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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

For the Fiscal Year Ended June 30, 2004

Or

For the transition period from              to             

Commission file number 0-19604

AAMES FINANCIAL CORPORATION

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (323) 210-5000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001

Preferred Stock purchase rights

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

At August 17, 2004, there were outstanding 7,006,114 shares of the Common Stock of Registrant, and the aggregate market value of the shares held on that date by non-affiliates of the Registrant, based on the closing price ($2.07 per share) of the Registrant’s Common Stock as quoted on the Over-the-Counter Bulletin Board was $14,502,656. For purposes of this computation, it has been assumed that the shares beneficially held by directors and executive officers of Registrant were “held by affiliates”; this assumption is not to be deemed to be an admission by such persons that they are affiliates of Registrant.

Documents Incorporated by Reference

None.

PART I

Item 1.    Business

General

Aames Financial Corporation (the “Company”) is a mortgage banking company focused primarily on originating, selling and servicing mortgage loans through both wholesale and retail channels. Upon its formation in 1991, the Company acquired Aames Home Loan, a home equity lender making loans in California since it was founded in 1954. In 1995, the Company expanded its retail presence outside of California and began purchasing loans from correspondents. In August 1996, the Company acquired its wholesale production channel through the acquisition of One Stop Mortgage, Inc. In 1999, the Company consolidated its loan production channels into one company. The retail and wholesale production channels now operate under the name “Aames Home Loan.”

The Company’s principal market is borrowers whose financing needs are not being met by traditional mortgage lenders for a variety of reasons, including the need for specialized loan products or credit histories that may limit such borrowers’ access to credit. The Company believes these borrowers continue to represent an underserved niche of the residential mortgage loan market and present an opportunity to earn a superior return for the risk assumed. The residential mortgage loans originated by the Company, which include fixed and adjustable rate loans, are generally used by borrowers to consolidate indebtedness or to finance other consumer needs, and to a lesser extent, to purchase homes.

The Company originates loans in 47 states through its retail and wholesale channels. The Company’s retail channel produces loans through its retail branch network and through the National Loan Centers serving borrowers throughout the United States. The Company’s wholesale channel produces loans through account executives working throughout the United States (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or “flow” basis) and by sourcing loans through telemarketing and the Internet. During the years ended June 30, 2004, 2003 and 2002, the Company originated $7.0 billion, $4.4 billion and $3.2 billion, respectively, of mortgage loans.

As a fundamental part of its business and financing strategy, the Company sells its loans to third party investors in the secondary market as market conditions allow. The Company maximizes opportunities in its loan disposition transactions by disposing of its loan production through a combination of securitizations and whole loan sales, depending on market conditions, profitability and cash flows. During the years ended June 30, 2004, 2003 and 2002, the Company sold $6.4 billion, $4.5 billion and $3.2 billion, respectively, of loans. See “—Loan Disposition.”

The Company’s servicing portfolio consists primarily of mortgage loans serviced for others on an interim basis, which includes loans sold where servicing has not yet been transferred and loans held for sale and, to a lesser extent, loans securitized prior to the year ended June 30, 2000 for which the Company retained servicing. During the year ended June 30, 2004, the Company did not dispose of mortgage loans through a securitization. During the years ended June 30, 2003 and 2002, the Company sold for cash the servicing rights on the mortgage loans in the securitizations it closed during those periods. The Company has not added any new mortgage loans to the servicing portfolio (except for loans serviced on an interim basis) since January 1, 2000 due to the Company’s sale of all of its mortgage loan production in servicing released transactions. At June 30, 2004, 2003 and 2002, the Company’s total servicing portfolio was $2.3 billion, $1.7 billion and $2.3 billion, respectively. The Company’s portfolio of mortgage loans in securitization trusts serviced in-house was $0.2 billion, $0.7 billion and $1.2 billion at June 30, 2004, 2003 and 2002, respectively.

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Business Strategy

The Company’s goal is to maximize stockholder value and increase earnings by:

The strategies discussed above contain forward-looking statements. Such statements are based on current expectations and are subject to risks, uncertainties and assumptions, including those discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Thus, no assurance can be given that the Company will be able to accomplish the above strategies.

Recent Events

Proposed REIT Conversion.    On March 24, 2004, Aames Investment Corporation, a wholly-owned subsidiary of the Company, filed with the United States Securities and Exchange Commission a registration statement on Form S-4, including the preliminary joint proxy statement/prospectus which constitutes a part of the Form S-4, and a registration statement on Form S-11 in connection with the Company’s proposed conversion into a real estate investment trust, or REIT, and initial public offering.

After careful review, on May 12, 2004, the Company’s Board of Directors unanimously approved a plan to change the Company’s corporate structure to become a REIT and conduct an initial public offering of the shares of Aames Investment Corporation’s common stock, subject to relevant legal, accounting and financial matters, and stockholder approval.

Although the registration statements relating to the issuance of Aames Investment Corporation’s common stock in connection with the proposed REIT conversion and initial public offering have been filed with the SEC, they have not yet become effective. These securities may not be sold, nor may offers to buy the securities be accepted, prior to the time the registration statements become effective. This disclosure does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.

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Aames Investment Corporation will file an amended Form S-4 registration statement, including a definitive joint proxy statement/prospectus that is a part of the registration statement, and other documents with the SEC. Stockholders of the Company are encouraged to read the registration statement, the joint proxy statement/prospectus and any other relevant documents filed with the SEC because they will contain important information about the proposed transaction. The definitive joint proxy statement/prospectus will be mailed to the Company’s stockholders. Investors and security holders can obtain the documents free of charge at the SEC’s web site at www.sec.gov. After the registration statement containing the joint proxy statement/prospectus is declared effective by the SEC, the joint proxy statement/prospectus and other documents will be available free of charge by contacting John F. Madden, Jr., Secretary, Aames Financial Corporation, 350 S. Grand Avenue, 43^rd Floor, Los Angeles, California 90071, or by e-mailing the Company’s Investor Relations Department at info@aamescorp.com.

The Company, Aames Investment Corporation, their directors, and certain of their executive officers may be considered participants in the solicitation of proxies in connection with the proposed reorganization. Information about such persons’ interest in the reorganization, by way of security holdings or otherwise, may be found in the proxy statement for the Company’s 2003 annual meeting of stockholders and in the registration statement on Form S-4 filed by Aames Investment Corporation, including the joint proxy statement/prospectus, that will be sent to the Company’s stockholders.

The statements above regarding the Company’s REIT conversion may be deemed to be forward-looking statements under federal securities laws. The Company intends that such forward-looking statements be subject to the safe harbor created thereby. Such forward-looking statements include, but are not limited to, the expectation that the Company will complete the REIT conversion.

Net Income.    The Company reported net income of $90.7 million for the year ended June 30, 2004 compared to a net income of $29.2 million during the year ended June 30, 2003. Net income during the year ended June 30, 2004 and 2003 includes income tax benefits of $17.7 million and $1.8 million, respectively. Net interest income and other income during the year ended June 30, 2004 was $312.8 million, an increase of $81.1 million over the $231.7 million reported for the year ended June 30, 2003. Operating expenses, which includes personnel, production, general and administrative expenses and residual interest write-downs, was $239.8 million, an increase of $3.7 million over the $236.1 million of operating expenses during the year ended June 30, 2003. During the year ended June 30, 2004, the Company did not report any non-operating income or non-operating expense items. During the year ended June 30, 2003, the Company recognized $31.7 million of debt extinguishment income which it classified as non-operating income.

Revolving Warehouse and Repurchase Facilities.    During the year ended June 30, 2004, the Company increased its total capacity under its revolving warehouse and repurchase facilities to $1.9 billion of which $1.8 billion and $100.0 million was committed and uncommitted, respectively, from $900.0 million committed at June 30, 2003. Subsequent to June 30, 2004, the Company obtained one additional $500.0 million fully committed warehouse facility.

Quarterly Cash Preferred Stock Dividend.    On August 25, 2004, the Company’s Board of Directors declared a cash dividend of approximately $2.9 million, to be paid on September 30, 2004 to holders of its preferred stock on September 15, 2004.

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Mortgage Loan Production

The Company offers a variety of both fixed rate and hybrid/adjustable rate loans. The Company’s principal loan product is a subprime residential mortgage loan with a fixed principal amount and term to maturity which is secured by a first or second mortgage on the borrower’s residence with either a fixed or adjustable interest rate. Subprime residential mortgage loans are loans made to homeowners whose borrowing needs may not be met by traditional financial institutions due to credit exceptions or other factors and generally cannot be directly marketed to agencies such as Fannie Mae and Freddie Mac. During the year ended June 30, 2004, the Company originated its residential mortgage loans through its retail and wholesale production channels. The Company’s retail channel produces loans through its retail branch network and through the National Loan Centers serving borrowers throughout the United States. The Company’s wholesale channel produces loans through its account executives throughout the United States (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or “flow” basis) and by sourcing loans through telemarketing and the Internet.

The following table presents certain information about the Company’s mortgage loan production at or during the years ended June 30, 2004, 2003 and 2002:

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The following table summarizes certain information about the Company’s mortgage loan production during the years ended June 30, 2004, 2003 and 2002 (in thousands):

NM Not Meaningful

The following table shows the Company’s loan originations by geographic region during the years ended June 30, 2004, 2003 and 2002 (dollars in thousands):

Total Loan Production.    Total loan production during the year ended June 30, 2004 increased $2.5 billion, or 57.2%, to $7.0 billion over $4.4 billion of total loan production during the year ended June 30, 2003 which, in turn, was a $1.2 billion, or 37.5%, increase over the $3.2 billion during the year ended June 30, 2002. The Company’s total loan production volumes increased during the year ended June 30, 2004 over production volumes during the year ended June 30, 2003 due to a combination of the Company’s adoption of new mortgage loan product guidelines, continued strong demand for subprime products in the generally favorable mortgage

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interest rate environment prevailing in the marketplace, growth in the number of sales staff in the retail channel, and improved geographic diversification in the wholesale channel. The increase in the Company’s total loan origination volumes during the year ended June 30, 2003 over production volumes during the year ended June 30, 2002 was due to a combination of the continuing favorable mortgage interest rate environment and, to a lesser extent, the issuance of new uniform underwriting guidelines throughout the Company designed to improve the Company’s competitive position and to provide greater underwriting consistency among the retail and wholesale origination channels.

Production Channels

Retail Loan Channel.    The Company originates mortgage loans through its retail branch network and through its National Loan Centers serving borrowers throughout the United States. At June 30, 2004, the Company had 99 retail offices including the National Loan Centers. The Company continually monitors its retail operations and evaluates current and potential retail offices on the basis of selected demographic statistics, marketing analyses and other criteria developed by the Company.

The Company generates applications for loans through its retail loan office network principally through a direct response marketing program, which relies primarily on the use of direct mailings to homeowners, telemarketing and Internet generated leads. The Company believes that its marketing efforts establish name recognition and serve to distinguish the Company from its competitors. The Company continually monitors the sources of its applications to determine the most effective methods and manner of marketing. The Company conducts extensive telemarketing sales through which a significant portion of its retail loan business is generated. The Company generates customer leads for the retail network based upon Company derived models and commercially developed customer lists. The Company’s direct mail invites prospective borrowers to call the Company to apply for a loan. The Company also generates leads through several commercially available Internet sites as well as through its own Internet web site “Aames.net”. Customer leads, whether generated through direct mail or the Internet, are generally followed up by telephone calls to potential customers. On the basis of an initial screening conducted at the time of the call, the Company’s loan officer makes a preliminary determination of whether the customer and the property meet the Company’s lending criteria. The loan officer may complete the application over the telephone or by mail, or schedule an appointment in the retail loan office most conveniently located to the customer or in the customer’s home, depending on the customer’s needs.

Whether in the retail branches or in the National Loan Centers, the loan officer assists the applicant in completing the loan application, arranges for an appraisal, orders a credit report from an independent, nationally recognized credit reporting agency and performs various other tasks in connection with the completion of the loan package. The loan package is underwritten for loan approval on a centralized basis. If the loan package is approved, the loan is funded by the Company. The Company’s loan officers are trained to structure loans that meet the applicant’s needs while satisfying the Company’s lending guidelines.

Retail Production.    The Company’s total retail production was $2.4 billion during the year ended June 30, 2004, an increase of $605.0 million, or 33.7%, over the $1.8 billion of total retail production reported during the year ended June 30, 2003 which, in turn, was a $185.6 million, or 11.5%, increase over the $1.6 billion of total retail production reported during the year ended June 30, 2002.

Retail production increased in dollar volume during the year ended June 30, 2004 over a year ago primarily due to a 22.9% increase in the number of loans originated coupled with an 8.7% increase in the average loan size. The increase in average loan size and increase in number of units was primarily due to the Company’s decision to expand existing branches and open new branches. The Company increased its total number of retail branches by six during the year ended June 30, 2004.

The Company will continue to evaluate its retail branch presence in the markets in which it operates to further enhance its mortgage loan production capabilities.

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Wholesale Channel.    During the year ended June 30, 2004, the Company originated loans through its network of approximately 4,760 independent wholesale mortgage brokers throughout the United States, none of which accounted for more than 5.0% of total wholesale originations.

The Company reviews all potential brokers and must approve each potential broker prior to conducting business with it. Pursuant to its broker approval procedures, the Company requires a prospective broker to complete a formal application, verifies the broker’s licensing status with applicable regulatory agencies, reviews industry reports concerning broker conduct and prior history of complaints, and requires the broker to acknowledge and agree to abide by the Company’s fair lending and consumer best practices lending policies.

The broker’s role is to identify the applicant, assist in completing the loan application, gather necessary information and documents, submit the application requesting the interest rate and terms of the loan, and serve as the Company’s liaison with the borrower through the lending process. The Company reviews and underwrites the applications submitted by the broker in accordance with the Company’s underwriting guidelines. The Company approves or denies the application or counter offers the requested interest rate and other terms of the loan and, if approved, upon acceptance by the borrower and satisfaction of all conditions imposed by the Company, funds the loan. Because brokers conduct their own marketing and employ their own personnel to complete loan applications and maintain contact with borrowers, originating loans through the Company’s wholesale network allows the Company to increase its loan volume without incurring the higher marketing, employee and occupancy costs associated with retail originations.

Because mortgage brokers generally submit loan files to several prospective lenders simultaneously, consistent underwriting, quick response times and personal service are critical to successfully producing loans through independent mortgage brokers. To meet these requirements, the Company strives to provide quick response time to the loan application (generally within 24 hours). In addition, the loans are processed and underwritten in regional wholesale operations centers, and loan consultants, loan processors and underwriters are available to answer questions, assist in the loan application process and facilitate ultimate funding of the loan. The Company believes its wholesale processes enable it to fund loans faster than many of the Company’s competitors.

The Company uses telemarketing and the Internet to increase its wholesale loan production and further penetrate the wholesale subprime mortgage loan market through its “Broker Direct” program. Through Broker Direct, the Company makes outbound telemarketing calls to brokers that have been inactive for the past 90 days and brokers who are not currently doing business with the Company or are outside the geographic areas served by the loan officers. The Company also obtains leads through its internet web site “AamesDirect.com.” The Company expects “Broker Direct” to continue to generate an increasing dollar amount and percentage of wholesale loan production in the coming quarters as general market acceptance by brokers of broker telemarketing and Internet use grows and the Company continues to enhance its “Broker Direct” capabilities.

Wholesale Production.    The Company’s total wholesale production increased $1.9 billion, or 73.1%, to $4.6 billion during the year ended June 30, 2004 over the $2.7 billion of total wholesale production during the year ended June 30, 2003. In November 2003, the Company added a regional wholesale operations center in the Northeastern United States, which enabled it to increase its production in that region.

The Company’s total wholesale loan production increased $1.1 billion, or 62.4%, to $2.7 billion during the year ended June 30, 2003 over $1.6 billion of total wholesale loan production during the year ended June 30, 2002.

Underwriting

The Company underwrites each mortgage loan that it originates in both its wholesale and retail channels in accordance with its underwriting guidelines. The Company has developed underwriting processes and criteria that it believes generate quality loans and give it the ability to approve and fund loans quickly. Its underwriting

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guidelines are designed to help it evaluate a borrower’s credit history, capacity, willingness and ability to repay the loan, and the value and adequacy of the collateral. The Company reviews the borrower’s credit history from all three nationally recognized credit bureaus. In addition, the Company reviews credit scores derived from the borrower’s credit history by one or more nationally recognized credit scoring models.

The Company’s underwriting policy is to analyze the overall situation of the borrower and to take into account compensating factors that may be used to offset certain areas of weakness. These compensating factors include the borrower’s history of payments on his prior mortgage, credit scores, proposed reductions in the borrower’s debt service expense, employment stability, number of years in residence and net disposable income. Based upon this analysis, the Company can determine loan terms and conditions to produce loans that it believes are appropriately priced, meet its quality standards, and are profitable. The Company’s underwriting process and guidelines require a rigorous application review and documentation designed to determine the borrower’s ability to repay the loan and maximize the value of its mortgage loans.

Underwriting Personnel.    All of the Company’s loans are underwritten by its on-staff underwriting personnel. The Company does not delegate underwriting authority to any broker or third party. The Company regularly trains its loan originators on emerging trends in production, and believes that its originators and underwriters are highly qualified and experienced and are familiar with its underwriting guidelines. The Company believes that its underwriting process, the experience of its loan originators and branch managers, its information systems and its rigorous quality control process ensure the continued quality of its loans.

Underwriting Guidelines.    A critical function of the Company’s underwriting process is to identify the level of credit risk associated with each applicant for a mortgage loan. The Company has established six principal classifications, with respect to the credit profile of potential borrowers, and has assigned a rating to each loan based upon these classifications. The Company assigns credit grades by analyzing mortgage payment history, consumer credit history, credit score, bankruptcy history and debt-to-income ratio. If an individual loan application does not meet the Company’s formal written underwriting guidelines, the Company’s underwriters can make underwriting exceptions up to certain limits within its formal exception policies and approval authorities. The Company may, from time to time, apply underwriting criteria that are either more stringent or more flexible depending upon the economic conditions of a particular geographic market. For the nine months ended June 30, 2004, during which the Company’s current underwriting guidelines, called Super Aim, were in effect, 71.1% of the loans the Company originated were classified as A+, 13.5% as A, 5.6% as A-, 6.4% as B, 2.7% as C and 0.7% as C-.

Credit scores are obtained by the Company in connection with mortgage loan applications to help assess a borrower’s creditworthiness. Credit scores are obtained from credit reports provided by various credit reporting organizations, each of which may employ differing computer models and methodologies. The credit score is designed to assess a borrower’s credit history at a single point in time, using objective information currently on file for the borrower at a particular credit reporting organization. Information utilized to create a credit score may include, among other things, payment history, delinquencies on accounts, level of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. Credit scores generally range from approximately 400 to approximately 800, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. However, a credit score purports only to be a measurement of the relative degree of risk a borrower represents to a lender; that is, a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score. Moreover, credit scores were developed to indicate a level of default probability over the period of the next two years, which does not correspond to the life of a mortgage loan. Furthermore, credit scores were not developed specifically for use in connection with mortgage loans, but for consumer loans in general. Therefore, a credit score does not take into consideration the differences between mortgage loans and consumer loans generally or the specific characteristics of the related mortgage loan including, for example, the LTV or CLTV (defined below), the collateral for the mortgage loan, or the debt to income ratio. There can be no assurance that the credit scores of the mortgagors will be accurate predictors of the likelihood of repayment of the related mortgage loans.

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An assessment of the adequacy of the real property as collateral for the loan is primarily based upon an appraisal of the property and a calculation of the loan-to-value ratios of the loan applied for (the LTV) and of all mortgages existing on the property, including the loan applied for, (the combined loan-to-value ratio or CLTV) to the appraised value of the property at the time of origination. Appraisers determine a property’s value by reference to the sales prices of comparable properties recently sold, adjusted to reflect the condition of the property as determined through inspection.

The Company requires title insurance coverage issued on an American Land Title Association (or similar) form of title insurance on all residential properties securing mortgage loans the Company originates or purchases. The loan originator and its assignees are generally named as the insured. Title insurance policies indicate the lien position of the mortgage loan and protect the Company against loss if the title or lien position is not as indicated. The applicant is also required to maintain hazard and, in certain instances, flood insurance, in an amount sufficient to cover the new loan and any senior mortgage, subject to the maximum amount available under the National Flood Insurance Program.

As a lender that generally specializes in loans made to credit impaired borrowers, the Company makes home equity mortgage loans to borrowers with credit histories or other factors that might disqualify them from consideration for a loan from traditional financial institutions. The Company’s underwriting guidelines for such credit impaired borrowers may, in certain instances, allow for higher combined loan-to-value ratios than would typically be the case if the borrower could qualify for a loan from a traditional financial institution, and at generally higher interest rates than the borrower could qualify for from a traditional financial institution.

The underwriting of a mortgage loan to be originated or purchased by the Company generally includes a review of the completed loan package, which includes the loan application, a current appraisal, a preliminary title report and a credit report. All loan applications and all closed loans offered to the Company for purchase must be approved by the Company in accordance with its underwriting criteria. The Company regularly reviews its underwriting guidelines and makes changes when appropriate to respond to market conditions, the performance of loans representing a particular loan product or changes in laws or regulations.

Current Underwriting Guidelines.    The Company’s current underwriting guidelines, called Super Aim, became effective in October 2003 and generally require a minimum credit score of 500, although a higher credit score is often required to qualify for the maximum LTV under the program. The following chart generally outlines the parameters of the credit grades of the Super Aim underwriting guidelines.

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The Company’s mortgage programs include several levels of documentation used to verify the borrower’s income:

The Super Aim underwriting guidelines became effective October 1, 2003. The following table sets forth the Company’s loan production under the Super Aim guidelines during the nine months ended June 30, 2004 (unaudited and dollars in thousands):

Because the Company’s underwriting guidelines prior to October 1, 2003 were different from the Super Aim guidelines, information concerning loan production for prior periods by credit grade would not be meaningful.

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The following table presents certain information about the Company’s loan production by credit score range during the nine months ended June 30, 2004 (unaudited and dollars in thousands):

The following tables present certain information about the Company’s total loan production by credit score range during the years ended June 30, 2004, 2003 and 2002 (dollars in thousands):

LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2004

LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2003

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LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2002

Quality Control.    The Company’s quality control program is intended to monitor and improve the overall quality of loan production generated by the Company’s retail loan channel and independent mortgage wholesale channel and identify and communicate to management existing or potential underwriting and loan packaging problems or areas of concern. The quality control file review examines compliance with the Company’s underwriting guidelines and federal and state regulations. This is accomplished by focusing on:

Loan Disposition

As a fundamental part of its business and financing strategy, the Company sells loans to third party investors in the secondary markets as market conditions allow. The Company generally seeks to dispose of substantially all of its production within 90 days. The Company applies the net proceeds of the loan dispositions, whether through securitizations or whole loan sales, to pay down its warehouse and repurchase facilities in order to make available capacity under these facilities for future funding of mortgage loans.

The Company maximizes opportunities in its loan disposition transactions by selling its loan production through a combination of securitizations and whole loan sales, depending on market conditions, taking under consideration relative profitability and cash flows. The Company generally realizes higher gain on sale on securitizations than it does on whole loan sales for cash. The higher gain on sale in securitization transactions is attributable to the excess servicing spread and mortgage servicing rights associated with retaining a residual interest and the servicing on the mortgage loans in the securitization, respectively, net of transactional costs. In a securitization the underlying pass-through certificates or bonds are generally overcollateralized by the Company depositing mortgage loans with a principal balance exceeding the principal balance of the pass-through certificates or bonds. The upfront overcollateralization required in securitizations is generally cash flow negative to the Company in the early years of the securitization. In whole loan sales with servicing released, the gain on sale is generally lower than gains realized in securitizations, but the Company receives the gain in the form of cash.

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The following table sets forth certain information regarding the Company’s securitizations and whole loan sales during the periods presented (in thousands):

The Company’s total loan dispositions during the year ended June 30, 2004 increased $1.9 billion, or 42.9%, to $6.4 billion over the $4.5 billion of total dispositions reported during the comparable period a year ago. During the year ended June 30, 2004, the Company relied solely on whole loan sales as its loan disposition strategy due to attractive pricing conditions prevailing in the whole loan markets. In addition, during the year ended June 30, 2004, the Company was able to sell a greater portion of its loan production by reducing the time between loan origination and loan disposition. During the year ended June 30, 2003, the Company relied predominantly on whole loan sales as its loan disposition strategy due primarily to favorable conditions in the whole loan market, and to limited capacity under and the expiration of the Forward Residual Sale Facility (“Residual Facility”). The Company had used the Residual Facility, which expired on March 31, 2003, to include securitizations in its loan disposition strategy by reducing the negative cash flow aspects of securitization and by providing another source of cash to the Company through periodic sales of residual interests for cash. In the securitizations which closed during the years ended June 30, 2003 and 2002, the Company sold for cash of $8.7 million and $16.4 million, respectively, the residual interests created in the securitizations through utilization of the Residual Facility. The Residual Facility was made available through an affiliate of Specialty Finance Partners, Capital Z Investments, L.P., a Bermuda partnership (“CZI”). The Company has sold all of its loan production in whole loan sales since the expiration of the Residual Facility. Changes in the secondary mortgage markets, the current interest rate environment and the current economic climate could affect the mix in the composition of the Company’s strategy of selling loans in the form of securitizations or whole loan sales. The Company’s evaluation of loan disposition strategies going forward will include the negative cash flow considerations associated with the upfront overcollateralization required in securitizations compared to the positive cash flow considerations of whole loan sales for cash.

In prior quarters, when the Company disposed of loans in securitization transactions, each agreement that the Company entered into in connection with such securitizations required either the overcollateralization of the trust or the establishment of a reserve account that may initially be funded by cash deposited by the Company. If delinquencies or losses exceed certain established limits, as applicable, certain additional credit-enhancement aspects of the trust are triggered. In a securitization credit-enhanced by a monoline insurance policy, any further losses experienced in excess of the established overcollateralization amount by holders of the senior interests in the related trust will be paid by the insurer under such policy. To date, there have been no claims on any monoline insurance policy obtained in any of the Company’s securitizations.

Loan Servicing

The Company’s servicing portfolio consists mainly of loans serviced on an interim basis, including loans held for sale and loans sold to others and subserviced on an interim basis, and to a lesser extent mortgage loans securitized prior to the year ended June 30, 2001 for which the Company retained servicing and loans sold to others and subserviced on a long-term basis. Servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, managing borrower defaults and liquidating foreclosed properties. As a means to maximize profitability and cash flow from securitizations, the Company has sold the servicing rights in securitizations during the years ended June 30, 2003 and 2002 for cash to nonaffiliated mortgage loan servicing companies. Moreover, the Company does not retain servicing on loans it sells in whole loan sales for cash.

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The following table sets forth certain information regarding the Company’s servicing portfolio for the periods indicated:

The Company has not added any new loans to the total servicing portfolio (except for loans serviced on an interim basis) since January 1, 2000 due to the Company’s sale of all of its mortgage loan production in whole loan sales for cash and securitizations with servicing released since that time.

The Company’s total loan servicing portfolio at June 30, 2004 increased $601.4 million, or 34.6%, to $2.3 billion from $1.7 billion at June 30, 2003 reflecting an increase in loans serviced on an interim basis partially offset by a decline in loans in securitization trusts serviced in-house due to the Company’s call of certain securitization trusts and loan servicing portfolio runoff, in the form of principal amortization, prepayments and liquidations. The Company’s portfolio of mortgage loans serviced on an interim basis increased $986.7 million to $1.9 billion at June 30, 2004 over $910.7 million at June 30, 2003, which was a decrease of $80.5 million, or 8.1% from the $991.2 million at June 30, 2002. The increase at June 30, 2004 was attributable to the Company’s increased mortgage loan production volumes resulting in more loans held for sale serviced by the Company on its own behalf and to increased servicing for buyers who had not yet transferred the loans to new servicers.

The Company’s portfolio of mortgage loans in securitization trusts serviced in-house declined by $511.8 million, or 69.1%, to $229.3 million at June 30, 2004 from $741.1 million at June 30, 2003 due primarily to the Company’s call of 10 securitization trusts which caused the portfolio of mortgage loans in securitization trusts to decline by $304.1 million and to a lesser extent, portfolio run-off. The Company’s $741.1 million portfolio of mortgage loans in securitization trusts serviced in-house at June 30, 2003 reflected a decrease of $450.4 million, or 37.8%, from the $1.2 billion at June 30, 2002. In general, the Company’s portfolio of mortgage loans in securitization trusts serviced in-house will continue to decline from run-off as all new mortgage loans are sold servicing released, and such decline may be exacerbated by the current mortgage interest rate environment which could accelerate prepayment activity. Four of the Company’s remaining seven securitization trusts (including those subserviced by others) with a mortgage loan principal balance of $73.4 million were callable at June 30, 2004. Moreover, the Company expects two additional securitization trusts with a mortgage loan principal balance at June 30, 2004 of $134.0 to be callable in calendar year 2004. The Company expects to call these six securitization trusts (with a mortgage loan principal balance of $207.4 million out of $283.2 million in the total portfolio of mortgage loans in securitization trusts) by the end of calendar year 2004.

Loans subserviced for others on a long-term basis resulted from the sale by the Company of loans from older securitization trusts called during the fiscal year ended June 30, 2004 for which the Company agreed to continue service on a long-term basis. The Company receives a servicing fee for loans in its securitization trusts based on a percentage of the unpaid principal balance of each loan serviced. Servicing fees are collected by the

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Company out of the borrowers’ monthly payments. In addition, the Company, as servicer, generally receives all late fees and assumption charges paid by borrowers on loans serviced directly by the Company, as well as other miscellaneous fees for performing various loan servicing functions.

Loans in securitization trusts subserviced by others resulted from an arrangement with a loan servicing company entered into in fiscal 1999 whereby the loan servicing company purchased certain cumulative advances and agreed to make future servicing advances with respect to an aggregate of $388.0 million ($53.9 million at June 30, 2004) in principal amount of mortgage loans in securitization trusts.

Moreover, if the Company does not complete the proposed REIT conversion, the Company’s servicing portfolio will continue to be impacted in the future by its current disposition strategy of its loan production through whole loan sales and securitizations on a servicing released basis.

The agreements between the Company and the securitization trusts typically require the Company, in its role as servicer, to advance interest (but not principal) on delinquent loans to the holders of the senior interests in the related securitization trusts. The agreements also require the Company to make certain servicing advances (e.g., for property taxes or hazard insurance) unless the Company determines that such advances would not be recoverable. Each agreement that the Company has entered into in connection with its securitizations requires either the overcollateralization of the trust or the establishment of a reserve account that may initially be funded by cash deposited by the Company. If delinquencies or losses exceed certain established limits, as applicable, additional credit-enhancement requirements of the trust are triggered. In a securitization credit-enhanced by a monoline insurance policy, any further losses experienced in excess of the established overcollateralization amount by holders of the senior interests in the related trust will be paid by the insurer under such policy. To date, there have been no claims on any monoline insurance policy obtained in any of the Company’s securitizations.

In a senior/subordinated structure, losses in excess of the overcollateralization amount generally are allocated first to the holders of the subordinated interests and then to the holders of the senior interests of the trust. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Securitization and Sale of Mortgage Loans.” Realized losses on the loans are paid out of the related credit loss estimates established by the Company at the time of securitization or paid out of principal and interest payments or overcollateralized amounts as applicable, and if necessary, from the related monoline insurance policy or the subordinated interests. In the case of the Company’s senior/subordinated securitization transactions, holders of 51% of the certificates may terminate the servicer upon certain events of default generally relating to certain levels of loss experience, but not delinquency rates. No such events of default have occurred to date in the Company’s senior/subordinated securitizations.

In addition, the agreements governing securitizations credit-enhanced by monoline insurance typically provide that the Company may be terminated as servicer by the monoline insurance company (or by the trustee with the consent of the monoline insurance company) upon certain events of default, including the Company’s failure to perform its obligations under the servicing agreement, the rate of over 90-day delinquent loans (including properties acquired by foreclosure and not sold) exceeding specified limits, losses on liquidation of collateral exceeding certain limits, any payment being made by the monoline insurance company under its policy, and events of bankruptcy or insolvency. Pursuant to agreements relating to the Company’s two 1999 securitization trusts, the monoline insurer requires the Company to maintain a specified net worth and level of liquidity in order to be able to continue to service the loans in those securitization trusts. Previously, the Company did not satisfy the net worth test and, as a result, the monoline insurer could have terminated the Company as a servicer with respect to those securitization trusts. The monoline insurer waived the Company’s failure to satisfy the net worth test and none of the servicing rights of the Company were terminated. At June 30, 2004, the Company met the specified net worth test. In addition, under the Company’s 1999 securitization trusts,

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the Company is appointed as a servicer on a term-to-term basis, and the monoline insurer has the right not to renew the term at any time. None of the servicing rights of the Company have been terminated.

The table below illustrates certain information regarding those securitization trusts that have exceeded delinquency and loss triggers at June 30, 2004 and 2003 (dollars in thousands):

Collections, Delinquencies and Foreclosures

The Company sends borrowers a monthly billing statement approximately 10 days prior to the monthly payment due date. Although borrowers generally make loan payments within 10 to 15 days after the due date (the “grace period”), if a borrower fails to pay the monthly payment within this grace period, the Company commences collection efforts by notifying the borrower of the delinquency. In the case of borrowers in the “C” through “D” credit grades or with a poor payment history with the Company, collection efforts begin immediately after the due date. The Company continues contact with the borrower to determine the cause of the delinquency and to obtain a commitment to cure the delinquency at the earliest possible time.

As a general matter, if efforts to obtain payment have not been successful, a pre-foreclosure notice will be sent to the borrower immediately after the due date of the next subsequently scheduled installment (five days after the initial due date for “C” through “D” credit grades), providing 30 days’ notice of impending foreclosure action. During the 30-day notice period, collection efforts continue and the Company evaluates various legal options and remedies to protect the value of the loan, including arranging for extended repayment terms, accepting a deed-in-lieu of foreclosure, entering into a short sale (a sale for less than the outstanding principal amount) or commencing foreclosure proceedings. If no substantial progress has been made in collecting delinquent payments from the borrower, foreclosure proceedings will begin. Generally, the Company will have commenced foreclosure proceedings when a loan is 60 to 100 days delinquent, depending upon credit grade, other credit considerations or borrower bankruptcy status.

The Company monitors its servicing and collection practices to insure they comply with applicable laws and regulations and meet industry standards.

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The following table illustrates the mix of credit grades in the Company’s servicing portfolio as of June 30, 2004 (dollars in thousands):

Subprime mortgage loans generally have higher delinquency rates than those prevailing in the mortgage industry. As a subprime mortgage lender, the Company has historically experienced delinquency rates that are higher than those prevailing in the mortgage industry due to the origination of lower credit grade mortgage loans by the Company. Set forth below are delinquency rates for the Company compared to delinquency rates for subprime mortgage loans (seasonally adjusted) and all mortgage loans (seasonally adjusted) according to the National Delinquency Survey of the Mortgage Bankers Association of America dated June 14, 2004.

The Company’s delinquency rates have declined since 2002 due to the fact that the loans in its portfolio of seasoned mortgage loans in securitization trusts became a smaller part of its servicing portfolio, and loans serviced on an interim basis, consisting largely of newly originated loans, became a larger part of its servicing portfolio.

Delinquent loans, by principal balance of the total servicing portfolio, decreased to $74.9 million at June 30, 2004 from $156.5 million at June 30, 2003. The delinquency rate at June 30, 2004 was 3.2% compared to 9.0% at June 30, 2003. The delinquency rate at June 30, 2004 declined from the delinquency rate at June 30, 2002 due to the fact that loans in the Company’s portfolio of mortgage loans in securitization trusts, which contains the majority of delinquent loans, became a smaller part of the Company’s total servicing portfolio. A decline in delinquencies generally reduces the Company’s servicing advance obligations. The Company expects the delinquency rate to continue to decline as the Company’s portfolio of mortgage loans in securitization trusts continues to decline and become a smaller component of the Company’s total servicing portfolio.

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The following table sets forth delinquency information relating to the Company’s servicing portfolio as of or for the periods indicated:

Total delinquent loans in the Company’s portfolio of securitization trusts (serviced in-house and by others) were $58.7 million and $144.3 million at June 30, 2004 and 2003, respectively. Total delinquent loans in the Company’s portfolio of loans serviced on an interim basis were $16.3 million and $12.2 million at June 30, 2004 and 2003, respectively.

Loans originated or purchased by the Company are secured by mortgages, deeds of trust, security deeds or deeds to collateralize debt, depending upon the prevailing practice in the state in which the property collateralizing the loan is located. Depending on local law, foreclosure is effected by judicial action or nonjudicial sale, and is subject to various notice and filing requirements. In general, the borrower, or any person having a junior encumbrance on the real estate, may cure a monetary default by paying the entire amount in arrears plus other designated costs and expenses incurred in enforcing the obligation during a statutorily prescribed reinstatement period. Generally, state law controls the amount of foreclosure expenses and costs, including attorneys’ fees, which may be recovered by a lender, the minimum time required to foreclose and the reinstatement or redemption rights of the borrower.

Although foreclosure sales are typically public sales, frequently no third-party purchaser bids in excess of the lender’s lien because of the difficulty of determining the exact status of title to the property, the possible deterioration of the property during the foreclosure proceedings and a requirement that the purchaser pay for the property in cash or by cashier’s check. Thus, the Company often purchases the property from the trustee or referee through a credit bid in an amount up to the principal amount outstanding under the loan, accrued and unpaid interest, servicing advances and the expenses of foreclosure. Depending upon market conditions and other factors including the condition of the property, the ultimate proceeds of the sale may not equal the Company’s investment in the property.

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As an alternative to foreclosure, the Company may, under limited circumstances, arrange for a special repayment arrangement, forestall foreclosure to enable a borrower to sell the mortgaged property or accept the payoff of less than the full principal balance and accrued interest owing on a mortgage loan. The Company believes that such loss mitigation efforts reduce overall losses in loan liquidations. However, the loss on such mitigation efforts is realized earlier in the life of the mortgage loan.

During the year ended June 30, 2004, net losses on loan liquidations decreased to $18.4 million from $35.7 million during the year ended June 30, 2003, primarily due to the decrease in number of liquidated loans which corresponded to the decline in the size of the Company’s portfolio of mortgage loans in securitization trusts. A majority of the foreclosures handled by the Company occur in connection with delinquent mortgage loans in securitization trusts serviced by the Company. Of the $18.4 million of net losses on loan liquidations during the year ended June 30, 2004, $14.7 million and $3.7 million related to mortgage loans in the securitization trusts and to mortgage loans held for sale, respectively. Of the $35.7 million of net losses on loan liquidations during the year ended June 30, 2003, $31.1 million and $4.5 million related to mortgage loans in the securitization trusts and to mortgage loans held for sale, respectively. The Company expects net losses on loan liquidations to continue to decline as the Company’s portfolio of mortgage loans overall in securitization trusts continues to decline.

The following table sets forth foreclosure and loss information relating to the Company’s servicing portfolio for the period indicated (dollars in thousands):

Because foreclosures and losses typically occur months or years after a loan is originated, data relating to delinquencies, foreclosures and losses as a percentage of the current portfolio can understate the risk of future delinquencies, losses or foreclosures.

Competition

The Company faces intense competition in the business of originating, purchasing and selling mortgage loans. The Company’s competitors in the industry include consumer finance companies, mortgage banking companies, investment banks, commercial banks, credit unions, thrift institutions, credit card issuers, insurance companies and mortgage REITs. Many of these competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Company. In addition, the current level of gains

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realized by the Company and its competitors on the sale of non-conforming loans could attract additional competitors into this market. Competition among industry participants can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and term of the loan, loan origination fees and interest rates. Additional competition may lower the rates the Company can charge borrowers and increase the price paid for purchased loans, thereby potentially lowering gain on future loan sales and securitizations. To the extent any of these competitors significantly expand their activities in the Company’s market, the Company’s operations could be materially adversely affected. Fluctuations in interest rates and general economic conditions may also affect competition. During periods of rising rates, competitors that have locked in lower rates to potential borrowers may have a competitive advantage. During periods of declining rates, competitors may solicit the Company’s customers with loans in its servicing portfolio to refinance their loans.

The Company believes that it has the following competitive advantages:

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Regulation

The Company is regulated by federal, state and local government authorities and is subject to extensive federal, state and local laws, rules and regulations. The Company is also subject to judicial and administrative decisions that impose requirements and restrictions on its business. These regulations could impose additional regulatory and compliance costs and materially impact the Company’s business. At the federal level, these laws and regulations include the:

Extensive federal, state and local laws, rules and regulations which govern the Company’s business:

The Company’s failure to comply with these laws can lead to:

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Compliance, Quality Control and Quality Assurance

The Company regularly monitors the laws, rules and regulations that apply to its business and analyzes any changes to them. The Company integrates many legal and regulatory requirements into its automated loan origination system to reduce the prospect of inadvertent non-compliance due to human error. The Company also maintains policies and procedures, and summaries and checklists to help its origination personnel comply with these laws.

The Company maintains a variety of pre-funding quality control procedures designed to detect compliance errors prior to funding. In addition, the Company subjects a statistical sampling of its loans to post-funding quality assurance reviews and analyses. The Company tracks the results of the quality assurance reviews and reports them back to the responsible origination units. The Company’s loans and practices are reviewed regularly in connection with the due diligence that its loan buyers and lenders perform. The Company’s state regulators also review its practices and loan files regularly and report the results back to the Company.

Predatory Lending Legislation

The Home Ownership and Equity Protection Act of 1994 (“HOEPA”) identifies a category of mortgage loans and subjects them to more stringent restrictions and disclosure requirements. In addition, liability for violations of applicable law for loans covered by HOEPA extends not only to the originator, but also to the purchaser of the loans. HOEPA generally covers loans with either (i) total points and fees upon origination in excess of the greater of eight percent of the loan amount or $499 (an annually adjusted dollar amount), or (ii) an annual percentage rate (APR) of more than eight percentage points higher than United States Treasury securities of comparable maturity on first mortgage loans, and ten percentage points above Treasuries of comparable maturity for junior mortgage loans. The Company does not originate loans covered by HOEPA.

Several federal, state and local laws and regulations have been adopted or are under consideration that place limitations on interest rates and charges, identify certain categories of mortgage loans as “high cost” and subject them to more stringent restrictions and disclosure requirements. In addition, some of these laws impose liability on assignees of mortgage loans such as loan buyers, lenders and securitization trusts. Such provisions deter loan buyers from purchasing loans covered by the applicable law. For example, the Georgia Fair Lending Act that took effect in October 2002 resulted in our withdrawal from the Georgia market, until the law was amended in early 2003, because our lenders and loan buyers refused to finance or purchase loans covered by that law. The recent enactment of similar laws late in 2003 in New Jersey and New Mexico has resulted in significant interruption in the secondary market, with some participants no longer purchasing home loans originated in those states, and some not purchasing just those loans covered by these new laws. The Company has eliminated making loans that are deemed high cost under these laws, and remains able to finance or sell those loans it does make. However, a significant portion of mortgage loans in the Company’s portfolio of mortgage loans in securitization trusts are high cost mortgage loans made in 1999 or prior where the borrower was charged points and fees or interest rates above certain levels because of higher credit risk.

There can be no assurance that other similar laws, rules or regulations, won’t be adopted in the future. Adoption of these laws and regulations could have a material adverse impact on the Company’s business by restricting its ability to charge rates and fees adequate to compensate it for the risk associated with certain loans and by substantially increasing the costs of compliance with a variety of inconsistent federal, state and local rules. Adoption of these laws could also have a material adverse effect on the Company’s loan origination volume, especially if its lenders and secondary market buyers elect not to finance or purchase loans covered by the new laws.

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Efforts to Avoid Abusive Lending Practices

In an effort to prevent the origination of loans containing unfair terms or involving predatory practices, the Company has adopted many policies and procedures, including the following:

Product Policies

Loan Processing Policies

Customer Interaction and Education

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Evaluation and Compliance

Licensing

As of June 30, 2004, the Company had licenses or was exempt from the licensing requirements by the relevant state banking or consumer credit agencies to originate mortgages in 47 states and the District of Columbia.

Privacy

The federal Gramm-Leach-Bliley Act obligates the Company to safeguard the information it maintains on its borrowers. California has passed legislation known as the California Financial Information Privacy Act and the California On-Line Privacy Protection Act. Both pieces of legislation were effective July 1, 2004, and impose additional notification obligations on the Company that are not pre-empted by existing federal law. Regulations have been proposed by several agencies and states that may affect the Company’s obligations to safeguard information. If other states or federal agencies adopt additional privacy legislation, the Company’s compliance costs could substantially increase.

Fair Credit Reporting Act

The Fair Credit Reporting Act provides federal preemption for lenders to share information with affiliates and certain third parties and to provide pre-approved offers of credit to consumers. Congress also amended the Fair Credit Reporting Act to place further restrictions on the use of information shared between affiliates, to provide new disclosures to consumers when risk based pricing is used in the credit decision, and to help protect consumers from identity theft. All of these new provisions impose additional regulatory and compliance costs on the Company and reduce the effectiveness of its marketing programs.

Home Mortgage Disclosure Act

In 2002, the Federal Reserve Board adopted changes to Regulation C promulgated under the Home Mortgage Disclosure Act. Among other things, the new regulations require lenders to report pricing data on loans with annual percentage rates that exceed the yield on treasury bills with comparable maturities by 3%. The expanded reporting takes effect in 2004 for reports filed in 2005. The Company anticipates that a majority of its loans would be subject to the expanded reporting requirements.

The expanded reporting does not provide for additional loan information such as credit risk, debt-to-income ratio, loan-to-value ratio, documentation level or other salient loan features. As a result, the Company is concerned that the reported information may lead to increased litigation as the information could be misinterpreted by third parties.

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Telephone Consumer Protection Act and Telemarketing Consumer Fraud and Abuse Prevention Act

The Federal Communications Commission and the Federal Trade Commission adopted ‘do-not-call’ registry requirements, which, in part, mandate that the Company maintain and regularly update lists of consumers who have chosen not to be called. These requirements also mandate that the Company not call consumers who have chosen to be on the list. Several states have also adopted similar laws, with which the Company also complies.

Employees

At June 30, 2004, the Company employed 2,063 persons. The Company has satisfactory relations with its employees.

Item 2.    Properties

The Company’s executive and administrative offices are located at 350 S. Grand Avenue, Los Angeles, California 90071, and consist of approximately 178,000 square feet of which approximately 44,800 square feet are sublet. The lease and the sublease on these premises extend through March 2012. The monthly rental payment, including common area fees and charges, is currently $0.4 million per month, or approximately $4.8 million annually. Monthly sublease payments received from the sublessee, including common area fees and charges received from the sublessee, are currently $0.1 million per month, or approximately $1.2 million annually. The Company’s administrative offices are located at 3347 and 3351 Michelson Drive, Irvine, California 92612, and consist of approximately 93,000 square feet under a lease which extends through November 30, 2008. The monthly rental payment, including common area fees and charges, is currently $0.2 million per month, or approximately $2.4 million annually.

The Company also leases space for retail branch and wholesale regional operations centers. These facilities aggregate approximately 286,000 square feet and are leased under terms which vary as to duration. In general, the leases expire between 2003 and 2009, and provide for rent escalations tied to either increases in the lessors’ operating expenses or fluctuations in the consumer price index in the relevant geographical areas.

Item 3.    Legal Proceedings

On April 27, 2004, the Company received a civil investigative demand from the Federal Trade Commission, or the FTC, that, although not alleging any wrongdoing, sought documents and data relating to the Company’s business and lending practices. The demand was issued pursuant to an April 8, 2004 resolution of the FTC authorizing non-public investigations of various unnamed subprime lenders and loan brokers to determine whether there have been violations of certain consumer protection laws. The Company has cooperated and intends to continue to cooperate fully with the FTC in this investigation. Because the investigation is at an early stage, the Company cannot predict the outcome of the investigation and its effect, if any, on the Company’s business.

The Company becomes involved, from time to time, in a variety of mortgage lending related claims and other matters incidental to its business in addition to the matters described above. In the opinion of the Company, the resolution of any of these pending incidental matters is not expected to have a material adverse effect on its consolidated financial position and results of operations.

Item 4.    Submission of Matters to Vote of Security Holders

None.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Since November 28, 2001, the Company’s common stock has been quoted on the Over-the-Counter Bulletin Board under the symbol “AMSF”.

The following tables set forth the range of certain high and low closing bid quotations on the Over-the-Counter Bulletin Board for the Company’s common stock for the periods indicated during the year ended June 30, 2004 and 2003.

As of August 17, 2004, the Company had approximately 234 stockholders of record, which amount does not include stockholders whose shares are held in the name of their broker. No common stock dividends were accrued or paid in the years ended June 30, 2004, 2003 and 2002. The Board of Directors of the Company reviews the Company’s dividend policy at least annually in light of the earnings, cash position and capital needs of the Company, general business conditions and other relevant factors. The Financing Facility and certain of the Company’s revolving warehouse facilities impose certain restrictions on the Company’s ability to pay dividends during the terms of such facilities.

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Item 6.    Selected Financial Data

The selected consolidated financial data set forth below with respect to the Company for the five years ended June 30, 2004 have been derived from the audited consolidated financial statements. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included herein.