -----      ------       -----

AS OF DECEMBER 31, 2005:

  Total Capital (Tier 1 + Tier 2) to risk weighted assets     $ 5,022       99.9%        $ 402        8.0%       $ 503       10.00%
  Tier I Capital to risk weighted assets                        4,958       98.6%          201        4.0%         302        6.00%
  Tier I Capital to average assets (Leverage Ratio)             4,958       79.3%          250        4.0%         313        5.00%

AS OF DECEMBER 31, 2004:

  Total capital (Tier 1 + Tier 2) to risk weighted assets     $ 6,119       84.7%        $ 578        8.0%       $ 722        10.0%
  Tier I Capital to risk weighted assets                        6,027       83.4%          289        4.0%         433         6.0%
  Tier I Capital to average assets (Leverage Ratio)             6,027       36.0%          670        4.0%         838         5.0%

17.   INVESTMENTS

      The Company invests from time to time portions of its unallocated  cash to
investments  which are not associated with WebBank and the Company  believes are
prudent  and  provide  appropriate  risk/reward  opportunities.  Many  of  these
investments have been and currently are illiquid.

      The Company owned three  investments as of December 31, 2005 and 2004 that
are accounted for under APB 18. Two of these, totaling $200 at December 31, 2005
and 2004, are equity investments in a limited  partnership and limited liability
corporation and are considered to be highly illiquid.  Both of these investments
represent  a small  percentage  of  ownership  in the related  entities  and are
accounted for under the cost method of accounting.

      The third  investment in ACDI.OB is related to stock  purchased  through a
private placement and subject to Rule 144 of the Securities Exchange Act of 1934
(Rule 144).  At December 31, 2005 and 2004,  the  Company's  investment  totaled
$1,000. The investment  consists of 4,000,000 shares of common stock and 400,000
warrants.  The stock is not yet  registered  and is  restricted  under Rule 144.
Furthermore, the stock is subject to a voting restriction that has no expiration
date.  It is  considered  to be illiquid due to  registration  restrictions  and
limited trading  volumes.  In order to sell any shares of this stock the Company
must receive  written  approval from the issuing company under the voting rights
restrictions.  As a result,  as of December  31,  2005,  the  Company  could not
establish a reasonable expectation that they would be able to sell any shares of
this  stock  in the  upcoming  year.  Therefore,  as of  December  31,  2005 the
investment,  or  4,000,000  shares,  was  recorded  at  a  cost  of  $1,000,000.
Subsequent to year end, the Company  received  approval to have the voting right
restriction removed on 800,000 shares in two separate transactions.  On February
14, 2006, the  Company  exercised  warrants to  purchase  an  additional  76,320
restricted shares of the investment, for $38. In February 2006, the Company sold


                                      F-28


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      300,000 of the  restricted  shares for a gain of $741.  On March 23, 2006,
the Company  exercised  warrants to purchase an  additional  100,000  restricted
shares of the  investment,  for $50.  During  April of 2006,  the  Company  sold
461,700 of the  restricted  shares of this same  investment for a gain of $1,327
and 38,300 shares,  were used to cover a short position on this same security in
another investment account held by the Company. Despite these subsequent events,
the Company  cannot  reasonably  estimate if and when  additional  voting  right
restrictions will be removed and will continue to account for this investment at
cost. At December 31, 2005, the unrestricted per share market price was $2.54.

      During the third  quarter of 2005,  the Company made an  investment,  as a
limited  partner,  of  $3,396  in a newly  formed  real  estate  master  limited
partnership  (RELP).  The RELP can invest in certain Japanese real estate assets
such as hotels,  social  buildings and other real estate  properties.  There are
currently 4 investors in the RELP.  The $3,396  invested by the  Company,  along
with  investments  from the other  partners,  was used to purchase  two Japanese
hotels.  One of those hotels  requires  significant  renovations and the RELP is
seeking  financing for those  renovations on behalf of the RELP. The Company has
committed to invest up to $6,000 in total in the RELP. The sourcing of the hotel
properties,  the direct  oversight of the  management of the hotels,  as well as
securing  any  necessary  financing  for the  hotels  owned by the RELP is being
performed by a professional  Japanese real estate advisory  company.  The market
for these  types of  Japanese  real  estate  investments  is  considered  highly
illiquid.

18.   OTHER ASSETS

      In  connection  with  certain   businesses  in  which  the  Company  sells
originated  or purchased  loans with  servicing  retained,  servicing  assets or
liabilities  are  recorded  based on the  relative  fair value of the  servicing
rights on the date the loans are sold.  Servicing  assets  and  liabilities  are
amortized in proportion to and over the period of estimated net servicing income
and expense.  At December 31, 2005 and 2004,  net  servicing  assets,  which are
included in other assets,  were $0 and $13,  respectively.  Servicing assets are
periodically  evaluated for impairment  based on the fair value of those assets.
During 2005 and 2004, the Company recorded no additional  servicing assets,  and
recorded $13 and $18 of amortization,  respectively.  As a result of foreclosure
on certain  government  loans,  the Bank is responsible to liquidate the related
loan  collateral.  In  conjunction  with  these  foreclosures,  the Bank  incurs
expenses and records a receivable due from the government  related to the Bank's
guaranteed  portion of the expenses as  incurred.  At December 31, 2005 and 2004
the receivable was $383 and $312, respectively.

19.   MISCELLANEOUS INCOME

      Miscellaneous  income for the year ended  December  31, is  summarized  as
follows:

                                                  2005            2004
                                                  ----            ----

      Loan servicing fees                       $     40        $    848
      Other                                           10              54
                                                ------------------------
                                                $     50        $    902
                                                ========================

20.   OPERATING SEGMENT INFORMATION

      Operating  segments  represent  components  of an  enterprise  about which
separate financial  information is available that is evaluated  regularly by the
chief  operating  decision  maker in deciding how to allocate  resources  and in
assessing performance.

      The Company  evaluates  segment  performance  internally based on lines of
business  and  the  operating  segments  are so  defined.  Until  the  purchased
receivables  portfolio was sold on December 30, 2004, the Company recognized two
operating  segments.  The first was the accounts  receivable  factoring  program
operated by WebBank.  The second  operating  segment,  termed "other," and which
continues to exist subsequent to December 30, 2004, includes commercial lending,
fee for services, and investment  activities.  Income generated from investments
in factoring  receivables by Company  entities other than WebBank is included in
the "other" operating  segment.  For the years ended December 31, 2005 and 2004,
factoring  income  earned  by  entities  other  than  WebBank  was  $0  and  $6,
respectively.


                                      F-29


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

      The following is a summary of selected  operating segment  information for
the years ended December 31, 2005 and 2004. The information represents operating
results as if the segments  were operated on a stand alone basis.  However,  the
results do not reflect a full allocation of costs based on the current structure
of the  entities,  and  thus  the  results  might  not  be  comparable  to  like
information from other companies.

                                                                 Accounts
                                                                Receivable                  Consolidated
                                                                Factoring        Other        Company
                                                                ---------        -----        -------

                            2005
                            ----
      Operations Statement Information (Annual):
      Net interest income after provision for credit losses      $     --      $    688       $    688
      Noninterest income                                               --           518            518
      Noninterest expense                                              --         2,454          2,454
                                                                 -------------------------------------
      Operating loss                                                   --        (1,248)        (1,248)
      Income taxes                                                     --           218            218
      Loss attributable to minority interest                           --            88             88
                                                                 -------------------------------------
      Net loss                                                   $     --      $ (1,378)      $ (1,378)
                                                                 -------------------------------------

      Balance Sheet Information (As of December 31):
      Total assets                                               $     --      $ 24,368       $ 26,364
      Net loans and leases                                       $     --      $  7,479       $  7,595
      Deposits                                                   $     --      $    999       $    999

                            2004
                            ----
      Operations Statement Information (Annual):
      Net interest income after provision for credit losses      $  1,921      $  1,289       $  3,210
      Noninterest income                                              649           656          1,305
      Noninterest expense                                           1,208         3,810          5,018
                                                                 -------------------------------------
      Operating income (loss)                                       1,362        (1,865)          (503)
      Income taxes                                                     --           491            491
      Loss attributable to minority interest                           --            64             64
                                                                 -------------------------------------
      Net income (loss)                                          $  1,362      $ (2,292)      $   (930)
                                                                 -------------------------------------

      Balance Sheet Information (As of December 31):
      Total assets                                               $     --      $ 33,010       $ 33,010
      Net loans and leases                                       $     --      $  5,629       $  5,629
      Deposits                                                   $     --      $  8,722       $  8,722


                                      F-30


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

21.   QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                                                Quarter Ended                             Total
                                                                                -------------                             -----

                                                              March 31,    June 30,    September 30,   December 31,    December 31,
                                                              ---------    --------    -------------   ------------    ------------

                          2005
- ------------------------------------------------------
$(000) except per share
Net interest income after provisions for credit losses         $   215     $    54        $   259        $   160         $   688
Noninterest income                                                 118         114            137            149             518
Noninterest expenses                                               654         533            556            711           2,454
Net loss                                                          (315)       (286)          (410)          (367)         (1,378)
Net loss per share - basic and diluted                           (0.14)      (0.13)         (0.19)         (0.17)          (0.63)

                          2004
- ------------------------------------------------------
$(000) except per share
Net interest income after provisions for credit losses         $   920     $   969        $  (421)       $ 1,742         $ 3,210
Noninterest income                                                 215         321            297            472           1,305
Noninterest expenses                                             1,213         920            281          2,604           5,018
Net income (loss)                                                 (175)        239           (255)          (739)           (930)
Net income (loss) per share - basic and diluted                  (0.16)       0.22          (0.20)         (0.48)          (0.62)

22.   STOCKHOLDERS' EQUITY

      At the 2004 annual  meeting of  stockholders  on December  15,  2004,  the
Company's  stockholders  approved a reverse split of the Company's  common stock
and a  reduction  of the  Company's  authorized  number of shares of common  and
preferred stock. At that time, neither the final amounts nor the effective dates
were determined for the approved actions.  On March 9, 2005, the Company's Board
of Directors  approved a  one-for-four  reverse stock split,  a reduction of the
Company's  authorized  number  of  shares of common  stock  from  50,000,000  to
5,000,000 shares,  and a reduction of the Company's  authorized number of shares
of preferred  stock from  10,000,000  to 500,000  shares.  The reverse split was
effective  on April 5, 2005 for  shareholders  of record on April 4,  2005.  The
reductions  of authorized  number of shares of common and  preferred  stock were
also effective on April 5, 2005. After giving effect to the reverse split, there
were 2,183,433 common shares issued and outstanding.

23.   GOODWILL

      At December 31, 2004, a third party valuation test was performed,  also in
accordance with SFAS 142. The absence of a market proxy for the value of WebBank
resulted in reliance on an income approach for the valuation.  However, the sale
of the accounts receivable  factoring portfolio combined with WebBank's Order to
Cease and Desist (see Note 2 of the Notes to Consolidated  Financial Statements)
caused  uncertainty  regarding  the timing and nature of replacing  that product
line. Therefore, projections of future cash flows could not support the value of
goodwill,  and the  remaining  $1,380 of goodwill was written off as of December
31, 2004.


                                      F-31


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands except share data )
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

24.   SUBSEQUENT EVENTS

      On February 6, 2006, the Company acquired the 7% minority  interest in its
subsidiary,  WebBank, for $390. The Company will account for this sale under the
purchase  method of accounting and expects to take a charge in the first quarter
of 2006, of $43 related to excess paid over book value.

      As of April 15, 2006 , the Company has  exercised  warrants to purchase an
additional 176,320 restricted shares of an investment, reported in other assets,
for $88.  The Company also sold  800,000 of the  restricted  shares of this same
investment  for a gain of $2,068.  At December 31, 2005,  the carrying  value of
this  investment  was  $1,000,  valued  at  cost,  and  consisted  of  4,000,000
restricted shares and 400,000 warrants (note 17).


                                      F-32

EX-23.1

                                                                    EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated April 14, 2006,  accompanying  the  consolidated
financial  statements included in the Annual Report of WebFinancial  Corporation
and  Subsidiaries on Form 10-KSB for the year ended December 31, 2005. We hereby
consent to the  incorporation  by reference  of said report in the  Registration
Statement of WebFinancial Corporation on Form S-8 (File No. 33-335606, effective
April 26, 2000).

/s/GRANT THORNTON LLP



Salt Lake City, Utah
April 21, 2006

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

                            Section 302 Certification

I, James R. Henderson, certify that:

1. I have reviewed this annual report on Form 10-KSB of WebFinancial
Corporation, a Delaware corporation;

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 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 small business
issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer 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 small business issuer 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 small business issuer,
      including its consolidated subsidiaries, is made known to us by others
      within those entities, particularly during the period in which this report
      is being prepared;

      (b) Evaluated the effectiveness of the small business issuer's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and

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

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

      (a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer's ability
      to record, process, summarize and report financial information; and

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

Date: April 21, 2006
                                                  By: /s/ James R. Henderson
                                                      --------------------------
                                                      James R. Henderson
                                                      Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

                            Section 302 Certification

I, Glen M. Kassan, certify that:

1. I have reviewed this annual report on Form 10-KSB of WebFinancial
Corporation, a Delaware corporation;

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 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 small business
issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer 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 small business issuer 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 small business issuer,
      including its consolidated subsidiaries, is made known to us by others
      within those entities, particularly during the period in which this report
      is being prepared;

      (b) Evaluated the effectiveness of the small business issuer's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and

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

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

      (a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer's ability
      to record, process, summarize and report financial information; and

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

Date: April 21, 2006
                                  By: /s/ Glen M. Kassan
                                      ------------------------------------------
                                      Glen M. Kassan
                                      Vice President and Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350),
the undersigned, James R. Henderson, Chief Executive Officer of WebFinancial
Corporation, a Delaware corporation (the "Company"), does hereby certify, to his
knowledge, that:

The Annual Report on Form 10-KSB for the year ended December 31, 2005 of the
Company (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.


                                                  /s/ James R. Henderson
                                                  ------------------------------
                                                  James R. Henderson
                                                  Chief Executive Officer
                                                  April 21, 2006

EX-32.2

                                                                    EXHIBIT 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350),
the undersigned, Glen M. Kassan, Vice President and Chief Financial Officer of
WebFinancial Corporation, a Delaware corporation (the "Company"), does hereby
certify, to his knowledge, that:

The Annual Report on Form 10-KSB for the year ended December 31, 2005 of the
Company (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.


                                      /s/ Glen M. Kassan
                                      ------------------------------------------
                                      Glen M. Kassan
                                      Vice President and Chief Financial Officer
                                      April 21, 2006