MEDALLION FINANCIAL CORP - 10-Q Quarterly Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

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

For the transition period from_______________to_______________

Commission file number 0-27812

MEDALLION FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

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

437 Madison Ave, New York, New York (Address of principal executive offices)		10022 (Zip Code)

(212) 328-2100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Number of shares of Common Stock outstanding at the latest practicable date, November 13, 2002:

Class Outstanding	Par Value		Shares Outstanding

Common Stock	$	.01	18,242,728

MEDALLION FINANCIAL CORP.

FORM 10-Q

INDEX

PART I					3

FINANCIAL INFORMATION					3

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS					3

CONSOLIDATED STATEMENTS OF OPERATIONS					4
CONSOLIDATED BALANCE SHEETS					5
CONSOLIDATED STATEMENTS OF CASH FLOWS					6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS					7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS					21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK					50

ITEM 4. CONTROLS AND PROCEDURES					50

PART II					50

OTHER INFORMATION					50

ITEM 1. LEGAL PROCEEDINGS					50
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS					50
ITEM 3. DEFAULTS UPON SENIOR SECURITIES					50
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS					50
ITEM 5. OTHER INFORMATION					51
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K					51

SIGNATURES					52

PART I

FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PREPARATION

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

The financial information is divided into two sections. The first section, Item 1, includes the unaudited consolidated financial statements of the Company including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2002.

The consolidated balance sheet of the Company as of September 30, 2002, the related consolidated statements of operations for the three and nine months ended September 30, 2002, and the consolidated statement of cash flows for the nine months ended September 30, 2002 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three and nine months ended September 30, 2002 or for any other interim period may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Interest and dividend income on investments	$	7,856,537		$	6,721,202		$	25,840,839		$	31,464,181
Interest income on short-term investments		106,280			313,450			324,314			562,759

Total investment income		7,962,817			7,034,652			26,165,153			32,026,940

Notes payable to banks		3,040,407			4,325,065			10,043,125			15,810,256
SBA debentures		989,179			668,842			2,768,238			1,553,597
Senior secured notes		600,684			839,116			2,493,862			2,499,908
Revolving line of credit		380,537			—			380,537			—
Commercial paper		—			1,951			4,167			184,767

Total interest expense		5,010,807			5,834,974			15,689,929			20,048,528

Net interest income		2,952,010			1,199,678			10,475,224			11,978,412

Gain on sale of loans		147,295			228,417			735,514			920,953
Other income (loss)		772,083			(795,160	)		3,825,975			1,213,083

Total noninterest income (loss)		919,378			(566,743	)		4,561,489			2,134,036

Salaries and benefits		2,220,918			2,304,545			6,958,765			7,140,852
Professional fees		557,842			826,974			2,074,370			1,808,558
Amortization of goodwill		—			253,606			—			521,227
Costs of debt extinguishment		5,870,517			—			8,972,299			—
Other operating expenses		1,814,863			1,611,276			5,205,779			3,764,953

Total operating expenses		10,464,140			4,996,401			23,211,213			13,235,590

Net investment income (loss)		(6,592,752	)		(4,363,466	)		(8,174,500	)		876,858

Net realized losses on investments		(975,416	)		(1,002,839	)		(5,044,686	)		(2,503,800	)
Net change in unrealized appreciation (depreciation) on investments		(747,249	)		(3,685,547	)		487,725			(2,719,550	)

Net realized/unrealized loss on investments		(1,722,665	)		(4,688,386	)		(4,556,961	)		(5,223,350	)
Income tax provision (benefit)		68,323			(65,662	)		68,323			(13,789	)

Net decrease in net assets resulting from operations	$	(8,383,740	)	$	(8,986,190	)	$	(12,799,784	)	$	(4,332,703	)

Net decrease in net assets resulting from operations per share
Basic		($0.46	)		($0.49	)		($0.70	)		($0.27	)
Diluted		(0.46	)		(0.49	)		(0.70	)		(0.27	)

Weighted average common shares outstanding
Basic		18,242,728			18,241,383			18,242,728			16,022,814
Diluted		18,242,728			18,241,383			14,242,728			16,022,814

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

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	September 30, 2002			December 31, 2001

Assets
Medallion loans	$	202,461,476		$	252,674,634
Commercial loans		169,339,795			199,328,787
Equity investments		4,803,773			3,591,962

Net investments		376,605,044			455,595,383
Investment in and loans to Media		5,382,538			6,658,052

Total investments		381,987,582			462,253,435

Cash		21,047,955			25,409,058
Accrued interest receivable		4,018,798			3,989,989
Servicing fee receivable		2,975,167			3,575,079
Fixed assets, net		1,624,764			1,933,918
Goodwill, net		5,007,583			5,007,583
Other assets, net		16,726,496			5,586,720

Total assets	$	433,388,345		$	507,755,782

Liabilities
Accounts payable and accrued expenses	$	5,632,067		$	7,105,309
Dividends payable		—			1,643,656
Accrued interest payable		4,528,119			2,138,240
Revolving line of credit		101,329,935			—
Notes payable to banks		85,535,985			233,000,000
Senior secured notes		6,933,025			45,000,000
SBA debentures		67,845,000			43,845,000

Total liabilities		271,804,131			332,732,205

Shareholders’ equity
Preferred stock (1,000,000 shares of $0.01 of par value stock authorized - none outstanding)		—			—
Common stock (50,000,000 shares of $0.01 par value stock authorized -18,242,728 and 18,242,035 shares outstanding at September 30, 2002 and December 31, 2001, respectively)		182,421			182,421
Capital in excess of par value		183,724,181			184,486,259
Accumulated net investment losses		(22,322,388	)		(9,645,103	)

Total shareholders’ equity		161,584,214			175,023,577

Total liabilities and shareholders’ equity	$	433,388,345		$	507,755,782

Number of common shares		18,242,728			18,242,035
Net asset value per share	$	8.86		$	9.59

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

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Nine months ended September 30,

		2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations		$	(12,799,784	)	$	(4,332,703	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by (used in) operating activities:
	Depreciation and amortization		454,319			445,763
	Amortization of goodwill		—			521,227
	Amortization of loan origination costs		1,023,491			884,090
	Increase in net unrealized (appreciation) depreciation on investments		(3,757,520	)		909,840
	Net realized loss on investments		5,044,686			2,503,800
	Net realized gain on sales of loans		(735,514	)		(920,953	)
	Equity in losses of Media		3,269,795			1,809,710
	(Increase) decrease in accrued interest receivable		(28,809	)		3,798,374
	Decrease in servicing fee receivable		599,912			2,888,647
	(Increase) decrease in other assets		(3,232,116	)		164,013
	(Decrease) in accounts payable and accrued expenses		(1,473,240	)		(2,229,674	)
	Increase (decrease) in accrued interest payable		2,389,879			(2,416,991	)

Net cash provided by (used in) operating activities			(9,244,901	)		4,025,143

CASH FLOWS FROM INVESTING ACTIVITIES
Investments originated			(99,365,716	)		(90,510,785	)
Proceeds from sales and maturities of investments			168,780,913			130,732,181
Investment in and loans to Media, net			(1,994,281	)		(5,772,858	)
Capital expenditures			(145,125	)		(321,597	)

Net cash provided by investing activities			67,275,791			34,126,941

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from draws on revolving line of credit			101,329,935			—
Proceeds from issuance of SBA debentures			24,000,000			17,985,000
Repayments of notes payable to banks			(147,464,015	)		(58,150,000	)
Repayments of senior secured notes			(38,066,975	)		—
Repayments of commercial paper			—			(24,066,269	)
Proceeds from public offering of common stock, net of expenses			—			37,382,777
Proceeds from exercise of stock options			—			397,001
Payments of declared dividends to current stockholders			(2,190,938	)		(10,027,263	)

Net cash used in financing activities			(62,391,993	)		(36,478,754	)

NET INCREASE (DECREASE) IN CASH			(4,361,103	)		1,673,330
CASH, beginning of period			25,409,058			15,652,878

CASH, end of period		$	21,047,955		$	17,326,208

SUPPLEMENTAL INFORMATION
Cash paid during the period for interest		$	12,139,934		$	22,465,519
Cash paid during the period for income taxes			40,096			—
Non-cash inveting activities-transfers to other assets			8,000,000			—

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

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002

(1) Organization of Medallion Financial Corp. and Its Subsidiaries

The Company also conducts its business through Business Lenders, LLC (BLL), licensed under the Small Business Administration (SBA) Section 7(a) program, Medallion Business Credit LLC (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables, Medallion Capital, Inc. (MCI) which conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC which also originates and services medallion and commercial loans.

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

(2) Summary of Significant Accounting Policies

Use of Estimates

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for Media. All significant intercompany transactions, balances, and profits have been eliminated in consolidation. The consolidated statements give retroactive effect to the merger with FSVC retroactively combined with the Company’s financial statements as if the merger had occurred at the beginning of the earliest period presented. As a non-investment company, Media cannot be consolidated with the Company, which is an investment company under the 1940 Act. See Note 3 for the presentation of financial information for Media.

Investment Valuation

The Company’s loans, net of participations and any unearned discount, are considered investments under the 1940 Act and are recorded at fair value. Loans are valued at cost less unrealized depreciation. Since no ready market exists for these loans, the fair value is determined in good faith by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities.

Investments in equity securities and stock warrants are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation, respectively. The fair value of investments that have no ready market are determined by the Board of Directors based upon the assets and revenues of the underlying investee companies, as well as general market trends for businesses in the same industry. Included in equity investments at September 30, 2002 are marketable and non-marketable securities of approximately $670,000 and $4,134,000, respectively. At December 31, 2001, the respective balances were approximately $925,000 and $2,667,000. Because of the inherent uncertainty of valuations, the Board of Directors’ estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed and the differences could be material.

The Company’s investments consist primarily of long-term loans to persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 53% and 55% of the Company’s investment portfolio at September 30, 2002 and December 31, 2001, had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 90% and 81% were in New York City. These loans are secured by the medallions, taxicabs and related assets, and are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Company’s portfolio represents loans to various commercial enterprises, including finance companies, wholesalers, restaurants, and real estate. These loans are secured by various equipment and/or real estate and are generally guaranteed by the owners, and in certain cases, by the equipment dealers. These loans are made primarily in the metropolitan New York City area. The remaining portion of the Company’s portfolio is from the origination of loans guaranteed by the SBA under its Section 7(a) program, less the sale of the guaranteed portion of those loans. Funding for the Section 7(a) program depends on annual appropriations by the U.S. Congress.

Collateral Appreciation Participation Loans

During the 2000 first half, the Company originated collateral appreciation participation loans collateralized by 500 Chicago taxi medallions of $29,800,000, of which $20,850,000 was syndicated to other financial institutions. In consideration for modifications from its normal taxi medallion lending terms, the Company offered loans at higher loan-to-value ratios and is entitled to earn additional interest income based upon any increase in the value of all $29,800,000 of the collateral. During the 2002 third quarter and nine months, $0 additional interest income was recorded, compared to decreases of $4,050,000 and $3,100,000 for the 2001 comparable periods, which was reflected in investment income on the consolidated statements of operations and in accrued interest receivable on the consolidated balance sheets. During the 2002 third quarter, 400 of the medallions were returned to the Company in lieu of repayment of the loans. As a result, at September 30, 2002, $8,000,000 of these loans were carried in other assets, and $950,000 was carried in medallion loans, in total representing 2% of the Company’s assets. In addition, the borrower had not paid interest due of $1,260,000. In October 2002, the Company reached agreement to sell 300 of the 400 medallions to a new borrower at book value, had a buyer in discussions for the 100 remaining medallions, and had reached agreement on a term payout of the remaining interest due with the original borrower, which is carried on nonaccrual. In addition, the 100 medallions remaining in the loan portfolio remain on nonaccrual although payments continue to be made. As a regulated investment company, the Company is required to mark-to-market these investments on a quarterly basis, just as it does on all of its other investments. The Company believes that it has adequately calculated the fair market value of these investments in each accounting period, by relying upon information such as recent and historical medallion sale prices. The remaining loans for 100 medallions are due in June 2005, but may be prepaid at the borrower’s option beginning in December 2002. The borrower has indicated its interest in prepaying and/or refinancing the transaction, and the Company expects to complete the refinance of the loans during the 2002 fourth quarter, including the syndicated portion, at the rates and terms prevailing at that time. However, there can be no assurances that such refinancing will occur.

Income Recognition

Interest income is recorded on the accrual basis. Loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectibility of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is recognized when cash is received. At September 30, 2002 and December 31, 2001, total nonaccrual loans were approximately $32,811,000 and $35,782,000. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was approximately $5,748,000 and $7,764,000 as of September 30, 2002 and 2001, respectively, of which $1,050,000, $1,241,000, $2,929,000 and $3,059,000 would have been recognized in the 2002 and 2001 third quarters and nine months, respectively.

Loan Sales and Servicing Fee Receivable

The Company currently accounts for its sales of loans in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125”(SFAS 140). SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The principal portion of loans serviced for others by the Company was approximately $226,104,000 and $229,349,000 at September 30, 2002 and December 31, 2001.

Gain or losses on loan sales are primarily attributable to the sale of commercial loans which have been at least partially guaranteed by the SBA. The Company recognizes gains or losses from the sale of the SBA-guaranteed portion of a loan at the date of the sales agreement when control of the future economic benefits embodied in the loan is surrendered. The gains are calculated in accordance with SFAS 140, which requires that the gain on the sale of a portion of a loan be based on the relative fair values of the loan sold and the loan retained. The gain on loan sales is due to the differential between the carrying amount of the portion of loans sold and the sum of the cash received and the servicing fee receivable. The servicing fee receivable represents the present value of the difference between the servicing fee received by the Company (generally 100 to 400 basis points) and the Company’s servicing costs and normal profit, after considering the estimated effects of prepayments and defaults over the life of the servicing agreement. In connection with calculating the servicing fee receivable, the Company must make certain assumptions including the cost of servicing a loan including a normal profit, the estimated life of the underlying loan that will be serviced, and the discount rate used in the present value calculation. The Company considers 40 basis points to be its cost plus a normal profit and uses the note rate plus 100 basis points for loans with an original maturity of ten years or less and the note rate plus 200 basis points for loans with an original maturity of greater than ten years as the discount rate. The note rate is generally the prime rate plus 2.75%.

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

The estimated net servicing income is based, in part, on management’s estimate of prepayment speeds, including default rates, and accordingly, there can be no assurance of the accuracy of these estimates. If the prepayment speeds occur at a faster rate than anticipated, the amortization of the servicing asset will be accelerated and its value will decline; and as a result, servicing income during that and subsequent periods would decline. If prepayments occur slower than anticipated, cash flows would exceed estimated amounts and servicing income would increase. The constant prepayment rates utilized by the Company in estimating the lives of the loans depend on the original term of the loan, industry trends, and the Company’s historical data. During 2001, the Company began to experience an increase in prepayment activity and delinquencies. These trends continued to worsen during 2001, and as a result the Company revised its prepayment assumptions on certain loan pools from 15% to between 25% and 35%. This resulted in a $2,171,000 charge to operations, increasing the reserve for impairment of the servicing fee receivable during 2001, most of which was recorded in the 2001 third quarter. The prepayment rate of loans may be affected by a variety of economic and other factors, including prevailing interest rates and the availability of alternative financing to borrowers.

The activity in the reserve for servicing fee receivable follows:

	2002		2001

Balance at January 1	$	2,376,000	$	205,000
Additions		—		31,000

Balance at March 31		2,376,000		236,000
Additions		—		83,000

Balance at June 30		2,376,000		319,000
Additions		—		2,057,000

Balance at September 30	$	2,376,000	$	2,376,000

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

The change in unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and write-offs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized depreciation on net investments (which excludes Media) was approximately $3,744,000 as of September 30, 2002 and $7,501,000 as of December 31, 2001. The Company’s investment in Media, as a wholly-owned portfolio investment company, is also subject to quarterly assessments of its fair value. The Company uses Media’s actual results of operations as the best estimate of changes in fair value and records the result as a component of unrealized appreciation (depreciation) on investments. See Note 3 for the presentation of financial information for Media.

The tables below show changes in unrealized appreciation (depreciation) on net investments during the nine months ended September 30, 2002 and 2001:

		Loans			Equity Investments			Total

Balance as of December 31, 2001		$	(9,626,304	)	$	2,125,252		$	(7,501,052	)
Change in unrealized
	Appreciation on investments		—			757,822			757,822
	Depreciation on investments		(890,020	)		—			(890,020	)
Realized
	Gains on investments		(1,411	)		—			(1,411	)
	Losses on investments		696,536			—			696,536

Balance as of March 31, 2002			(9,821,199	)		2,883,074			(6,938,125	)
Change in unrealized
	Appreciation on investments		—			569,841			569,841
	Depreciation on investments		(922,895	)		(66,669	)		(989,564	)
Realized
	Losses on investments		3,255,018			80,016			3,335,034

Balance as of June 30, 2002			(7,489,076	)		3,466,262			(4,022,814	)
Change in unrealized
	Appreciation on investments		—			49,874			49,874
	Depreciation on investments		(521,067	)		(222,300	)		(743,367	)
Realized
	Gains on investments		(1,311	)		—			(1,311	)
	Losses on investments		974,086			—			974,086

Balance as of September 30, 2002		$	(7,037,368	)	$	3,293,836		$	(3,743,532	)


Balance as of December 31, 2000		$	(6,988,790	)	$	(422,577	)	$	(7,411,367	)
Change in unrealized
	Appreciation on investments		—			176,407			176,407
	Depreciation on investments		(558,159	)		—			(558,159	)
Realized
	Gains on investments		(3,375	)		(120,389	)		(123,764	)
	Losses on investments		1,384,856			—			1,384,856
	Other		236,499			240,779			477,278

Balance as of March 31, 2001			(5,928,969	)		(125,780	)		(6,054,749	)
Change in unrealized
	Appreciation on investments		178,623			452,000			630,623
	Depreciation on investments		(716,369	)		(92,080	)		(808,449	)
Realized
	Losses on investments		114,556			—			114,556
	Other		(27,292	)		—			(27,292	)

Balance as of June 30, 2001			(6,379,451	)		234,140			(6,145,311	)
Change in unrealized
	Appreciation on investments		—			84,530			84,530
	Depreciation on investments		(3,132,007	)		(158,312	)		(3,290,319	)
Realized
	Gains on investments		(1,895	)		—			(1,895	)
	Losses on investments		674,763			329,625			1,004,388
	Other		(53	)		76,256			76,203

Balance as of September 30, 2001		$	(8,838,643	)	$	566,239		$	(8,272,404	)

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

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Increase in net unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	49,874		$	84,530		$	1,377,537		$	891,560
Unrealized depreciation		(743,367	)		(3,290,319	)		(2,622,951	)		(4,656,927	)
Unrealized depreciation on Media		(1,026,520	)		(1,499,515	)		(3,269,795	)		(1,809,710	)
Realized gain		(1,311	)		(1,895	)		(2,722	)		(125,659	)
Realized loss		974,086			1,004,388			5,005,656			2,503,800
Other		(11	)		17,264			—			477,386

Total	$	(747,249	)	$	(3,685,547	)	$	487,725		$	(2,719,550)

Net realized gain (loss) on investments
Realized gain	$	1,311		$	50,579		$	2,722		$	—
Realized loss		(974,086	)		(1,004,388	)		(5,005,656	)		(2,503,800	)
Direct charge-off		(2,641	)		(49,030	)		(41,752	)		—

Total	$	(975,416	)	$	(1,002,839	)	$	(5,044,686	)	$	(2,503,800	)

Goodwill

Cost of purchased businesses in excess of the fair value of net assets acquired (goodwill) was amortized on a straight-line basis over fifteen years. Effective January 1, 2002, coincident with the adoption of SFAS No. 142, “ Goodwill and Intangible Assets,” the Company ceased the amortization of goodwill, and engaged a consultant to evaluate its carrying value. The amount of goodwill amortized to expense was $0 in 2002, and was $254,000 and $521,000 for the 2001 third quarter and nine months. If goodwill had not been amortized for the 2001 third quarter and nine months, net decrease in net assets resulting from operations would have been $8,733,000 and $3,811,000 or $0.48 and $0.24 per share, respectively.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 5 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $164,000 and $454,000 for the 2002 third quarter and nine months, and was $172,000 and $446,000 for the comparable 2001 periods.

Deferred Costs

Deferred financing costs, included in other assets, represent costs associated with obtaining the Company’s borrowing facilities, and is amortized over the lives of the related financing agreements. Amortization expense for the three and nine months ended September 30, 2002 was approximately $3,558,000 and $6,623,000 and was $841,000 and $1,153,000 for the comparable 2001 periods. In addition, the Company capitalizes certain costs for transactions in the process of completion, including those for acquisitions and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, capitalized as goodwill, or written off. The amounts on the balance sheet for all of these purposes as of September 30, 2002 and December 31, 2001 were $6,175,000 and $2,720,904.

Federal Income Taxes

The Company and each of its corporate subsidiaries other than Media (the RIC Subsidiaries) have elected to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries will not be subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its respective stockholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries policy to comply with the provisions of the Code.

Media is not a RIC and is taxed as a regular corporation. The Trust is not subject to federal income taxation. Instead, the Trust’s taxable income is treated as having been earned by MFC, which will not be taxed on such income if it is distributed to the Company.

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

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

Basic and diluted EPS for the three and nine months ended September 30, 2002 and 2001 are as follows:

	September 30, 2002								September 30, 2001

Three months ended				# of Shares		EPS						# of Shares		EPS

Net decrease in net assets resulting from operations	$	(8,383,740	)						$	(8,986,190	)

Basic EPS
Loss available to common shareholders		(8,383,740	)		18,242,728	$	(0.46	)		(8,986,190	)		18,241,383	$	(0.49	)
Effect of dilutive stock options ⁽¹⁾		—			—		—			—			—		—

Diluted EPS
Loss available to common shareholders	$	(8,383,740	)		18,242,728	$	(0.46	)	$	(8,986,190	)		18,241,383	$	(0.49	)

Nine months ended

Net decrease in net assets resulting from operations	$	(12,799,784	)						$	(4,332,703	)

Basic EPS
Loss available to common shareholders		(12,799,784	)		18,242,728	$	(0.70	)	$	(4,332,703	)		16,022,814	$	(0.27	)
Effect of dilutive stock options ⁽¹⁾		—			—		—			—			—		—

Diluted EPS
Loss available to common shareholders	$	(12,799,784	)		18,242,728	$	(0.70	)	$	(4,332,703	)		16,022,814	$	(0.27	)

(1)Because there were net losses in all periods shown, the effect of stock options is antidilutive and therefore is not presented.

Derivatives

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new standards regarding accounting and reporting requirements for derivative instruments and hedging activities. In June 1999, the Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." The new standard deferred the effective date of SFAS No.133 to fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 beginning January 1, 2001. The cumulative effect of adoption was not material.

Through June 2002, the Company was party to certain interest rate cap agreements. These contracts were entered into as part of the Company’s management of interest rate exposure and effectively limited the amount of interest rate risk that could be taken on a portion of the Company’s outstanding debt. All interest rate caps are designated as hedges of certain liabilities; however, any hedge ineffectiveness is charged to earnings in the period incurred. Premiums paid on the interest rate caps were previously amortized over the lives of the cap agreements and amortization of these costs was recorded as an adjustment to interest expense. Upon adoption of SFAS No. 133, the interest rate caps were recorded at fair value, which is determined based on information provided by the Company’s counterparties. Interest settlements, if any, were recorded as a reduction of interest expense over the life of the agreements. No amounts were charged to earnings in 2002, and $0 and $82,000 was charged to earnings for the 2001 third quarter and nine months. The Company had no interest rate cap agreements outstanding as of September 30, 2002.

Reclassifications

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

(3) Investment in and Loans to Media

The consolidated statements of operations of Media for the three months and nine months ended September 30, 2002 and 2001 were as follows:

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Advertising revenue	$	1,783,443		$	3,525,069		$	5,013,139		$	10,743,134
Cost of fleet services		1,213,317			1,996,471			3,635,272			6,008,729

Gross profit		570,126			1,528,598			1,377,867			4,734,405
Other operating expenses		1,600,866			1,737,092			5,295,729			5,575,663

Loss before taxes		(1,030,740	)		(208,494	)		(3,917,862	)		(841,258	)
Income tax provision (benefit)		(4,220	)		1,291,021			(648,067	)		968,452

Net loss	$	(1,026,520	)	$	(1,499,515	)	$	(3,269,795	)	$	(1,809,710	)

Included in operating expenses for 2001 third quarter and nine months was $62,000 and $126,000 related to amortization of goodwill.

The consolidated balance sheets at September 30, 2002 and December 31, 2001 for Media were as follows:

	September 30, 2002			December 31, 2001

Cash	$	716,205		$	270,350
Accounts receivable		1,271,037			1,531,183
Federal income tax receivable		262,663			1,106,778
Equipment, net		2,309,122			3,068,854
Prepaid signing bonuses		2,355,829			2,890,613
Goodwill		2,082,338			2,086,760
Other		268,901			342,118

Total assets	$	9,266,095		$	11,296,656

Accounts payable and accrued expenses	$	1,150,631		$	1,831,554
Deferred revenue		835,845			755,358
Due to parent		9,738,754			7,697,309
Note payable to banks		1,922,057			2,117,462

Total liabilities		13,647,287			12,401,683
Equity		1,001,000			1,001,000
Accumulated deficit		(5,382,192	)		(2,106,027	)

Total equity		(4,381,192	)		(1,105,027	)

Total liabilities and equity	$	9,266,095		$	11,296,656

During 2002 and 2001, Media’s operations were constrained by a very difficult advertising environment compounded by the rapid expansions of tops inventory that occurred during 1999 and 2000. Media began to recognize losses as growth in operating expenses exceeded growth in revenue. Also, a substantial portion of Media’s revenues in 2001 arose from the realization of amounts that had been paid for and deferred from prior periods. Media is actively pursuing new sales opportunities, including expansion and upgrading of the sales force, and has taken steps to reduce operating expenses, including renegotiation of fleet payments for advertising rights to better align ongoing revenues and expenses, and to maximize cash flow from operations. Media’s growth prospects are currently constrained by the operating environment and distressed advertising market that resulted from September 11th and the economic downturn. Media has developed an operating plan to fund only necessary operations out of available cash flow and to escalate its sales activities to generate new revenues. Although there can be no assurances, Media and the Company believe that this plan will enable Media to weather this downturn in the advertising cycle and maintain operations at existing levels until such times as business returns to historical levels.

Also included in the 2001 third quarter and nine months was a $1,350,000 tax provision to establish a valuation allowance against the future realization of a deferred tax asset that was recorded in prior periods relating to actual tax payments made for taxable revenue that had not been recorded for financial reporting purposes, of which $656,000 was reversed in the 2002 first quarter as a result of changes in the tax laws. During 2001, primarily as a result of expansion into numerous cities and the lag associated with selling those taxi tops, Media began to incur losses for both financial reporting and tax purposes, indicating that this deferred tax asset now represented a receivable or refund from the tax authorities for those taxes previously paid. However, due to statutory limitations in 2001 on Media’s ability to carry these tax losses back more than two years, and the uncertainties concerning the level of Media’s taxable income in the future, Media determined to reserve against the receivable. In March 2002, Congress passed and the President signed, an economic stimulus bill that among its provisions included a carryback provision for five years. As a result, Media carried back an additional $656,000 in the 2002 first quarter and retains a tax carryforward of $1,123,000 for the balance of taxes paid.

The reduction in accounts payable and accrued expenses primarily reflected adjustments made during the 2002 second quarter to obligations owed to certain taxi fleet operators which resulted from Media’s efforts to continue reducing fleet costs so that they were more in line with the reduced levels of revenue. The increase in amounts due to parent primarily reflected charges for salaries and benefits and corporate overhead paid by the parent on Media’s behalf.

In July 2001, Media acquired certain assets and assumed certain liabilities of Medallion Media Japan, Inc. (MMJ), a taxi advertising operation similar to those operated by Media in the US, which has advertising rights on approximately 6,800 cabs (2,600 rooftop displays and 4,200 interior racks) servicing various cities in Japan. The transaction was accounted for as a purchase for financial reporting purposes, and is included in Media’s financial statements above. The terms of the agreement provide for an earn-out payment to the sellers based on average net income over the three year period following the acquisition.

(4) REVOLVING LINE OF CREDIT, NOTES PAYABLE TO BANKS AND SENIOR SECURED NOTES

In September 2002, the Company and MFC restructured a substantial portion of their outstanding debt. A wholly-owned subsidiary of MFC, Taxi Medallion Loan Trust I (Trust), entered into a revolving line of credit with Merrill Lynch Bank, USA for the purpose of acquiring medallion loans from MFC and to provide for future growth in the medallion lending business. The funds paid to MFC by the Trust were used to pay down notes payable to banks and senior secured notes. As a result of these paydowns, the Company and MFC were able to negotiate amendments to their existing facilities with the banks and noteholders. As of November 14, 2002, the Company and MFC, were current on all debt obligations and in full compliance with all terms and conditions. The Company continues to explore alternative financing options with other lenders for the balance of its debt outstanding under the notes payable to banks and the senior secured notes.

Borrowings under the Trust’s revolving line of credit are secured by the Trust’s assets; and borrowings under the notes payable to banks and the senior secured notes are secured by the assets of MFC and the Company. The outstanding balances were as follows:

	September 30, 2002		December 31, 2001

Revolving line of credit	$	101,330,000	$	—
Notes payable to banks		85,536,000		233,000,000
Senior secured notes		6,933,000		45,000,000

Total	$	193,799,000	$	278,000,000

(A) REVOLVING LINE OF CREDIT

In September 2002, the Trust, a separate but wholly-owned subsidiary of MFC organized as a Delaware statutory trust entered into a revolving line of credit agreement with Merrill Lynch Bank USA (MLB) to provide up to $250,000,000 of financing to the Trust, to acquire the medallion loans from MFC, funded by the secured revolving line of credit with MLB (MLB line). MFC is the servicer of the loans owned by the Trust. The MLB line includes a borrowing base covenant and rapid amortization in certain circumstances in the event of default. In addition, if certain financial tests are not met, MFC can be replaced as a servicer. The MLB line matures in September 2003, but may be extended until September 2004 if certain conditions are met. The interest rate is LIBOR plus 1.50% with an unused facility fee of 0.375%.

(B) Notes payable to banks and senior secured notes

We are a party to three other financing agreements: 1) the Second Amended and Restated Loan Agreement, dated as of September 22, 2000, among the Company, MBC and the parties thereto (the Company Bank Loan); 2) the Amended and Restated Loan Agreement, dated as of December 24, 1997, as amended, among MFC and the parties thereto (the MFC Bank Loan); and 3) the Note Purchase Agreements, each dated as of June 1, 1999, as amended, between MFC and the note holders thereto (the MFC Note Agreements). In September 2002, all three agreements were amended coincident with the closing on the MLB line as described below:

The Company Bank Loan matures August 31, 2003, and bears interest at the rate per annum of prime plus 0.5%. The amortization schedule is as shown on page 16. The Company Bank Loan permits the payment of dividends solely to the extent necessary to enable the Company to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with the Company’s dividend policy. The Company Bank Loan is secured by all receivables and various other assets owned by the Company. All financial covenants are waived during the term of the loan.

The MFC Bank Loan matures August 31, 2003, and bears interest at the rate per annum of prime, which increases to prime plus 0.5% on January 11, 2003, and further increases to prime plus 1% on May 11, 2003. The amortization schedule is as shown on page 16. The MFC Bank Loan permits the payment of dividends solely to the extent necessary to enable MFC to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with MFC’s dividend policy. The MFC Bank Loan is secured by all receivables and various other assets owned by MFC. The collateral for the MFC Bank Loan secures both the MFC Bank Loan and the MFC Note Agreements on an equal basis. All financial covenants are waived during the term of the loan.

The MFC Note Agreements have similar terms to the MFC Bank Loan, except the initial interest rate is 8.85%, which increases to 9.35% on January 12, 2003, and further increases to 9.85% on May 12, 2003. A prepayment penalty of approximately $3,500,000 must be paid on or before maturity, of which $2,912,000 has been accrued in accordance with the prepayment provisions of the agreement, and is recorded in interest payable on the consolidated balance sheet.

The amended Company Bank Loan, and MFC Bank Loan and Note Purchase Agreements (Financing Agreements) obligate the Company or MFC, as applicable, to prepay the loans under the applicable Financing Agreement in the event the outstanding amount thereunder exceeds an agreed upon borrowing base as defined in the loan documents (which generally equals a specified percentage of the eligible outstanding commercial and medallion loans plus cash). The Financing Agreements are guaranteed by Media, secured pro rata by 100% of Media’s Capital Stock. In addition, as is standard with servicing agreements, the MLB Line contains a Servicer Default if MFC fails to satisfy certain financial tests and other requirements, but such failure does not, in and of itself, provide MLB the right to accelerate the maturity of loans. If MLB obtains the right to replace MFC as the servicer, and so notifies MFC and fails to retract such notice within seven days, the banks or note holders would thereupon obtain the right to replace the Company or MFC as servicer for the loans constituting collateral under their agreements.

Without the lenders prior written approval, the Financing Agreements continue to contain numerous and substantial operating restrictions on the Company and MFC, including restrictions on our ability to incur debt, incur liens, merge, consolidate, sell or transfer assets, loan and invest in third parties and our subsidiaries, repurchase or redeem stock, purchase portfolios, acquire or form other entities, amend certain material agreements, make capital expenditures, have outstanding intercompany receivables, and further securitize our assets. In addition to the amortization schedule for the loans and notes shown on page 16, the Company and MFC would be required to prepay the loans and notes out of the proceeds from the sale of equity, debt, or assets, subject to certain exceptions.

The Company Bank Loan

On July 31, 1998 (and as subsequently amended and restated), the Company and MBC entered into the Company Bank Loan, a committed revolving credit agreement with a group of banks. On September 21, 2001, the Company Bank Loan was extended to November 5, 2001 to allow for continuation of renewal discussions which were completed and an amendment signed on February 20, 2002. The Company Bank loan was further amended on September 13, 2002. As of September 30, 2002 and December 31, 2001, amounts available under this loan agreement were $0 and $25,000,000.

The MFC Bank Loan

On March 27, 1992 (and as subsequently amended and restated), MFC entered into the MFC Bank Loan, a line of credit with a group of banks. Effective on June 1, 1999, MFC extended the MFC Bank Loan until September 30, 2001 at an aggregate credit commitment amount of $220,000,000, an increase from $195,000,000 previously, pursuant to the Amended and Restated Loan Agreement dated December 24, 1997. Amounts available under the MFC Bank Loan were reduced by amounts outstanding under the commercial paper program as the MFC Bank Loan acted as a liquidity facility for the commercial paper program. The MFC Bank Loan was further amended on March 30, 2001, September 30, 2001, December 31, 2001, April 1, 2002, and September 13, 2002. As of September 30, 2002 and December 31, 2001, amounts available under the MFC Bank Loan were $0.

MFC Note Agreements

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

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

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

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

The amendments require the following amortization schedule based on payment activity through September 30, 2002:

	The Company Bank Loan		MFC				Total

			Bank Loan		Note Purchase Agreement

2002
October	$	1,111,805	$	—	$	—	$	1,111,805
November		1,250,000		3,309,920		690,080		5,250,000
December		1,500,000		4,551,140		948,860		7,000,000
2003
January		1,500,000		17,790,820		3,709,180		23,000,000
February		23,500,000		1,654,960		345,040		25,500,000
March		1,000,000		1,654,960		345,040		3,000,000
April		18,000,000		827,480		172,520		19,000,000
May		1,000,000		827,480		172,520		2,000,000
June		1,000,000		827,480		172,520		2,000,000
July		1,000,000		827,480		172,520		2,000,000
August		1,421,000		981,460		204,745		2,607,154

Total	$	52,282,805	$	33,253,180	$	6,933,025	$	92,469,205

As of November 14, 2002, the amounts outstanding under the Company Bank Loan, the MFC Bank Loan and the MFC Note Purchase Agreements were $48,421,000, $24,712,000, and $5,152,000, respectively.

New Financing Arrangements

We are currently exploring refinancing options which would replace our obligations under the Company and MFC loans and the senior secured notes. In addition to the MLB Line, the Company is actively pursuing other financing options for individual subsidiaries with alternate financing sources, and is continuing the ongoing program of loan participations and sales to provide additional sources of funds for both external expansion and continuation of internal growth.

Interest and Principal Payments

Interest and principal payments are paid monthly. Interest on the bank loans is calculated monthly at a rate indexed to the bank’s prime rate. Substantially all promissory notes evidencing the Company’s and MFC’s investments, other than those held by the Trust, are held by a bank as collateral agent under the agreements. The Company and MFC are required to pay an amendment fee of 25 basis points on the amount of the aggregate commitment for the Company. As noted above, the amendments entered into during 2002 to the Company’s bank loans and senior secured notes involved changes, and in some cases increases, to the interest rates payable thereunder. In addition, during events of default, the interest rate borne on the lines of credit is based upon a margin over the prime rate rather than LIBOR. In addition to the interest rate charges, approximately $12,282,000 had been incurred through November 14, 2002 for attorneys and other professional advisors, most working on behalf of the lenders, of which $4,992,000 and $7,310,000 was expensed as part of costs of debt extinguishment in the 2002 third quarter and nine months, $182,000 and $642,000 was expensed as part of interest expense in the 2002 third quarter and nine months, and $173,000 was expensed as part of professional fees in the nine months ended September 30, 2002 ($0 in the third quarter). The balance of $4,179,000, which relates solely to the Trust’s new line of credit with Merrill Lynch, will be charged to interest expense over the remaining term of the line of credit.

The table below shows the costs of the debt and related amounts outstanding.

		Three months ended September 30,						Nine months ended September 30,

		2002			2001			2002			2001

The Company
Interest expense ⁽¹⁾		$	770,359		$	1,301,930		$	3,300,305		$	4,998,062
Costs of debt extinguishment			749,945			—			1,735,404			—

Total debt costs		$	1,520,304		$	1,301,930		$	5,035,709		$	4,998,062

Average borrowings outstanding		$	54,079,530		$	95,302,645		$	63,793,925		$	98,302,198
Interest rate ⁽²⁾			5.65	%		5.42	%		6.92	%		6.80	%
Total debt costs rate ⁽³⁾			11.15	%		5.42	%		10.55	%		6.80	%
Amount outstanding			—			—		$	52,282,805		$	81,050,000
Weighted average interest at period end			—			—			5.45	%		4.65	%

MFC
Interest expense ⁽¹⁾		$	2,870,732		$	3,850,383		$	9,232,938		$	13,147,188
Costs of debt extinguishment			5,120,572			—			7,236,895			—

Total debt costs		$	7,991,304		$	3,850,383		$	16,469,833		$	13,147,188

Average borrowings outstanding		$	142,174,418		$	219,371,195		$	170,901,449		$	243,391,648
Interest rate ⁽²⁾			8.01	%		6.98	%		7.23	%		7.24	%
Total debt costs rate ⁽³⁾			22.30	%		6.96	%		12.88	%		7.22	%
Amount outstanding			—			—		$	40,186,154		$	211,500,000
Weighted average interest at period end			—			—			5.62	%		6.35	%

Combined
Interest expense ⁽¹⁾		$	3,641,091		$	5,152,313		$	12,533,243		$	18,145,250
Costs of debt extinguishment			5,870,517			—			8,972,299			—

Total debt costs		$	9,511,608		$	5,152,313		$	21,505,542		$	18,145,250

Average borrowings outstanding		$	196,253,948		$	314,673,840		$	234,695,374		$	341,693,846
Interest rate ⁽²⁾			7.36	%		6.51	%		7.14	%		7.11	%
Total debt costs rate ⁽³⁾			19.23	%		6.50	%		12.25	%		7.10	%
Amount outstanding			—			—		$	92,468,959		$	292,550,000
Weighted average interest at period end			—			—			5.52	%		5.88	%


(1)	Includes commitment fees, and amortization of certain capitalized costs of obtaining debt.
(2)	Represents interest expense for the period presented as a percentage of average borrowings outstanding.
(3)	Represents total debt costs for the period presented as a percentage of average borrowings outstanding.

(C) Interest Rate Cap Agreements

On June 22, 2000, MFC entered into an interest rate cap agreement limiting the Company’s maximum LIBOR exposure on $10,000,000 of MFC’s revolving credit facility to 7.25% until June 24, 2002. Premiums paid under interest rate cap agreements were fully expensed in 2001, including $0 and $82,000 expensed in the 2001 third quarter and nine months. There are no unamortized premiums on the balance sheet as of September 30, 2002.

(5) SBA DEBENTURES PAYABLE

Outstanding SBA debentures were as follows:

Due Date	September 30, 2002		December 31, 2001		Interest Rate

December 1, 2002	$	1,300,000	$	1,300,000		7.51	%
June 1, 2005		520,000		520,000		6.69
December 1, 2005		520,000		520,000		6.54
March 1, 2006		2,000,000		2,000,000		7.08
June 1, 2006		250,000		250,000		7.71
December 1, 2006		5,500,000		5,500,000		8.08
March 1, 2007		4,210,000		4,210,000		8.38
June 1, 2007		3,000,000		3,000,000		8.07
September 1, 2007		4,060,000		4,060,000		7.76
September 1, 2011		17,985,000		17,985,000		6.77
March 1, 2012		10,500,000		4,500,000		7.22
September 1, 2012		3,000,000		—		3.16
March 1, 2013		15,000,000		—		3.16

Total SBA debentures outstanding	$	67,845,000	$	43,845,000		6.23	%

During 2001, FSVC and MCI were approved by the SBA to receive $36,000,000 each in funding over a period of five years. MCI drew down $10,500,000 during June 2001 and $4,500,000 during December 2001. FSVC drew down $7,485,000 in July 2001, $6,000,000 in January 2002, $3,000,000 in April 2002, and $15,000,000 in September 2002.

(6) SEGMENT REPORTING

The Company has two reportable business segments, lending and taxicab rooftop advertising. The lending segment originates and services medallion and secured commercial loans. The taxicab roof top advertising segment sells advertising space to advertising agencies and companies in several major markets across the United States and Japan. The Media segment is reported as a portfolio investment of the Company. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The lending segment is presented in the consolidated financial statements of the Company. Financial information relating to the taxicab rooftop-advertising segment is presented in Note 3.

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

(7) COSTS OF DEBT EXTINGUISHMENT

The details of the costs of debt extinguishment were as follows:

Three months ended
September 30,

Nine months ended
September 30,

2002

2001

2002

2001

Financing costs for attorneys and loan fees

3,031,021

—

4,116,573

—

Prepayment penalty on senior secured notes

1,945,194

—

3,027,706

—

Default interest

725,806

—

1,318,371

—

Other professional fees

168,496

—

509,649

—

Total costs of debt extinguishment

5,870,517

—

8,972,299

—

(8) OTHER INCOME AND OTHER OPERATING EXPENSES

The major components of other income were as follows:

	Three months ended September 30,					Nine months ended September 30,

	2002		2001			2002		2001

Late charges and prepayment penalties	$	300,145	$	491,939		$	983,958	$	1,196,362
Servicing fee income		211,032		(1,757,920	)		722,062		(1,258,633	)
Accretion of discount		136,809		243,141			476,560		689,169
Revenue sharing income		17,600		2,070			949,811		65,640
Other		106,497		225,610			693,584		520,546

Total other income	$	772,083	$	(795,160	)	$	3,825,975	$	1,213,083

Included in revenue sharing income was a success fee earned on a mezzanine investment of $873,000 in the 2002 nine months, and included in other income were referral fees and insurance proceeds of $111,000 in the 2002 nine months. Included in servicing fee income in 2001 were charges to revalue the servicing fee receivable of $2,057,000 and $2,171,000 for the 2001 third quarter and nine months, respectively.

The major components of other operating expenses were as follows:

	Three months ended September 30,				Nine months ended September 30,

	2002		2001		2002		2001

Facilities expense	$	445,451	$	469,585	$	1,285,186	$	1,219,548
Office expense		151,162		110,027		504,614		345,261
Collections expense		146,375		9,379		430,779		99,231
Insurance		138,717		81,601		426,581		211,313
Travel, meals, and entertainment		125,367		143,328		438,253		398,778
Bank charges		35,651		344,546		159,374		422,449
Other		772,140		452,840		1,960,992		1,068,373

Total other operating expenses	$	1,814,863	$	1,611,276	$	5,205,779	$	3,764,953

The increase in collections expense reflected the higher costs associated with managing a larger portfolio of nonperforming loans in 2002. The increase in insurance primarily reflected higher premiums charged by the Company’s insurance carrier in 2002, compared to 2001. Bank charges in 2001 included amounts charged by the Banks for waiving default provisions of their agreements. Included in facilities expense and other operating expense in the 2001 nine months were $1,161,000 of expense reversals related to operational cleanups.

(9) SELECTED FINANCIAL RATIOS AND OTHER DATA

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

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Net share data
Net asset value at the beginning of the period	$	9.35		$	10.32		$	9.59		$	10.16
Net investment income (loss)		(0.36	)		(0.24	)		(0.45	)		0.05
Realized gain (loss) on investments		(0.06	)		(0.05	)		(0.28	)		(0.14	)
Net unrealized appreciation (depreciation) on investments		(0.04	)		(0.20	)		0.03			(0.15	)

Increase (decrease) in shareholders’ equity from operations		(0.46	)		(0.49	)		(0.70	)		(0.24	)
Issuance of common stock		0.00			0.00			0.00			0.01
Distribution of net investment income		(0.03	)		(0.16	)		(0.03	)		(0.26	)

Net asset value at the end of the period	$	8.86		$	9.67		$	8.86		$	9.67

Per share market value at beginning of period	$	5.28		$	10.25		$	7.90		$	14.63
Per share market value at end of period		4.77			8.25			4.77			8.25
Total return ⁽¹⁾		(9.08	)%		(18.32	)%		(38.58	)%		(42.02	)%

Ratio/supplemental data
Average net assets	$	167,300,000		$	185,474,000		$	170,998,000		$	163,414,000
Ratio of operating expenses to average net assets ⁽²⁾		10.98	%		9.59	%		11.10	%		10.35	%
Ratio of net investment income (loss) to average net assets⁽³⁾		1.73	%		4.95	%		0.62	%		5.47	%

(1)	Total return is calculated by comparing the change in value of a share of common stock assuming the reinvestment of dividends on the payment date.
(2)	Operating expense ratios presented exclude the $5,871,000 and $8,972,000 of costs of debt extinguishment in the 2002 quarter and nine months, and the $550,000 of charges related to the write-off of transaction costs for the 2001 periods. Unadjusted, the ratios would have been 25.02% and 18.10% for the 2002 periods, and 10.78% and 10.80% for the 2001 periods, respectively.
(3)	Net investment income ratios presented exclude the $5,871,000 and $8,972,000 of costs of debt extinguishment in the 2002 quarter and nine months, and the $6,658,000 and $5,822,000 of charges related to Chicago Yellow, the excess servicing assets, and the write-off of transaction costs for the 2001 periods. Unadjusted, the ratios would have been (15.76%) and (6.37%) for the 2002 periods, and (9.41%) and 0.72% for the 2001 periods, respectively.

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

The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.

This report contains forward-looking statements relating to future events and future performance of the Company within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words expects, anticipates, intends, believes or similar language. Actual results could differ materially from those anticipated in such forward-looking statements. 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 forward-looking statements. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties.

General

We are a specialty finance company that originates and services loans that finance taxicab medallions and various types of commercial loans. We have a leading position in taxicab medallion financing. Since 1996, we have increased our medallion loan portfolio at a compound annual growth rate of 7%, and our commercial loan portfolio at a compound annual growth rate of 25%. Our total assets under our management were approximately $659,492,000, and have grown from $215,000,000 at the end of 1996, a compound annual growth rate of 20%.

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

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

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

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

Trends in the investment portfolio

The Company’s investment income is driven by the principal amount of and yields on its investment portfolio. To identify trends in the yields, the portfolio is grouped by medallion loans, commercial loans, and equity investments. Since December 31, 1997, medallion loans, while still making up a significant portion of the total portfolio, have decreased in relation to the total portfolio composition, and commercial loans have increased.

The following table illustrates the Company’s investments at fair value and the weighted average portfolio yields calculated using the contractual interest rates of the investment at the dates indicated (assuming continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business):

	September 30, 2002						June 30, 2002						December 31, 2001						September 30, 2001

(Dollars in thousands)		Interest Rate			Principal Balance			Interest Rate			Principal Balance			Interest Rate			Principal Balance			Interest Rate			Principal Balance

Medallion loans
New York		7.95	%	$	169,758			7.91	%	$	175,860			8.48	%	$	205,598			8.54	%	$	215,811
Chicago		8.95			11,267			10.08			20,284			9.86			20,910			9.10			22,545
Boston		11.64			8,717			11.98			9,749			11.41			13,170			11.35			14,095
Newark		10.29			7,485			10.48			7,957			10.33			6,208			10.77			6,388
Cambridge		10.38			2,227			10.55			1,991			11.66			1,718			11.66			1,804
Other		10.79			3,704			11.02			4,256			11.30			6,548			11.37			6,881

Total medallion loans		8.33	%		203,158			8.46	%		220,097			8.88	%		254,152			8.89	%		267,524

Add: FASB 91					409						484						541						764
Less: Unrealized depreciation on loans					(1,106	)					(1,116	)					(2,019	)					(448	)

*Medallion loans, net*				$	202,461					$	219,465					$	252,674					$	267,840

Commercial loans
Asset based receivable		9.23	%	$	49,728			9.85	%	$	50,408			9.20	%	$	53,955			10.43	%	$	51,375
SBA Section 7(a)		5.86			47,133			5.99			48,816			5.73			56,702			8.39			57,693
Secured mezzanine		12.48			36,077			12.86			38,886			12.77			36,313			12.70			36,342
Other commercial secured		9.79			43,794			9.96			45,949			10.38			60,773			10.05			62,658

Total commercial loans		9.14	%		176,732			9.49	%		184,059			9.22	%		207,743			10.31	%		208,068

Add: FASB 91					1,214						1,207						1,608						1,006
Less: Discount on loans sold					(2,675	)					(2,306	)					(2,415	)					(2,382	)
Unrealized depreciation on loans					(5,931	)					(6,373	)					(7,607	)					(6,009	)

*Commercial loans, net*				$	169,340					$	176,587					$	199,329					$	200,683

Equity investments		0.00	%	$	1,510			0.00	%	$	1,510			0.00	%	$	1,467			0.00	%	$	1,467
Plus: Unrealized appreciation					3,294						3,466						2,125						566

*Equity investments, net*				$	4,804					$	4,976					$	3,592					$	2,033

Net investments at cost		8.70	%	$	381,400			8.93	%	$	405,666			9.04	%	$	463,362			9.51	%	$	477,058

Add: FASB 91					1,623						1,691						2,149						1,770
Unrealized appreciation on equity investments					3,294						3,466						2,125						566
Less: Discount on loans sold					(2,675	)					(2,306	)					(2,415	)					(2,382	)
Unrealized depreciation on loans					(7,037	)					(7,489	)					(9,626	)					(6,457	)

Net investments				$	376,605					$	401,028					$	455,595					$	470,555

Investment Activity

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

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Net investments at beginning of period	$	401,028,679		$	473,646,043		$	455,595,383		$	514,153,606
Investments originated		36,531,117			42,337,276			99,365,716			90,510,785
Sales and maturities of investments		(52,183,253	)		(42,172,184	)		(168,780,913	)		(130,732,181	)
Transfers to other assets		(8,000,000	)		—			(8,000,000	)		—
Increase in unrealized appreciation (depreciation), net		279,282			(2,186,032	)		3,757,520			(909,840	)
Realized losses, net		(975,416	)		(1,002,839	)		(5,044,686	)		(2,503,800	)
Realized gain on sales of loans		147,295			228,417			735,514			920,953
Amortization of origination costs		(222,660	)		(295,248	)		(1,023,490	)		(884,090	)

Net decrease in investments		(24,423,635	)		(3,090,610	)		(78,990,339	)		(43,598,173	)

Net investments at end of period	$	376,605,044		$	470,555,433		$	376,605,044		$	470,555,433

Portfolio Summary

Total Portfolio Yield

The weighted average yield of the total portfolio at September 30, 2002 was 8.70%, which is a decrease of 34 basis points from 9.04% at year end, and down 81 basis points from 9.51% at September 30, 2001. The decreases primarily reflect the reductions in the general level of interest rates in the economy, demonstrated by the reduction in the prime rate from 9.5% to 4.75% during the course of 2001, and the repricing of investments during that period at lower interest rates.

Medallion Loan Portfolio

The Company’s medallion loans comprised 53% of the total portfolio of $376,605,000 at September 30, 2002, compared to 55% of the total portfolio of $455,595,000 at December 31, 2001 and 56% of the total portfolio of $470,555,000 at September 30, 2001. The medallion loan portfolio decreased by $17,004,000 or 8% in the quarter, primarily reflecting the conversion of $8,000,000 of Chicago loans to owned medallions which are carried in other assets on the consolidated balance sheet, and a decrease in medallion loan originations, principally in New York City, and the Company’s execution of participation agreements with third parties for $2,550,000 of low yielding New York medallion loans. The Company retains a portion of these participating loans and earns a fee for servicing the loans for the third parties. During the 2002 nine months, medallion loans declined $50,213,000 or 20%, primarily reflecting the Company’s nonrenewal of more marginable credits, the slowdown in origination activity, and the continued efforts to participate loans to third party lenders for the purpose of conserving cash resources for debt service.

The weighted average yield of the medallion loan portfolio at September 30, 2002 was 8.33%, a decrease of 55 basis points from 8.88% at December 31, 2001, and a decrease of 56 basis points from 8.89% at September 30, 2001. The decrease in yields at September 30, 2002 reflects the generally lower level of rates in the economy. At September 30, 2002, 12% of the medallion loan portfolio represented loans outside New York (20% if the owned Chicago medallions are included), compared to 19% at both December 31 and September 30, 2001. The Company continues to focus its efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

Since 1997, the Company has continued to shift the total portfolio mix toward a higher percentage of commercial loans, which historically have had higher yields than medallion loans. Commercial loans were 46% of the total portfolio at September 30, 2002, compared to 45% and 44% at December 31, 2001 and September 30, 2001, respectively. During the 2002 third quarter, commercial loans declined by $7,247,000 or 4% reflecting moderate decreases in all categories, and for the nine months decreased $29,989,000 or 15% in all categories, particularly on commercial secured, SBA Section 7(a), and asset-based receivable, reflecting the slowdown in originations due to liquidity constraints, and the sales of certain assets.

The weighted average yield of the commercial loan portfolio at September 30, 2002 was 9.14%, a decrease of 8 basis points from 9.22% at December 31, 2001, and a decrease of 117 basis points from 10.31% at September 30, 2001. The decrease compared to the 2001 third quarter primarily reflected sensitivity of the yield to movements in the prime rate, which fell 475 basis points during 2001, and a lower yield on the SBA Section 7(a) portfolio. The Company continues to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate its interest rate risk in a rising interest rate environment. At September 30, 2002, floating-rate loans represented approximately 68% of the commercial portfolio compared to 68% and 55% December 31, 2001 and September 30, 2001, respectively. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.

Delinquency Trends

	September 30, 2002					June 30, 2002					December 31, 2001					September 30, 2001

*Dollars in thousands*	$		% ⁽¹⁾			$		%⁽¹⁾			$		%⁽¹⁾			$		%⁽¹⁾

Medallion loans	$	9,801		2.6	%	$	14,983		3.7	%	$	12,351		2.7	%	$	10,457		2.3	%

Commercial loans
Secured mezzanine		11,681		3.1			8,071		2.0			8,426		1.9			3,796		0.8
SBA Section 7(a)		10,106		2.7			9,664		2.4			12,637		2.7			13,669		2.9
Asset-based receivable		—		0.0			—		0.0			—		0.0			—		0.0
Other commercial secured		9,575		2.5			8,401		2.1			10,000		2.2			9,836		2.4

Total commercial loans		31,362		8.3			26,136		6.5			31,063		6.8			27,301		5.8

Total loans 90 days or more past due	$	41,163		10.9	%	$	41,119		10.2	%	$	43,414		9.5	%	$	37,758		7.9	%

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

The decrease in medallion loan delinquencies primarily reflected the $8,000,000 of owned Chicago medallions which were reclassified to other assets, partially offset by an increase of $2,818,000 related to various borrowers and markets, reflecting the continued stresses in the economy on payment patterns. Secured mezzanine financing delinquencies primarily reflect the impact of the economy and September 11th on certain concession and media properties which is believed to be of temporary nature. The increase from the second quarter was due to the addition of a restaurant credit to nonaccrual during the quarter. The delinquencies in the SBA Section 7(a) portfolio have remained relatively constant. Included in the SBA Section 7(a) delinquency figures are $3,262,000, $3,102,000, $5,407,000, and $5,940,000 at September 30, 2002, June 30, 2002, December 31, 2001, and September 30, 2001, respectively, which represent loans repurchased for the purpose of collecting on the SBA guarantee. The increase in other commercial secured delinquencies compared to the prior quarter was due to the addition of a restaurant credit to nonaccrual during the quarter. The Company is actively working with each delinquent borrower to bring them current, and believes that any potential loss exposure is reflected in the Company’s mark-to-market estimates on each loan. Although there can be no assurances as to changes in the trend rate, management believes that any loss exposures are properly reflected in reported asset values.

The following table presents credit-related information for the net investment portfolio for the periods indicated:

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Total loans
Medallion loans							$	202,461,476		$	267,839,539
Commercial loans								169,339,795			200,682,945

Total loans								371,801,271			468,522,484
Equity investments ⁽¹⁾								4,803,773			2,032,948

Net investments							$	376,605,044		$	470,555,432

Net unrealized (appreciation) depreciation on investments
Medallion loans							$	1,105,890		$	685,831
Commercial loans								5,931,478			8,152,811

Total loans								7,037,368			8,838,642
Equity investments								(3,293,836	)		(566,239	)

Total net unrealized (appreciation) depreciation on investments							$	3,743,532		$	8,272,403

Unrealized (appreciation) depreciation as a% of balances outstanding
Medallion loans								0.55	%		0.26	%
Commercial loans								3.50			4.06
Total loans								1.89			1.89
Equity investments								(68.57	)		(27.85	)
Net investments								0.99			1.76

Realized losses on loans and equity investments
Medallion loans	$	58,950		$	—		$	340,691		$	—
Commercial loans		916,466			673,214			4,623,978			2,060,066

Total loans		975,416			673,214			4,964,669			2,060,066
Equity investments		—			329,625			80,017			443,734

Total realized losses on loans and equity investments	$	975,416		$	1,002,839		$	5,044,686		$	2,503,800

Realized losses as a% of average balances outstanding ⁽²⁾
Medallion loans		0.11	%		0.00	%		0.21	%		0.00	%
Commercial loans		2.10			1.35			3.56			1.39
Total loans		1.00			0.57			1.71			0.59
Equity investments		0.00			62.49			2.19			28.35
Net investments		0.99			0.85			1.72			0.71

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

(2) Realized losses as a % of average balances outstanding have been annualized.

Equity Investments

Equity investments were 0.4% of the Company’s total portfolio at each of September 30, 2002, December 31, 2001, and September 30, 2001. Equity investments are comprised of common stock and warrants.

Trend in Interest Expense

The Company’s interest expense is driven by the interest rate payable on its short-term credit facilities with banks, other short-term notes payable, and fixed-rate, long-term debentures issued to the SBA. As a result of amendments to the credit facilities and senior secured notes, the Company’s cost of funds increased during the first nine months of 2002, and will decrease thereafter as long as the Company meets the terms and conditions of the amendments. As noted below, the amendments entered into during 2002 to the Company’s bank loans and senior secured notes involved changes, and in some cases increases, to the interest rates payable thereunder. In addition, during events of default, the interest rate on the loans is increased by 2 percentage points. See the table on page 27 for the average cost of funds. The September 13, 2002 amendments repriced the bank loans to 5.25% for the Company and 4.75% for MFC, and repriced MFC’s senior secured notes to 8.85%. In addition to the interest rate charges, $12,282,000 has been incurred through September 30, 2002 for attorneys and other professional advisors, most working on behalf of the lenders, of which $4,992,000 and $7,310,000 was expensed as part of costs of debt extinguishment in both the 2002 third quarter and nine months, $182,000 and $641,000 was expensed as part of interest expense, and $0 and $173,000 was expensed as part of professional fees. The balance of $4,179,000, which relates solely to the Trust’s new line of credit with Merrill Lynch, will be charged to interest expense over the remaining term of the line of credit.

During the 2002 third quarter, the Trust closed a $250,000,000 line of credit with Merrill Lynch for lending on medallion loans, which was priced at LIBOR plus 1.50%, excluding fees and other costs. All of the draws on this line were paid to MFC for medallion loans purchased, and were used by MFC to repay higher priced debt with the banks and noteholders.

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

The Company measures its borrowing costs as its aggregate interest expense for all of its interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following table shows the average borrowings and related borrowing costs for the three and nine months ended September 30, 2002 and 2001. Average balances have declined since the 2001 second quarter, primarily reflecting the initial use of the equity proceeds raised during 2001 for debt reductions, the sale or participations of loans to other financial institutions, the reductions in the level of loan originations and the usage of operating cash flow to raise capital for debt reductions and other corporate purposes. The decline in borrowing costs reflected the trend of declining interest rates in the economy, partially offset by the switch from lower cost commercial paper to higher cost bank debt and related renewal expenses, and additional long-term SBA debt also at higher rates.

			Three Months Ended							Nine Months Ended

			Interest Expense		Average Balance		Average Cost of Funds			Interest Expense		Average Balance		Average Cost of Funds

September 30, 2002
Notes payable to banks			$	3,040,407	$	164,040,000		7.52	%	$	10,043,125	$	207,787,000		6.46	%
SBA debentures				989,179		56,595,000		7.09			2,768,238		51,045,000		7.25
Senior secured notes				600,684		22,940,000		10.62			2,493,862		35,384,000		9.42
Revolving line of credit				380,537		19,825,000		6.09			380,537		6,681,000		5.08
Commercial paper				—		—		—			4,167		—		—

Total			$	5,010,807	$	263,400,000		7.56		$	15,689,929	$	300,897,000		6.89

September 30, 2001
Notes payable to banks			$	4,325,065	$	263,668,000		6.51	%	$	15,810,256	$	295,617,000		7.12	%
Senior secured notes				839,116		45,000,000		7.40			2,499,908		45,000,000		7.40
SBA debentures				668,842		37,474,000		7.08			1,553,597		27,806,000		7.44
Commercial paper				1,951		59,000		13.06			184,767		3,315,000		7.42

Total			$	5,834,974	$	346,201,000		6.69		$	20,048,528	$	371,738,000		7.18


	(1)	The 2002 third quarter and nine months interest expense does not include $5,871,000 and $8,972,000 of costs related to debt extinguishment above and beyond the normal interest charges, for prepayment penalties, default interest charges, loan fees, legal fees, and consultant costs, which were reclassified to operating expenses due to their large and unusual nature relative to the matured debt, and the lengthy and ongoing negotiations with the lending group. If included in interest expense, the average cost of funds would have been 16.41% and 10.83% for the 2002 third quarter and nine months.

The Company will continue to seek SBA funding to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. The Company uses SBA funding to fund loans that qualify under the Small Business Investment Act of 1958 (SBIA) and SBA regulations. The Company believes that its transition to financing operations primarily with short-term secured bank debt has generally decreased its interest expense, but has also increased the Company’s exposure to the risk of increases in market interest rates, which the Company mitigates with certain hedging strategies. At September 30, 2002, December 31, 2001 and September 30, 2001, short-term floating-based debt constituted 74%, 70%, and 75% of total debt, respectively.

Taxicab Advertising

maximize cash flow from operations. Media’s growth prospects are currently constrained by the operating environment and distressed advertising market that resulted from September 11th and the economic downturn. Media has developed an operating plan to fund only necessary operations out of available cash flow and to escalate its sales activities to generate new revenues. Although there can be no assurances, Media and the Company believe that this plan will enable Media to weather this downturn in the advertising cycle and maintain operations at existing levels until such times as business returns to historical levels.

In July 2001, Media acquired certain assets and assumed certain liabilities of Medallion Media Japan, Inc. (MMJ), a taxi advertising operation similar to those operated by Media in the US, which has advertising rights on approximately 6,800 cabs (2,600 rooftop displays and 4,200 interior racks) servicing various cities in Japan. The transaction was accounted for as a purchase for financial reporting purposes, and is included in Media’s financial statements. The terms of the agreement provide for an earn-out payment to the sellers based on average net income over the three year period following the acquisition.

Factors Affecting Net Assets

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

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

SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the three and nine months ended September 30, 2002 and 2001.

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Statement of operations data
Investment income	$	7,962,817		$	7,034,652		$	26,165,153		$	32,026,940
Interest expense		5,010,807			5,834,974			15,689,929			20,048,528

Net interest income		2,952,010			1,199,678			10,475,224			11,978,412
Noninterest income (loss)		919,378			(566,743	)		4,561,489			2,134,036
Operating expenses		10,464,140			4,996,401			23,211,213			13,235,590

Net investment income (loss)⁽¹⁾		(6,592,752	)		(4,363,466	)		(8,174,500	)		876,858
Net realized losses on investments		(975,416	)		(1,002,839	)		(5,044,686	)		(2,503,800	)
Net change in unrealized appreciation (depreciation) on investments ⁽²⁾		(747,249	)		(3,685,547	)		487,725			(2,719,550	)
Income tax provision (benefit)		68,323			(65,662	)		68,323			(13,789	)

Net decrease in net assets resulting from operations ⁽³⁾	$	(8,383,740	)	$	(8,986,190	)	$	(12,799,784	)	$	(4,332,703	)

Per share data
Net investment income (loss)⁽¹⁾	$	(0.36	)	$	(0.24	)	$	(0.45	)	$	0.05
Net decrease in net assets resulting from operations ⁽³⁾		(0.46	)		(0.49	)		(0.70	)		(0.27	)
Dividends declared		0.03			0.15			0.03			0.29

Weighted average common shares outstanding
Basic		18,242,728			18,241,383			18,242,728			16,022,814
Diluted		18,242,728			18,241,383			18,242,728			16,022,814

Balance sheet data
Investments, net of unrealized depreciation on investments							$	381,987,582		$	470,555,433
Total assets								433,388,345			515,256,879
Total borrowed funds								261,643,945			321,845,000
Total liabilities								271,804,131			338,859,736
Total shareholders’ equity								161,584,214			176,397,143

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001

Selected financial ratios and other data
Return on average assets (ROA)⁽⁴⁾
Net investment income (loss)		(1.86	)%		(1.07	)%		(2.30	)%		(0.21	)%
Net decrease in net assets resulting from operations		(2.36	)		(2.20	)		(3.60	)		(1.06	)
Return on average equity (ROE)⁽⁵⁾
Net investment income (loss)		(4.77	)		(3.59	)		(5.91	)		(0.72	)
Net decrease in net assets resulting from operations		(6.06	)		(7.40	)		(9.25	)		(3.57	)

Weighted average yield		8.12	%		5.83	%		8.20	%		8.74	%
Weighted average cost of funds		5.11			4.84			4.92			5.47

Net interest margin.⁽⁶⁾		3.01			0.99			3.28			3.27
Noninterest income ratio⁽⁷⁾		0.31			(0.16	)		1.44			0.59
Operating expense ratio⁽⁸⁾		3.55	%		1.41	%		7.35	%		3.64	%

As a percentage of total investment portfolio
Medallion loans								54	%		57	%
Commercial loans								45			43
Equity investments								1			—

Investments to assets ⁽⁹⁾								88			92
Equity to assets ⁽¹⁰⁾								37			34
Debt to equity ⁽¹¹⁾								162	%		188	%

	(1)		Excluding the $5,871,000 and $8,972,000 of costs of debt extinguishment in the 2002 quarter and nine months, and the $8,007,000 and $7,171,000 of charges related to Chicago Yellow, the excess servicing assets, a tax reserve adjustment in Media, and the writeoff of transaction costs for the 2001 periods, net investment income (loss) would have been ($722,000) or ($0.04) per share and $798,000 or $0.04 per share for the 2002 third quarter and nine months, and $3,645,000 or $0.20 per share and $8,049,000 or $.50 per share for the 2001 quarter and nine months.
	(2)		Change in unrealized appreciation (depreciation) on investments represents the increase (decrease) for the period in the fair value of the Company’s investments, including the results of operations for Media for the periods presented.
	(3)		Excluding the costs and charges described in note (1), net increase (decrease) in net assets resulting from operations would have been ($2,513,000) or ($0.14) per share and ($3,827,000) or ($0.21) per share for the 2002 third quarter and nine months, and ($978,000) or ($0.05) per share and $2,839,000 or $0.18 per share for the 2001 quarter and nine months.
	(4)		ROA represents the net investment income (loss) or net decrease in net assets resulting from operations, for the period indicated, divided by average total assets. Excluding the costs and charges described in note (1), ROA’s would have been (0.20%) and (0.71%) for the 2002 third quarter and 0.22% and (1.08%) for the 2002 nine months. ROA’s would have been 0.56% and (0.24%) for the 2001 third quarter and 1.64% and 0.69% for the 2001 nine months.
	(5)		ROE represents the net investment income (loss) or net decrease in net assets resulting from operations, for the period indicated, divided by average shareholders’ equity. Excluding the costs and charges described in note (1), ROE’s would have been (0.52%) and (1.82%) for the 2002 third quarter and 0.58% and (2.77%) for the 2002 nine months. ROE’s would have been 1.89% and (0.81%) for the 2001 third quarter and 5.51% and 2.34% for the 2001 nine months.
	(6)		Net interest margin represents net interest income for the period indicated divided by average interest earning assets. For the 2001 third quarter and nine months net interest margin adjusted for Chicago Yellow was 4.35% and 4.11%, respectively.
	(7)		Noninterest income ratio represents noninterest income for the period indicated divided by average interest earning assets. For the 2001 third quarter and nine months, noninterest income ratio adjusted for the $2,057,000 and $2,171,000 excess servicing assets charge was 0.80% and 1.55%, respectively.
	(8)		Operating expense ratio represents operating expenses for the period indicated divided by average interest earning assets. Excluding the $5,871,000 and $8,972,000 of debt extinguishment and the $550,000 for transaction charges in the 2001 periods, the ratios would have been 1.56% and 4.51% for the 2002 third quarter and nine months and 1.25% and 3.49% for the 2001 periods.
	(9)		Represents total investments divided by total assets as of September 30.
	(10)		Represents total shareholders’ equity divided by total assets as of September 30.
	(11)		Represents total debt (line of credit, notes payable to banks, senior secured notes, and SBA debentures) divided by total shareholders’ equity as of September 30.

CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

Net assets decreased as a result of operations by $8,384,000 or $0.46 per diluted common share, and by $12,800,000 or $0.70 per share in the 2002 third quarter and nine months, a decrease of $602,000 from a loss of $8,986,000 or $0.49 in the 2001 third quarter, and an increase of $8,467,000 from a loss of $4,333,000 or $0.27 in the 2001 nine months, primarily reflecting the costs of debt extinguishment, the impact of a reduced level of earning assets, and greater losses in Media in the 2002 periods, and the valuation assessments made in light of September 11^th and the economic downturn in 2001, as further described below.

Included in the 2002 third quarter and nine months were costs related to the debt extinguishment efforts of the Company including prepayment penalties, default interest charges, loan fees, legal fees, and consultant costs of $5,871,000 and $8,972,000, respectively. Included in the results for the 2001 quarter and year-to-date were charges of $11,300,000 primarily relating to valuation assessments the Company made in light of September 11^th and the recessionary forces battering the economy, including the sharp reduction in interest rates and their effect on prepayment levels. The charges included $4,050,000 to writedown the value of collateral appreciation participation loans to reflect transaction activity in Chicago medallions; $3,300,000 to increase unrealized depreciation to reflect the impact of the economic forces on delinquency trends, reduced payment levels, and collateral values; $2,050,000 to reflect acceleration in the deterioration in the prepayment speeds on the Company’s servicing asset receivable; $1,350,000 to reserve against the risks of future realization of previously recorded deferred tax benefits related to Media’s operations; and $550,000 related to the write-off of previously capitalized transaction costs.

Net increase in net assets resulting from operations excluding the charges described above was a loss of $2,513,000 or $0.14 per share and $3,827,000 or $0.21 for the 2002 quarter and nine months, decreases of $1,535,000 and $6,666,000 from a loss of $978,000 or $0.05 and income of $2,839,000 for the comparable 2001 periods. Net investment loss was $6,593,000 or $0.36 per share and $8,175,000 or $0.45 per share in the 2002 third quarter and nine months, decreases of $2,229,000 and $9,052,000 from a loss of $4,363,000 or $0.24 per share and income of $877,000 or $0.05 per share in the 2001 third quarter and nine months. Excluding the charges described above, net investment loss was $722,000 or $0.04 per share in the 2002 quarter, and was income of $798,000 or $0.04 for the nine months, decreases of $2,923,000 and $7,251,000 from net investment income of $3,645,000 or $0.20 and income of $8,049,000 or $0.50 in the 2001 periods.

Investment income was $7,962,000 in the 2002 third quarter and $26,165,000 in the nine months, up $928,000 or 13% and down $5,862,000 or 18% from $7,035,000 and $32,027,000 in the 2001 periods, primarily reflecting a $4,050,000 writedown ($3,100,000 in the nine months) of the value of collateral appreciation participation loans to reflect transaction activity in Chicago medallions in the 2001 third quarter. Adjusted for the writedown, investment income was down $3,122,000 or 28% from $11,085,000 in the 2001 third quarter, and was down $8,962,000 or 28% from $35,127,000 in the 2001 nine months. The decrease in the quarter primarily reflected the reduced volume of earning assets compared to a year ago, and lower yields on the portfolio due to the lower interest rate environment and a higher level of nonaccrual loans. For the nine months, the decrease reflected the lower portfolio yields and the reduced volume of earning assets. Average total investments outstanding were $397,791,000 and $426,400,000 in the 2002 third quarter and nine months, compared to $478,630,000 and $488,300,000 in the comparable 2001 periods, declines of 17% and 13%, respectively.

The yield on the total portfolio was 8.12% and 8.20% in the 2002 third quarter and nine months, compared to 5.88% and 8.77% for the 2001 third quarter and nine months, which reflected the collateral appreciation participation loans writedown described above. Adjusted for the writedown, the portfolio yields in the 2001 periods were 9.19% and 9.58%, respectively, and the declines in the 2002 periods were 107 and 138 basis points, respectively, primarily reflecting the series of rate drops initiated by the Federal Reserve bank beginning in early 2001, which reduced the prime lending rate by 475 basis points, and by the higher level of nonaccrual loans. Partially offsetting the decreased yield was the continuing movement of portfolio composition towards higher-yielding commercial loans from lower-yielding medallion loans, partially as a result of the continued efforts at participating or selling off medallion loans, and their generally shorter maturity profile. Commercial loans represented 46% of the investment portfolio at September 30, 2002, compared to 44% at September 30, 2001 and 45% at December 31, 2001. Yields on medallion loans were 8.33% and 8.88% for the 2002 third quarter and nine months, compared to 8.89% and 9.05% a year ago, and yields on commercial loans were 9.14% and 9.22%, compared to 10.31% and 11.29% for the comparable 2001 periods.

Medallion loans were $202,461,000 at quarter end, down $17,004,000 or 8% from $219,465,000 at the end of the 2002 second quarter, and were down $65,379,000 or 24% from $267,840,000 a year ago, primarily reflecting the reclassification of certain Chicago loans to owned medallions, and other reductions in the New York, Chicago, and Boston markets. The commercial loan portfolio was $169,340,000 at quarter end, compared to $176,587,000 at the end of the second quarter, a decrease of $7,247,000 or 4%, and was down $31,343,000 or 16% from $200,683,000 a year ago, reflecting decreases in all business lines. In general, the decreases in the loan portfolios was a result of the banks and senior noteholders requiring the Company to reduce the level of outstandings in the revolving lines of credit and senior notes. See page 23 for a table which shows loan balances and portfolio yields by type of loan.

Interest expense was $5,011,000 and $15,690,000 in the 2002 third quarter and nine months, down $824,000 or 14% and $4,359,000 or 22% from $5,835,000 and $20,049,000 in the 2001 periods, primarily reflecting lower average balances outstanding in both periods, partially offset by higher rates in the 2002 third quarter. The Company’s borrowings from its bank lenders generally were repriced several times from the 2001 fourth quarter through the 2002 third quarter as a result of the negotiations and amendments to the loan agreements and notes, and as a result, included in interest expense was $0 and $1,389,000 in the 2002 third quarter and nine months of additional costs associated with the debt refinancings during the last 18 months, compared to none in the 2001 periods, which increased the Company’s cost of funds by 63 basis points. Excluding these amounts, interest expense in the 2002 nine months would have been $14,301,000, down $5,748,000 or 29% from 2001. In addition, during the 2002 second quarter, the majority of the Company’s loans matured and were subject to intensive discussions concerning the ultimate liquidation of the outstandings. The costs associated with these discussions, $5,871,000 and $8,972,000 for the 2002 third quarter and nine months, went well above and beyond the normal interest charges on the debt, and was classified to operating expenses as costs of debt extinguishment. Average debt outstanding was $263,400,000 and $300,897,000 for the 2002 quarter and year-to-date, compared to $346,201,000 and $371,738,000 for the 2001 periods, decreases of 22% and 21%, respectively. The Company’s debt is primarily tied to floating rate indexes, which began falling during early 2001, and continued to drop until late in the year. The Company’s average borrowing costs were 7.56% and 6.89% in the 2002 third quarter and nine months, compared to 6.69% and 7.18% in the year ago periods, an increase of 87 basis points in the quarter, and a decrease of 5 basis points in the nine months, compared to declines in market rates in excess of 300 basis points during the period. Approximately 74% of the Company’s debt is short-term and floating or adjustable rate, compared to 81% in the prior quarter, and 75% a year ago. See page 27 for a table which shows average balances and cost of funds for the Company’s funding sources.

Net interest income was $2,952,000 and $10,475,000, and the net interest margin was 3.01% and 3.28% for the 2002 quarter and nine months, up $1,752,000 and down $1,503,000 or 13% from $1,200,000 and $11,978,000 in the 2001 periods, representing net interest margins of 0.99% and 3.27% for the 2001 periods. Adjusted for the impact of the additional interest on the collateral appreciation participation loans, and for the additional costs associated with the debt refinancings as described above, the net interest margin was 3.01% and 3.72% in the 2002 quarter and nine months, and was 4.35% and 4.11% for the 2001 periods.

Noninterest income was $919,000 and $4,561,000 in the 2002 third quarter and nine months, up $1,486,000 and $2,427,000 from a loss of $567,000 and income of $2,134,000 in the 2001 periods. The Company had gains on the sale of loans of $147,000 and $736,000 in the quarter and nine months (which included gains on the sale of the guaranteed portion of SBA 7(a) loans of $147,000 and $628,000), down $81,000 or 36% and $185,000 or 20% from $228,000 and $736,000 in the year ago periods, which only included SBA sales. During 2002, $1,846,000 and $11,146,000 of loans were sold under the SBA program in the quarter and year-to-date, compared to $6,249,000 and $17,211,000 for the 2001 periods, declines of 70% and 35%. The decline in gains on sale reflected a decrease in loans sold, partially offset by a higher level of market-determined premiums received on the sales in the 2002 periods. Other income, which is comprised of servicing fee income,

prepayment fees, late charges, and other miscellaneous income, of $772,000 and $3,826,000 in the quarter and nine months, was up $1,567,000 and $2,613,000 from a loss of $795,000 and income of $1,213,000 in the year ago periods, primarily reflecting charges to revalue the servicing fee receivable by $2,057,000 and $2,171,000 in the 2001 quarter and nine months, as a result of substantial increases in prepayments on the serviced portfolio which resulted from the sharp decrease in interest rates, among other factors, and in the 2002 nine months, from a success fee earned on a mezzanine investment of $873,000, unusually large prepayment penalties of $127,000 for two loans, a $56,000 referral fee, and $55,000 from insurance proceeds received on a customer. Excluding those charges and fees, other income of $772,000 and $2,715,000 was down $491,000 or 39% and $670,000 or 20% from $1,263,000 and $3,385,000 in the 2001 quarter and nine months, primarily reflecting the impact of a lower asset base on fee income.

Operating expenses of $10,464,000 and $23,211,000 in the 2002 third quarter and nine months included costs related to debt extinguishment of $5,871,000 and $8,972,000 for prepayment penalties, default interest charges, loan fees, legal fees, and consultant costs. Excluding these costs, operating expenses were $4,593,000 and $14,239,000 in the 2002 periods, down $404,000 or 8% and up $1,003,000 or 8% from $4,996,000 and $13,236,000 in the 2001 quarter and year-to-date. Salaries and benefits expense for the 2002 periods of $2,221,000 and $6,959,000 were down $84,000 or 4% and $182,000 or 3% from $2,305,000 and $7,141,000 in the 2001 periods, primarily reflecting lower headcount. Professional fees of $558,000 and $2,074,000 for the quarter and year-to-date were down $269,000 or 33% and were up $266,000 or 15% from $827,000 and $1,809,000 in the year ago periods. The decrease in the quarter primarily reflected the write-off of $396,000 of capitalized costs in the 2001 quarter associated with certain financing transactions which were no longer being pursued. The increase in the nine month period reflected $248,000 of increased amortization of capitalized costs associated with debt and other financial transactions, the reimbursement of $162,000 of legal fees in 2001, and increased legal and accounting expenses. Amortization of goodwill was $0 in 2002, reflecting the change in accounting rules which no longer allow for goodwill amortization, compared to $254,000 and $521,000 in the 2001 periods, both of which also included the $116,000 write-off of all remaining goodwill related to the 1997 acquisition of BLL. Other operating expenses of $1,815,000 in the quarter and $5,206,000 in the nine months were up $204,000 or 13% from $1,611,000 in the 2001 quarter, were up $1,441,000 or 38% from $3,765,000 in the 2001 nine months, primarily reflecting operational cleanups that occurred in the 2001 nine months, which reduced operating expenses by $1,161,000, and in all periods, by increased insurance and other office-related expenses, and a higher level of collection costs on delinquent loans.

Net unrealized depreciation on investments was $747,000 in the 2002 third quarter, and was appreciation of $488,000 in the nine months, compared to depreciation of $3,686,000 and $2,720,000 in the respective year ago periods. Net unrealized appreciation on investments net of Media was $279,000 and $3,758,000 in the quarter and nine months, compared to depreciation of $2,186,000 and $910,000 in the year ago periods. Unrealized appreciation (depreciation) arises when the Company makes valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2002 third quarter activity resulted from the reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $974,000 ($5,006,000 for the nine months) and the increase in valuation of equity investments of $49,000 ($1,378,000 for the nine months), partially offset by unrealized depreciation of $743,000 ($2,623,000 for the nine months) and recoveries in the quarter of $1,000 ($3,000 for the nine months). The 2001 third quarter activity reflected additional reserves of $3,290,000 ($4,657,000 for the nine months) and the reversal of unrealized appreciation associated with securities sold of $3,000 ($126,000 for the nine months), partially offset by the reversal of unrealized depreciation associated with fully reserved investments which were charged off of $1,004,000 ($2,504,000 for the nine months), the increase in valuation of equity portfolio securities of $85,000 ($713,000 for the nine months), and the reversal of reserves previously established against certain loans of $0 ($179,000 for the nine months).

Also included in unrealized appreciation (depreciation) on investments were the net losses of the Media division of the Company. Media generated a net loss of $1,027,000 and $3,270,000 for the 2002 third quarter and nine months, a decrease of $473,000 and an increase of $1,460,000 compared to net losses of $1,500,000 and $$1,810,000 for the 2001 third quarter and year-to-date. Included in the 2002 nine months was a $656,000 tax benefit to reverse a portion of the $1,350,000 charge taken in the 2001 third quarter to establish a reserve against the realizability of deferred tax benefits previously recorded due to changes in Media’s tax situation and the greater costs associated with the rapid increase in tops under contract and cities serviced, which outpaced the increase in revenue. The reversal resulted from the change in the tax law allowing for an additional two year carryback. The decline in profits in 2002 primarily reflected decreased revenue, which continued to be impacted by contract cancellations and other business retrenchments resulting from the terrorist attacks in New York City and the economic downturn, partially offset by reduced fleet costs which declined at a slower rate than revenue as fleet contracts were renegotiated. Advertising revenues were $1,783,000 and $5,013,000 in the quarter and year-to-date, down $1,742,000 or 49% and $5,730,000 or 53% from $3,525,000 and $10,743,000 in the 2001 periods. Revenue in the 2001 nine months also included $567,000 related to contracts that were cancelled in prior periods due to

legislative changes and other factors. This revenue was recognized upon determination that Media had no further continued obligations under the contract. During 2001, Media exerted a greater effort to reduce the amount of deferred revenue by increasing capacity utilization, resulting in a drop of $4,618,000 in deferred revenue to $836,000 at September 30, 2002, compared to year end 2001, which included reductions of $1,295,000 and $4,340,000 in deferred revenue during the 2001 quarter and nine months, including the $567,000 related to contract cancellations referred to above. To the extent that Media cannot generate additional advertising revenue to replace the deferred revenue recorded in 2001, Media’s results of operations may be negatively impacted. Vehicles under contract were 9,700, down 800 or 8% from 10,500 a year ago, primarily reflecting efforts to reduce fleet costs. Media’s results also included losses of $200,000 and $518,000 for the quarter and nine months related to foreign operations, compared to $41,000 for both year ago periods.

The Company’s net realized loss on investments was $975,000 and $5,045,000 in the 2002 third quarter and nine months, compared to $1,003,000 and $2,505,000 for the 2001 periods, reflecting the above and direct chargeoffs of $3,000 and $41,000 for the 2002 quarter and nine months, and $0 for both 2001 periods.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

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

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

Interest Rate Cap Agreements

The Company seeks to manage the exposure of the portfolio to increases in market interest rates by entering into interest rate cap agreements to hedge a portion of its variable-rate debt against increases in interest rates and by incurring fixed-rate debt consisting primarily of subordinated SBA debentures and private term notes.

We entered into an interest rate cap agreement on a notional amount of $10,000,000 limiting our maximum LIBOR exposure on our revolving credit facility until June 24, 2002 to 7.25%.

Total premiums paid under the interest rate cap agreements have been expensed. There are no unamortized premiums on the balance sheet as of September 30, 2001. The Company will seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

In addition, the Company manages its exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures. The Company had outstanding SBA debentures of $67,845,000 with a weighted average interest rate of 6.23%, constituting 25.9% of the Company’s total indebtedness as of September 30, 2002.

Liquidity and Capital Resources

Our sources of liquidity are the revolving line of credit with Merrill Lynch, long-term SBA debentures that are issued to or guaranteed by the SBA, loan amortization and prepayments, and participations or sales of loans to third parties. As a RIC, we distribute at least 90% of our investment company taxable income; consequently, we primarily rely upon external sources of funds to finance growth. In September 2002, the Trust entered into a $250,000,000 revolving line of credit with Merrill Lynch for the purpose of funding medallion loans acquired from MFC and others. At September 30, 2002, $148,670,000 of this line was available for future use. In May 2001, the Company applied for and received $72,000,000 of additional funding with the SBA ($111,700,000 to be committed by the SBA in total), subject to the infusion of additional equity capital into the respective subsidiaries. At September 30, 2002, $25,515,000 of this commitment is still available. Since SBA financing subjects its recipients to certain regulations, the Company will seek funding at the subsidiary level to maximize its benefits.

The components of our debt were as follows at September 30, 2002:

	Balance		Percentage			Rate ⁽¹⁾

Revolving line of credit	$	101,330,000		38	%		3.58	%
SBA debentures		67,845,000		26			6.23
Notes payable to banks		85,536,000		33			5.26
Senior secured notes		6,933,000		3			8.85

Total outstanding debt	$	261,644,000		100	%		6.39

(1) Weighted average rate as of September 30, 2002.

FINANCING ARRANGEMENTS

	September 30, 2002		December 31, 2001

Revolving line of credit	$	101,330,000	$	—
Notes payable to banks		85,536,000		233,000,000
Senior secured notes		6,933,000		45,000,000

Total	$	193,799,000	$	278,000,000

(A) REVOLVING LINE OF CREDIT

(B) Notes payable to banks and senior secured notes

The Company Bank Loan matures August 31, 2003, and bears interest at the rate per annum of prime plus 0.5%. The amortization schedule is as shown on page 38. The Company Bank Loan permits the payment of dividends solely to the extent necessary to enable the Company to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with the Company’s dividend policy. The Company Bank Loan is secured by all receivables and various other assets owned by the Company. All financial covenants are waived during the term of the loan.

The MFC Bank Loan matures August 31, 2003, and bears interest at the rate per annum of prime, which increases to prime plus 0.5% on January 11, 2003, and further increases to prime plus 1% on May 11, 2003. The amortization schedule is as shown on page 37. The MFC Bank Loan permits the payment of dividends solely to the extent necessary to enable MFC to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with MFC’s dividend policy. The MFC Bank Loan is secured by all receivables and various other assets owned by MFC. The collateral for the MFC Bank Loan secures both the MFC Bank Loan and the MFC Note Agreements on an equal basis. All financial covenants are waived during the term of the loan.

The amended Company Bank Loan and MFC Bank Loan and Note Purchase Agreements (Financing Agreements) obligate the Company or MFC, as applicable, to prepay the loans under the applicable Financing Agreement in the event the outstanding amount thereunder exceeds an agreed upon borrowing base as defined in the loan documents (which generally equals a specified percentage of the eligible outstanding commercial and medallion loans plus cash). The Financing Agreements are guaranteed by Media, secured pro rata by 100% of Media's capital stock. In addition, as is standard with servicing agreements, the MLB Line contains a Servicer Default if MFC fails to satisfy certain financial tests and other requirements, but such failure does not, in and of itself, provide MLB the right to accelerate the maturity of loans. If MLB obtains the right to replace MFC as the servicer, and so notifies MFC and fails to retract such notice within seven days, the banks or note holders would thereupon obtain the right to replace the Company or MFC as servicer for the loans constituting collateral under their agreements.

Without the lenders prior written approval, the Financing Agreements continue to contain numerous and substantial operating restrictions on the Company and MFC, including restrictions on our ability to incur debt, incur liens, merge, consolidate, sell or transfer assets, loan and invest in third parties and our subsidiaries, repurchase or redeem stock, purchase portfolios, acquire or form other entities, amend certain material agreements, make capital expenditures, have outstanding intercompany receivables, and further securitize our assets. In addition to the amortization schedule for the loans and notes shown on page 37, the Company and MFC would be required to prepay the loans and notes out of the proceeds from the sale of equity, debt, or assets, subject to certain exceptions.

The Company Bank Loan

The MFC Bank Loan

MFC Note Agreements

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

The amendments require the following amortization schedule based on payment activity through September 30, 2002:

				MFC

	The Company Bank Loan			Bank Loan			Note Purchase Agreement		Total

2002
October	$	1,111,805	$		—	$		—	$	1,111,805
November		1,250,000			3,309,920			690,080		5,250,000
December		1,500,000			4,551,140			948,860		7,000,000
2003
January		1,500,000			17,790,820			3,709,180		23,000,000
February		23,500,000			1,654,960			345,040		25,500,000
March		1,000,000			1,654,960			345,040		3,000,000
April		18,000,000			827,480			172,520		19,000,000
May		1,000,000			827,480			172,520		2,000,000
June		1,000,000			827,480			172,520		2,000,000
July		1,000,000			827,480			172,520		2,000,000
August		1,421,000			981,460			204,743		2,607,154

Total	$	52,282,805	$		33,253,180	$		6,933,025	$	92,469,010

As of November 14, 2002, the amounts outstanding under the Company Bank Loan, the MFC Bank Loan and the MFC Note Purchase Agreements were $48,421,000, $24,712,000, and $5,152,000, respectively.

New Financing Arrangements

Interest and Principal Payments

Interest and principal payments are paid monthly. Interest on the bank loans is calculated monthly at a rate indexed to the bank’s prime rate. Substantially all promissory notes evidencing the Company’s and MFC’s investments, other than those held by the Trust, are held by a bank as collateral agent under the agreements. The Company and MFC are required to pay an amendment fee of 25 basis points on the amount of the aggregate commitment for the Company. As noted above, the amendments entered into during 2002 to the Company’s bank loans and senior secured notes involved changes, and in some cases increases, to the interest rates payable thereunder. In addition, during events of default, the interest rate borne on the lines of credit is based upon a margin over the prime rate rather than LIBOR. In addition to the interest rate charges, approximately $12,282,000 had been incurred through November 14, 2002 for attorneys and other professional advisors, most working on behalf of the lenders, of which $4,992,000 and $7,310,000 was expensed as part of costs of debt extinguishment in the 2002 third quarter and nine months, $182,000 and $642,000 was expensed as part of interest expense in the 2002 third quarter and nine months, and $173,000 was expensed as part of professional fees in the nine months ended September 30, 2002 ($0 in the third quarter). The balance of $4,179,000, which relates solely to the new Trust’s line of credit with Merrill Lynch, will be charged to interest expense over the remaining term of the line of credit.

The table below shows the costs of the debt and related amounts outstanding.

	Three months ended September 30,						Nine months ended September 30,

	2002			2001			2002			2001
The Company
Interest expense ⁽¹⁾	$	770,359		$	1,301,930		$	3,300,305		$	4,998,062
Costs of debt extinguishments		749,945			—			1,735,404			—

Total debt costs	$	1,520,304		$	1,301,930		$	5,035,709		$	4,998,062

Average borrowings outstanding	$	54,079,530		$	95,302,645		$	63,793,925		$	98,302,198
Interest rate ⁽²⁾		5.65	%		5.42	%		6.92	%		6.80	%
Total debt costs rate ⁽³⁾		11.15	%		5.42	%		10.55	%		6.80	%
Amount outstanding		—			—		$	52,282,805		$	81,050,000
Weighted average interest at period end		—			—			5.45	%		4.65	%
MFC
Interest expense ⁽¹⁾	$	2,870,732		$	3,850,383		$	9,232,938		$	13,147,188
Costs of debt extinguishments		5,120,572			—			7,236,896			—

Total debt costs	$	7,991,304		$	3,850,383		$	16,469,834		$	13,147,188

Average borrowings outstanding	$	142,174,418		$	219,371,195		$	170,901,449		$	243,391,648
Interest rate ⁽²⁾		8.01	%		6.98	%		7.23	%		7.24	%
Total debt costs rate ⁽³⁾		22.30	%		6.96	%		12.88	%		7.22	%
Amount outstanding		—			—		$	40,186,154		$	211,500,000
Weighted average interest at period end		—			—			5.62	%		6.35	%

Combined
Interest expense ⁽¹⁾	$	3,641,091		$	5,152,313		$	12,533,243		$	18,145,250
Costs of debt extinguishments		5,870,517			—			8,972,300			—

Total debt costs	$	9,511,608		$	5,152,313		$	21,505,543		$	18,145,250

Average borrowings outstanding	$	196,253,948		$	314,673,840		$	234,695,374		$	341,693,846

Interest rate ⁽²⁾		7.36	%		6.51	%		7.14	%		7.11	%
Total debt costs rate ⁽³⁾		19.23	%		6.50	%		12.25	%		7.10	%
Amount outstanding		—			—		$	92,468,959		$	292,550,000
Weighted average interest at period end		—			—			5.52	%		5.88	%

(1)     Includes commitment fees, and amortization of certain capitalized costs of obtaining debt.
(2)     Represents interest expense for the period presented as a percentage of average borrowings outstanding.
(3)     Represents total debt costs for the period presented as a percentage of average borrowings outstanding.

(C) Interest Rate Cap Agreements

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

In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a

result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with short term floating rate debt, and to a lesser extent with long-term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. The Company has analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates would have affected net increase (decrease) in assets by less than 4% over a nine month horizon. Although management believes that this measure is indicative of the Company’s sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase (decrease) in assets. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate.

During the 2001 second and third quarters, the Company completed an equity offering of 3,660,000 common shares at $11 per share raising over $40,000,000 of additional capital. The Company continues to work with investment banking firms to investigate the viability of a number of other financing options which include, among others, the sale or spin off certain assets or divisions, the development of a securitization conduit program and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for the Company and each of the subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at September 30, 2002:

(Dollars in thousands)	The Company			MFC			BLL		MCI			MBC		FSVC			Total 9/30/02			6/30/02			3/31/02			12/31/01

Cash	$	686		$	7,462		$	312	$	7,070		$	3,650	$	1,868		$	21,048		$	28,920		$	32,064		$	25,409
Bank loans ⁽¹⁾																					204,930			290,000			318,000
Amounts outstanding		52,283			33,253													85,536			195,028			219,289			233,000
Average interest rate		5.45	%		4.95	%												5.26			8.11	%		5.02	%		5.30	%
Maturity		8/03			8/03													8/03			Matured			5/02-6/02			11/01-6/02
Lines of Credit ⁽²⁾					250,000													250,000			—			—			—
Amounts available					148,670													148,670			—			—			—
Amounts outstanding					101,330													101,330			—			—			—
Average interest rate					3.58	%												3.58	%		—			—			—
Maturity					9/03													9/03			—			—			—
SBA debentures ⁽³⁾										46,500					46,860			93,360			93,360		$	93,360			93,360
Amounts available										21,000					4,515			25,515			40,515			43,515			49,515
Amounts outstanding										25,500					42,345			67,845			52,845			49,845			43,845
Average interest rate										7.31	%				5.58	%		6.23	%		7.11	%		6.50	%		6.96	%
Maturity										3/06-3/12					12/02-3/13			12/02-3/13			12/02-3/13			12/02-9/11			12/02-12/11
Senior secured notes ⁽¹⁾					6,933													6,933			29,209		$	44,000			45,000
Average interest rate					8.85	%												8.85	%		10.35	%		8.35	%		7.35	%
Maturity					8/03													8/03			6/03			6/02			6/04-9/04

Total cash and amounts undisbursed under credit facilities	$	686		$	156,132		$	312	$	28,070		$	3,650	$	6,383		$	195,233		$	69,435		$	75,579		$	74,924

Total debt outstanding	$	52,283		$	141,516		$	—	$	25,500		$	—	$	42,345		$	261,644		$	277,082		$	313,134		$	321,845

	(1) The Bank loans have been renewed in a term debt agreement maturing August 31, 2003. There are fixed amortization requirements each month.
	(2) New line of credit with Merrill Lynch for medallion lending.
	(3) The remaining amounts under the approved commitment from the SBA may be down through May 2006, upon submission of a request for funding by the Company and it subsequent acceptance by the SBA.

Loan amortization, prepayments, and sales also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, medallion loan market rates, economic conditions, and competition. Medallion loan prepayments have slowed since early 1994, initially because of increases, and then stabilization, in the level of interest rates, and more recently because of an increase in the percentage of medallion loans, which are refinanced with the Company rather than through other sources of financing. Loan sales are a major focus of the SBA Section 7(a) loan

program conducted by BLL, which is primarily set up to originate and sell loans. Increases in SBA 7(a) loan balances in any given period generally reflect timing differences in selling and closing transactions.

Furthermore, the Company has submitted an application to receive a bank charter for an Industrial Loan Company (ILC) to be headquartered in Salt Lake City, Utah, which if granted, would permit the Company to receive deposits insured by the Federal Deposit Insurance Corporation. The Company has held meetings with the relevant regulatory bodies in connection with such an application. There can be no assurances that such financings will be obtained or that any application related to a bank charter would be approved.

Media funds its operations through internal cash flow and inter-company debt. Media is not a RIC and, therefore, is able to retain earnings to finance growth. Media’s growth prospects are currently constrained by the operating environment and distressed advertising market that resulted from September 11th and the economic downturn. Media has developed an operating plan to fund only necessary operations out of available cash flow and to escalate its sales activities to generate new revenues. Although there can be no assurances, Media and the Company believe that this plan will enable Media to weather this downturn in the advertising cycle and maintain operations at existing levels until such times as business returns to historical levels.

Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 142, “Goodwill and Other Intangible Assets,” requiring that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually, effective for fiscal years beginning after December 15, 2001.

In August 2001, the FASB issued Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which establishes an accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions, effective for fiscal years beginning after December 15, 2001.

The Company adopted these standards effective January 1, 2002, and has determined that there is no financial statement impact of adoption. At September 30, 2002, the Company had $5,008,000 of goodwill on its consolidated balance sheet and $2,082,000 was recorded on the balance sheet of Media, its wholly-owned subsidiary, that is subject to the asset impairment review required by SFAS No. 142.

Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol TAXI. Our common stock commenced trading on May 23, 1996. As of November 13, 2002, there were approximately 121 holders of record of the Company’s common stock.

On November 13, 2002, the last reported sale price of our common stock was $4.61 per share. The following table sets forth the range of high and low closing prices of the common stock as reported on t

he NASDAQ National Market for the periods indicated:


2002	HIGH		LOW

Third Quarter	$	5.25	$	3.00
Second Quarter		7.20		3.71
First Quarter		9.20		7.77

2001

Fourth Quarter	$	9.52	$	6.90
Third Quarter		10.98		7.67
Second Quarter		13.54		8.46
First Quarter		15.09		8.52

We have distributed and currently intend to continue to distribute at least 90% of our investment company taxable income to our stockholders. Distributions of our income are generally required to be made within the calendar year the income was earned to maintain our RIC status; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Our investment company taxable income includes, among other things, dividends and interest reduced by deductible expenses. Our ability to make dividend payments is restricted by certain asset coverage requirements under the 1940 Act and is dependent upon maintenance of our status as a RIC under the Code.

Our ability to make dividend payments is further restricted by certain financial covenants contained in our credit agreements, which require paydowns on amounts outstanding if dividends exceed certain amounts, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances; however, that we will have sufficient earnings to pay such dividends in the future.

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

INVESTMENT CONSIDERATIONS

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

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

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

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

Because we must distribute our income, we have a continuing need for capital.

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

	• line of credit for medallion lending;

	• loan amortization and prepayments;

	• sales and participations of loans; and

	• fixed-rate, long-term SBA debentures that are issued to or guaranteed by the SBA

As a Regulated Investment Company (RIC), we are required to distribute at least 90% of our investment company taxable income. Consequently, we primarily rely upon external sources of funds to finance growth. At September 30, 2002, we had $148,670,000 available under the Trust’s medallion lending revolving line of credit and $25,515,000 available under outstanding commitments from the SBA.

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

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

Our borrowers may default on their loans.

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

	• the failure to meet its business plan;

	• a downturn in its industry or negative economic conditions;

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

	• the inability to obtain additional financing from traditional sources.

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

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

We use financial leverage through bank syndicates, our senior secured notes, and our long-term, subordinated SBA debentures. Leverage poses certain risks for our stockholders:

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

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

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

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

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

If we are unable to continue to diversify geographically, our business may be adversely affected if the New York taxicab industry continues to experience an economic downturn.

Although we are diversifying from the New York City area, a significant portion of our taxicab advertising and loan revenue is derived from New York City taxicabs and medallion loans collateralized by New York City taxicab medallions.

An economic downturn in the New York City taxicab industry could lead to an increase in defaults on our medallion loans and may also adversely affect the operation of our taxicab rooftop advertising business. There can be no assurance that we will be able to sufficiently diversify our operations geographically.

The economic downturn has resulted in certain of our commercial loan customers experiencing declines in business activities, which could lead to difficulties in their servicing of their loans with us. If the economic downturn continues, the level of delinquencies, defaults, and loan losses in commercial loan portfolio could increase. The terrorist attack on New York City on September 11, 2001 and the economic downturn have affected our revenues by increasing loan delinquencies and non-performing loans, increasing prepayments, stressing collateral value and decreasing taxi advertising. Although the Company believes the estimates and assumptions used in determining the recorded amounts of net assets and liabilities at September 30, 2002 are reasonable, actual results could differ materially from the estimated amounts recorded in the Company’s financial statements.

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

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

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

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

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

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

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

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

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

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

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

Considering these factors, we have determined that the fair value of our portfolio is below its cost basis. At September 30, 2002, our net unrealized depreciation on net investments was approximately $3,744,000. Based upon current market conditions and current loan-to-value ratios, our board of directors believes that the net unrealized depreciation on investments is adequate to reflect the fair value of the portfolio.

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

Every city in which we originate medallion loans, and most other major cities in the United States, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. We are unable to forecast with any degree of certainty whether any potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses can render taxicab operations less profitable, and could cause borrowers to default on loans from the Company, and could potentially adversely affect the value of the Company’s collateral.

A significant portion of our taxicab advertising and loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City Taxi and Limousine Commission data, over the past 20 years New York City taxicab medallions have appreciated in value an average of 10% each year. However, for sustained periods during that time, taxicab medallions have declined in value. New York City taxicab medallions have increased 2%-3% and 6%-8% during the 2002 third quarter and nine months.

Our failure to maintain our Subchapter M status could lead to a substantial reduction in the amount of income distributed to our shareholders.

We, along with some of our subsidiaries, have qualified as regulated investment companies under Subchapter M of the Code. Thus, we will not be subject to federal income tax on investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) distributed to our shareholders. If we or those of our subsidiaries that are also regulated investment companies were to fail to maintain Subchapter M status for any reason, our respective incomes would become fully taxable and a substantial reduction in the amount of income available for distribution to us and to our shareholders would result.

To qualify under Subchapter M, we must meet certain income, distribution, and diversification requirements. However, because we use leverage, we are subject to certain asset coverage ratio requirements set forth in the 1940 Act. These asset coverage requirements could, under certain circumstances, prohibit us from making distributions that are necessary to maintain our Subchapter M status or require that we reduce our leverage.

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

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

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

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

We intend to continue to pursue an expansion strategy in our taxicab rooftop advertising business. We believe that there are growth opportunities in this market. However, the asset diversification requirements under Subchapter M could restrict such expansion. These requirements provide that, as a RIC, not more than 25% of the value of our total assets may be invested in the securities (other than U.S. Government securities or securities of other RIC’s) of any one issuer. While our investments in our RIC subsidiaries are not subject to this diversification test so long as these subsidiaries are RIC’s, our investment in Media is subject to this test.

At the time of our original investment, Media represented approximately 1% of our total assets, which is in compliance with the diversification test. The subsequent growth in the value of Media by itself will not re-trigger the test even if Media represents in excess of 25% of our assets. However, under Subchapter M, the test must be reapplied in the event that we make a subsequent investment in Media, lend to it or acquire another taxicab rooftop advertising business. If we were to fail a subsequent test, we would lose our RIC status. As a result, our maintenance of RIC status could limit our ability to expand our taxicab rooftop advertising business. It will be our policy to expand our advertising business through internally generated growth. We will only consider an acquisition in this area if we will be able to meet Subchapter M’s diversification requirements.

The fair value of the collateral appreciation participation loan portfolio at September 30, 2002 was $950,000, which represented less than 1% of the total investment portfolio, and the owned medallion portion was $8,000,000 or 1.8% of total assets. We will continue to monitor the levels of these asset types in conjunction with the diversification tests.

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

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

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

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

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

We are a holding company and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but there can be no assurance that our subsidiaries will be in a position to continue to make these dividend or debt payments.

We operate in a highly regulated environment.

We are regulated by the SEC and the SBA. In addition, changes in the laws or regulations that govern business development companies, RIC’s, or SBIC’s may significantly affect our business. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change. Any change in the laws or regulations that govern our business could have a material impact on our operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosure about market risk since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation of the Company’s disclosure controls and procedures as of a date within 90 days of the filing of this report, the Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect such controls subsequent to the date of their evaluation.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1	Amendement No. 5 to Second Amended and Restated Loan Agreement and Limited Waiver, dated as of September 11, 2002, by and among, the Company, MBC and the parties thereto. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.2	Amendment No. 8 to Amended and Restated Loan Agreement, Limited Waiver and Consent, dated as of September 11, 2002, by and among MFC and the parties thereto. Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein

10.3	Fourth Amendmend to the Note Purchase Agreements, Limited Waiver and Consent, dated as of September 11, 2002, by and among MFC and the parties thereto. Filed as Exhibit 10.3 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.4	Loan and Security Agreement, Fourth Amendment to the Note Purchase Agreements, Limited Waiver and Consent, dated as of September 11, 2002, by and among MFC and the parties thereto. Filed as Exhibit 10.4 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.5	Loan and Sale Contribution Agreement, dated as of September 13, 2002, between the Company and the Trust. Filed as Exhibit 10.5 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.6	Loan Sale and Exchange Agreement, dated as of September 13, 2002, between the Company and MFC. Filed as Exhibit 10.6 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.7	Servicing Agreement, among MFC, the Trust and the parties thereto, dated as of September 13, 2002. Filed as Exhibit 10.7 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.8	Custodial Agreement, dated as of September 13, 2002, among the lenders thereto, the Trust, MFC and Wells Fargo. Filed as Exhibit 10.8 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

10.9	Amended and Restated Trust Agreement, dated as of September 13, 2002, by and between MFC and Wachovia Trust Company, National Association. Filed as Exhibit 10.9 to the Current Report on Form 8-K filed on September 18, 2002 (File No. 000-27812) and incorporated by reference herein.

99.1	Certification by the CEO pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2	Certification by the CFO pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On September 19, 2002, the Company filed a Current Report on Form 8-K disclosing the consummation of the MLB line and the amendments to the Company Bank Loan, MFC Bank Loan and MFC Note Agreements.

MEDALLION FINANCIAL CORP.

SIGNATURES

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

MEDALLION FINANCIAL CORP.

Date:	November 14, 2002

By:	/s/ JAMES E. JACK	By:	/s/ LARRY D. HALL

	James E. Jack Executive Vice President and Chief Financial Officer Signing on behalf of the registrant as principal financial officer.		Larry D. Hall Senior Vice President and Chief Accounting Officer Signing on behalf of the registrant as principal accounting officer.

I, Alvin Murstein, Chairman and Chief Executive Officer, certify that:

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

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

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

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

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

Date: November 14, 2002

	/s/ ALVIN MURSTEIN

	Alvin Murstein Chairman and Chief Executive Officer

I, James E. Jack, Chief Financial Officer, certify that:

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

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 14, 2002

	/s/ JAMES E. JACK

	James E. Jack Chief Financial Officer