10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2005

OR

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

For the transition period from              to             

Commission file number 0-27812

MEDALLION FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

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

437 MADISON AVENUE, NEW YORK, NEW YORK 10022

(Address of principal executive offices) (Zip Code)

(212) 328-2100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $0.01 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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 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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨            Accelerated Filer  x            Non-Accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last reported price at which the stock was sold on June 30, 2005 (the last business day of the registrant’s most recently completed second quarter) was $9.45.

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of March 13, 2006 was 18,589,098.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for its 2006 Annual Meeting of Shareholders, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal
year-end of December 31, 2005, are incorporated by reference into Part III of this Form 10-K.

MEDALLION FINANCIAL CORP.

2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I	3
ITEM 1. BUSINESS OF THE COMPANY	3
ITEM 1A. RISK FACTORS	16
ITEM 1B. UNRESOLVED STAFF COMMMENTS	21
ITEM 2. PROPERTIES	21
ITEM 3. LEGAL PROCEEDINGS	22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22
PART II	22
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES	22
ITEM 6. SELECTED FINANCIAL DATA	23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	42
ITEM 9A. CONTROLS AND PROCEDURES	43
ITEM 9B. OTHER INFORMATION	45
PART III	45
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	45
ITEM 11. EXECUTIVE COMPENSATION	45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	45
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	45
PART IV	46
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	46
SIGNATURES	49
CERTIFICATIONS	53

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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.

PART I

ITEM 1. BUSINESS OF THE COMPANY

GENERAL

Medallion Financial Corp. (the Company) is a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses, and in originating consumer loans for the purchase of recreational vehicles, boats, and horse trailers. Our core philosophy has been “In niches there are riches.” We try to identify markets that are profitable and where we can be an industry leader. Since 1996, the year in which the Company became a public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 14%, and our commercial loan portfolio at a compound annual growth rate of 15%. Total assets under our management, which includes assets serviced for third party investors, were approximately $802,000,000 as of December 31, 2005, and have grown at a compound annual growth rate of 16% from $215,000,000 at the end of 1996.

The Company conducts its business through various wholly-owned subsidiaries including its primary taxicab medallion lending company, Medallion Funding Corp. (MFC). The Company also currently conducts business through 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; Freshstart Venture Capital Corp. (FSVC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans; and Medallion Bank (MB), a bank regulated by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions to originate taxicab medallion, commercial, and consumer loans; to raise deposits; and to conduct other banking activities. MFC, MCI, and FSVC operate as SBICs and are regulated and financed in part by the SBA. Until October 2005, the Company also conducted business through Business Lenders, LLC (BLL), licensed under the US Small Business Administration (SBA) Section 7(a) program. On October 17, 2005, the Company completed the sale of the loan portfolio and related assets of BLL. In connection with this transaction, the Company sold assets in the amount of $22,799,000, less liabilities assumed by the buyer in the amount of $2,327,000. The assets were sold at book value, and therefore no gain or loss, excluding transaction costs, was recognized as a result of this transaction. For 2005, BLL generated net decrease in net assets resulting from operations of $1,003,000, compared to a net decrease of $419,000 for 2004, and BLL’s net investment loss after taxes was $696,000, compared to a loss of $201,000 in 2004.

As an adjunct to the Company’s taxicab medallion finance business, the Company previously operated a taxicab rooftop advertising business through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (MMJ) (together MTM). During the 2004 third quarter, Media was merged with and into a subsidiary of Clear Channel Communications, Inc. (CCU), and MMJ was sold in a stock sale to its management. The Company no longer conducts a taxicab rooftop advertising business.

Alvin Murstein, the Company’s Chairman and Chief Executive Officer, has over 45 years of experience in the ownership, management, and financing of taxicab medallions and other commercial businesses. Andrew Murstein, the Company’s President, is the third generation in his family to participate in the business.

We are a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (1940 Act). Our investment objectives are to provide a high level of distributable income, consistent with the preservation of capital, as well as long-term growth of net asset value. Since our initial public offering (IPO) in 1996, we have paid dividends in excess of $90,000,000 or $6.31 per share.

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We have elected to be treated as a Business Development Company registered under the 1940 Act. Traditionally, the Company and each of its corporate subsidiaries other than Media and MB (the RIC subsidiaries) have elected to be treated for federal income tax purposes as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries’ policy to comply with the provisions of the Code. The Company did not qualify to be treated as a RIC for 2003. As a result, the Company was treated as a taxable entity in 2003, which had an immaterial effect on the Company’s financial position and results of operations for 2003. The Company qualified and filed its federal tax returns as a RIC for 2004 and anticipates doing so again in 2005.

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

Media and MB are not RICs and are taxed as regular corporations. For 2003, Media’s losses were included in the tax calculation of the Company along with MFC. For 2004, Media filed a partial year tax return covering the period prior to the merger with CCU.

During the 2004 second quarter, BLL changed its tax status from that of a disregarded “pass-through” entity of the Company to that of a company taxable as a corporation. For the 2005 and 2004 periods, BLL had no tax liability as a result of this election.

MEDALLION LOAN PORTFOLIO

Taxicab medallion loans of approximately $449,673,000 comprised 62% of our $723,253,000 net investment portfolio as of December 31, 2005. Since 1979, we have originated, on a combined basis, approximately $532,407,000 in medallion loans in New York City, Chicago, Boston, Newark, Cambridge, and other cities within the United States. Our medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxicab medallions and related assets. As of December 31, 2005, approximately 78% of the principal amount of our medallion loans were in New York City. We estimate that the average loan-to-value ratio of all of the medallion loans was approximately 60% at December 31, 2005.

The New York City Taxi and Limousine Commission (TLC) estimates that the total value of all of New York City taxicab medallions and related assets exceeds $5 billion. We estimate that the total value of all taxicab medallions and related assets in the US exceeds $6.4 billion. We believe that we will continue to develop growth opportunities by further penetrating the highly fragmented medallion financing marketplace. Additionally, in the future, the Company may enhance its portfolio growth rate through selective acquisitions of medallion financing businesses and their related portfolios. Since our initial public offering, we have acquired several additional medallion loan portfolios.

Portfolio Characteristics

Medallion loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten to fifteen year schedule, subject to a balloon payment of all outstanding principal after four or five years. More recently, we have begun to originate loans with one-to-three year maturities where interest rates are adjusted and a new maturity period set. Borrowers may prepay medallion loans upon payment of a fee of approximately 90 days’ interest. We believe that the likelihood of prepayment is a function of changes in interest rates and medallion values. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rates payable on their loans are high relative to prevailing interest rates, and we believe that they are less likely to prepay in a rising interest rate environment. We generally retain the medallion loans we originate; however, from time to time, we participate or sell shares of some loans or portfolios to interested third party financial institutions. In these cases, we retain the borrower relationships and service the sold loans. The total amount of medallion loans under management was $458,457,000 at December 31, 2005, compared to $409,001,000 at December 31, 2004.

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At December 31, 2005, substantially all medallion loans were collateralized by first security interests in taxicab medallions and related assets (vehicles, meters, and the like), and were originated at an approximate loan-to-value ratio range of 80-90%. In addition, we have recourse against the vast majority of direct and indirect owners of the medallions who personally guarantee the loans. Although personal guarantees increase the commitment of borrowers to repay their loans, there can be no assurance that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations subject to such guarantees.

We believe that our medallion loan portfolio is of high credit quality because medallions have generally increased in value and are relatively simple to repossess and resell in an active market. In the past, when a borrower has defaulted on a loan, we have repossessed the medallion collateralizing that loan. If the loan was not brought current, the medallion was sold in the active market at prices at or in excess of the amounts due. Although some of the medallion loans have from time to time been in arrears or in default, our loss experience on medallion loans has been negligible.

Market Position

We have originated and serviced medallion loans since 1979, and have established a leading position in the industry. Management has a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services, dating back to 1956. Medallion loans collateralized by New York City taxicab medallions and related assets comprised 78% of the value of the medallion loan portfolio at December 31, 2005. The balance of medallion loans is collateralized by taxicab medallions in Chicago, Boston, Newark, Cambridge, and other cities within the United States. We believe that there are significant growth opportunities in these and other metropolitan markets nationwide.

The following table displays information on medallion loans outstanding in each of our major markets at December 31, 2005.

	# of Loans	% of Medallion Loan Portfolio (1)		Average Interest Rate (2)		Principal Balance
Medallion loans
New York	1,303	78	%	6.23	%	$	351,013,972
Chicago	342	12		6.99			52,241,611
Boston	171	6		7.47			27,879,446
Newark	68	2		8.49			6,541,369
Cambridge	32	1		7.21			5,663,785
Other	45	1		7.53			6,464,175
Total medallion loans	1,961	100	%	6.46			449,804,358
Deferred loan acquisition costs							1,216,687
Unrealized depreciation on loans							(1,348,535	)
Net medallion loans						$	449,672,510

(1) Based on principal balance outstanding.

(2) Based on the contractual adjustable or fixed rates of the portfolios at December 31, 2005.

The New York City Market. A New York City taxicab medallion is the only permitted license to operate a taxicab and accept street hails in New York City. As reported by the TLC, individual (owner-driver) medallions sold for approximately $350,000 and corporate medallions sold for approximately $391,000 at December 31, 2005. The number of taxicab medallions is limited by law, and as a result of the limited supply of medallions, an active market for medallions has developed. The law limiting the number of medallions also stipulates that the ownership for the 12,779 medallions outstanding at December 31, 2005 shall remain divided into 5,112 individual medallions and 7,667 fleet or corporate medallions. Corporate medallions are more valuable because they can be aggregated by businesses, leased to drivers, and operated for more than one shift. In 2003 the state legislature and city council authorized the TLC to sell up to 900 additional medallion licenses, 592 of these were sold via auctions in 2004. It is anticipated that the remaining 308 will be auctioned off in 2006. The City announced a 25% fare hike to support the increased level of medallions, which took effect in the 2004 second quarter. The results of the auctions held were highly successful with a large number of bids received, and record-setting medallion values established. The floor on the remaining auction bids is expected to be the current market values at the date of the auction, which as of January 2006 are in excess of $390,000 for a corporate medallion. Although there can be no assurances, in past auctions, the establishment of a bid floor has tended to support the existing valuation level of the medallions.

5

A prospective medallion owner must qualify under the medallion ownership standards set and enforced by the TLC. These standards prohibit individuals with criminal records from owning medallions, require that the funds used to purchase medallions be derived from legitimate sources, and mandate that taxicab vehicles and meters meet TLC specifications. In addition, before the TLC will approve a medallion transfer, the TLC requires a letter from the seller’s insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage. After the transfer is approved, the owner’s taxicab is subject to quarterly TLC inspections.

Most New York City medallion transfers are handled through approximately 30 medallion brokers licensed by the TLC. In addition to brokering medallions, these brokers also arrange for TLC documentation insurance, vehicles, meters, and financing. The Company has excellent relations with many of the most active brokers and regularly receives referrals from them. However, the Company receives most of its referrals from a small number of brokers. Brokers generated 23% of the loans originated for the year-ended December 31, 2005.

The Chicago Market. We estimate that Chicago medallions currently sell for approximately $50,000. Pursuant to a municipal ordinance, the number of outstanding medallions is currently capped at 6,800, which includes an additional 150 and 200 medallions that were auctioned and placed into service in July 1999 and December 2000, respectively. We estimate that the total value of all Chicago medallions and related assets is over $475,000,000.

The Boston Market. We estimate that Boston medallions currently sell for approximately $325,000. The number of Boston medallions had been limited by law since 1934 to 1,525 medallions. In March 1990 an immediate increase to 1,825 was ordered with additional increases over a two and one-half year period to a total of 2,025. We estimate that the total value of all Boston medallions and related assets is over $699,000,000.

The Newark Market. We estimate that Newark medallions currently sell for approximately $210,000. The number of Newark medallions currently has been limited to 600 since 1950 by local law. We estimate that the total value of all Newark medallions and related assets is over $138,000,000.

The Cambridge Market. We estimate that Cambridge medallions currently sell for approximately $312,000. The number of Cambridge medallions has been limited to 248 since 1945 by a Cambridge city ordinance. We estimate that the total value of all Cambridge medallions and related assets is over $82,000,000.

COMMERCIAL LOAN PORTFOLIO

Commercial loans of $145,797,000 comprised 20% of the $723,253,000 net investment portfolio as of December 31, 2005. From the inception of the commercial loan business in 1987 through December 31, 2005, we have originated more than 10,000 commercial loans for an aggregate principal amount of approximately $718,440,000. The commercial loan portfolio consists of floating-rate, adjustable, and fixed-rate loans. We had increased our commercial loan activity in recent years to 20% of net investments, primarily because of the attractive higher yielding, floating rate nature of most of this business. The outstanding balances of commercial loans grew at a compound annual rate of 15% since 1996, although balances declined during 2002 and 2003, as the Company sought to increase liquidity by selling and not renewing certain loans, grew 55% during 2004, reflecting a return to the Company’s historical growth patterns, and grew 7% in 2005 which was dampened by the sale of $19,414,000 of BLL loans. The increase since 1996 has been primarily driven by internal growth through the origination of additional commercial loans. We plan to continue expanding our commercial loan activities by developing a more diverse borrower base, a wider geographic area of coverage, and by expanding targeted industries.

Commercial loans are generally secured by equipment, accounts receivable, real estate, and other assets, and have interest rates averaging 325 basis points over the prevailing prime rate. As with medallion loans, the vast majority of the principals of borrowers personally guarantee commercial loans. The aggregate realized loss of principal on commercial loans has averaged less than 2% per annum for the last five years.

6

Asset Based Loans

The Company originates, manages, and services asset-based loans to small businesses who require working capital credit facilities ranging from $500,000 to $3,600,000 through its MBC subsidiary. These loans represent approximately 47% of the commercial loan portfolio. The credit facilities are secured principally by the borrower’s accounts receivable, but may also be secured by inventory, machinery, equipment and/or real estate, and are personally guaranteed by the principals. Currently, our clients are mostly located in the New York metropolitan area and include manufacturers, distributors, and service organizations. We had successfully established 46 credit lines at December 31, 2005.

Secured Mezzanine Loans

Through our MCI subsidiary we originate both senior and subordinated loans to businesses in a variety of industries, including radio and television stations, airport food service operations, and various manufacturing concerns. These loans are primarily secured by a second position on all assets of the businesses, range from $1,000,000 to $5,000,000, and represent approximately 35% of the commercial loan portfolio. Frequently, we receive warrants to purchase an equity interest in the borrowers of secured mezzanine loans.

SBA Section 7(a) loans

The Company originated loans under the Section 7(a) program of the SBA through its BLL subsidiary. The Company sold all of the Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005.

Other Secured Commercial Loans

The Company originates other commercial loans that are not concentrated in any particular industry. These loans represent approximately 18% of our commercial loan portfolio. Historically this portfolio had been made up of fixed-rate loans, but substantially all business originated over the last four years has been at adjustable interest rates, generally repricing on their anniversary date. Borrowers include food service, real estate, dry cleaner, and laundromat businesses.

The following table displays information on the types of loans outstanding in our commercial loan portfolio at December 31, 2005.

	# of Loans	% of Commercial Net Portfolio (1)		Average Interest Rate (2)		Principal Balance
Commercial Loans
Asset-based	78	47	%	9.64	%	$	72,084,697
Secured mezzanine	35	35		14.06			53,207,394
Other secured commercial	154	18		7.06			28,058,435
Total commercial loans	267	100	%	10.70			153,350,526
Deferred loan acquisition costs							67,283
Unrealized depreciation on loans							(7,621,157	)
Net commercial loans						$	145,796,652

(1) Based on principal balance outstanding

(2) Based on the contractual rates of the portfolios at December 31, 2005.

Portfolio Characteristics

Commercial loans finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business. We have originated commercial loans in principal amounts ranging from $50,000 to approximately $5,000,000. These loans are generally retained and typically have maturities ranging from one to ten years and require equal monthly payments covering accrued interest and amortization of principal over a four to five year term. Substantially all loans generally may be prepaid with a fee ranging from 30 to 120 days’ interest. The term of, and interest rate charged on, certain of our outstanding loans are subject to SBA regulations. Under SBA regulations, the maximum rate of interest permitted on loans originated by the Company is 19%. Unlike medallion loans, for which competition precludes us from charging the maximum rate of interest permitted under SBA regulations, we are able to charge the maximum rate on certain commercial loans. We believe that the increased yield on commercial loans compensates for their higher risk relative to medallion loans and further illustrates the benefits of diversification.

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Commercial loans are generally originated at an average loan-to-value ratio of 70 to 75%. Substantially all of the commercial loans are collateralized by security interests in the assets being financed by the borrower. In addition, we have recourse against the vast majority of the principals of borrowers who personally guarantee the loans. Although personal guarantees increase the commitment of borrowers to repay their loans, there can be no assurance that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations secured by such guarantees. In certain cases, equipment vendors may provide full and partial recourse guarantees on loans.

CONSUMER LOAN PORTFOLIO

Consumer loans of $85,678,000 comprised 12% of our $723,253,000 net investment portfolio as of December 31, 2005. About half of the existing portfolio was purchased on April 1, 2004 from an unrelated financial institution and the transaction closed May 6, 2004. The Company started originating new adjustable rate consumer loans during the 2004 third quarter. Recreational vehicles, boats, and horse trailers located in all 50 states collateralize the loans. The portfolio is serviced by a third party subsidiary of a major commercial bank.

Portfolio Characteristics

Consumer loans generally require equal monthly payments covering accrued interest and amortization of principal over a negotiated term, generally around ten years. Interest rates offered are both floating and fixed, and certain of the floating rate notes have built in caps or floors. Borrowers may prepay consumer loans without any prepayment penalty. In general, MB has established relationships with dealers in the industry, who source most of the customers to MB.

At December 31, 2005, substantially all consumer loans were collateralized by first security interests in the recreational vehicles, boats, and trailers, and were originated at an approximate loan-to-value ratio of 95%.

We believe that our consumer loan portfolio is of acceptable credit quality given the high interest rates earned on the loans, which compensate for the higher degree of credit risk in the portfolio.

INVESTMENT ACTIVITY

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

	Year ended December 31,
	2005			2004			2003
Net investments at beginning of period	$	643,541,008		$	379,158,525		$	356,246,444
Investments originated		337,885,639			303,369,002			248,225,892
Repayments of investments		(225,381,052	)		(144,835,651	)		(232,171,193	)
Cash received for sold BLL SBA Section 7(a) loans		(19,414,095	)		—			—
Transfers from (to) other assets/liabilities		(7,011,897	)		(439,841	)		2,362,534
Net increase in unrealized appreciation (depreciation) (1) (2)		(6,558,733	)		(4,539,807	)		(6,672,904	)
Amortization of origination costs		(1,935,600	)		(1,704,194	)		(1,376,641	)
Net realized gains (losses) on investments (3)		1,243,041			(256,347	)		11,688,310
Realized gains on sales of loans		884,608			474,074			856,083
Purchase of consumer loan portfolio		—			80,631,534			—
CCU stock received in exchange for investment in Media		—			31,683,703			—
Net increase (decrease) in investments		79,711,911			264,382,483			22,912,081
Net investments at end of period	$	723,252,919		$	643,541,008		$	379,158,525

(1) Net of unrealized depreciation related to MTM of $0, $2,826,600, and $3,932,828 for the years ended December 31, 2005, 2004, and 2003.

(2) Excludes net unrealized depreciation of $1,123,136, $512,281, and $317,361 for the years ended December 31, 2005, 2004, and 2003, respectively, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

(3) Excludes net realized losses of $162,037, $38,639, and $161,682 for the years ended December 31, 2005, 2004, and 2003, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

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Investment Strategy

Our core philosophy has been “In niches there are riches.” We try to identify markets that are profitable and where we can be an industry leader. Core lending areas include taxicab medallion lending, automobile lending (taxicabs and limousines only), asset-based financing, and Consumer RV and marine lending. Additionally, we lend to small businesses that meet our overall credit criteria of strong collateral values and personal ability to repay the debt. Until October 2005, the Company also conducted business through Business Lenders, LLC (BLL), licensed under the US Small Business Administration (SBA) Section 7(a) program. The Company sold all of the assets of BLL to a subsidiary of Merrill Lynch & Co. in October 2005 for book value for the assets, and received payment for all intercompany funding provided, in total, $20,472,000. In all lending divisions, we focus on making secured loans to achieve favorable yield to risk profiles and below average losses. In addition to increasing market share in existing lending markets and identifying new niches, we seek to acquire specialty finance companies that make secured loans to small businesses which have experienced historically low loan losses similar to our own. Since the Company’s initial public offering in May 1996, eight specialty finance companies, four loan portfolios, and three taxicab rooftop advertising companies have been acquired. Our most recent acquisition was the purchase of a consumer loan portfolio by MB in April 2004 for $86,309,000.

Marketing, Origination, and Loan Approval Process

We employ 16 loan originators to originate medallion and commercial loans. Each loan application is individually reviewed through analysis of a number of factors, including loan-to-value ratios, a review of the borrower’s credit history, public records, personal interviews, trade references, personal inspection of the premises, and approval from the TLC, SBA, or other regulatory body, if applicable. Each applicant is required to provide personal or corporate tax returns, premises leases, and/or property deeds. Senior management establishes loan origination criteria. Loans that conform to such criteria may be processed by a loan officer with the proper credit authority, and non-conforming loans must be approved by the Chief Executive Officer and/or the Chief Credit Officer. Both medallion and commercial loans are sourced from brokers with extensive networks of applicants, and commercial loans are also referred by contacts with banks, attorneys, and accounting firms. Consumer loans are primarily sourced through relationships which have been established with RV and boat dealers throughout our market area.

TAXICAB ROOFTOP ADVERTISING

In addition to its finance business, the Company also conducted a taxicab rooftop advertising business primarily through Media, which began operations in November 1994, and ceased operations during the 2004 third quarter upon the merger of Media with and into a subsidiary of CCU, and the sale of MMJ to its management. See Note 3 to the financial statements for additional information. Media’s revenue was affected by the number of taxicab rooftop advertising displays showing advertisements, and the rate charged customers for those displays, which totaled 6,800 in the US at the date of sale. Although Media was a wholly-owned subsidiary of the Company, its results of operations were not consolidated with the Company’s operations because SEC regulations prohibit the consolidation of non-investment companies with investment companies.

SOURCES OF FUNDS

Overview

We have historically funded our lending operations primarily through credit facilities with bank syndicates and, to a lesser degree, through fixed-rate, senior secured notes and long-term subordinated debentures issued to or guaranteed by the SBA. Since the inception of MB, substantially all of MB’s funding has been provided by FDIC insured brokered certificates of deposit. The determination of funding sources is established by our management, based upon an analysis of the respective financial and other costs and burdens associated with funding sources. Our funding strategy and interest rate risk management strategy is to have the proper structuring of debt to minimize both rate and maturity risk, while maximizing returns with the lowest cost of funding over an intermediate period of time.

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The table below summarizes our cash levels and borrowings as of December 31, 2005, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2005. See notes 4 and 5 to the consolidated financial statements for additional information about each credit facility.

	Total
Cash	$	43,036,000
Bank loans (1)		19,000,000
Amounts available		13,500,000
Amounts outstanding		8,550,000
Average interest rate		6.76	%
Maturity		2/06-6/07
Lines of credit (2)	$	325,000,000
Amounts undisbursed		20,547,000
Amounts outstanding		304,453,000
Average interest rate		4.53	%
Maturity		9/06
Margin loan	$	10,663,000
Average interest rate		5.00	%
Maturity		N/A
SBA debentures (3)	$	77,250,000
Amounts undisbursed		0
Amounts outstanding		77,250,000
Average interest rate		6.02	%
Maturity		9/11-9/15
Brokered CD’s	$	219,107,000
Average Interest Rate		3.47	%
Maturity		1/06-9/09
Total cash and remaining amounts undisbursed under credit facilities	$	77,083,000
Total debt outstanding	$	620,022,000

(1) In January 2005, MFC entered into a $4,000,000 revolving note agreement with Atlantic Bank that matures in August 2006, and is secured by medallion loans in process of being sold to the Trust.

(2) In January 2006, this line of credit was extended for an additional two years to September 2008, with the committed amount adjusting to $475,000,000.

(3) In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a ten year period upon payment of a 1% fee and the infusion of $4,500,000 of additional capital.

We fund our fixed-rate loans with variable-rate credit lines and bank debt, and with fixed-rate senior secured notes and SBA debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. We seek to manage our exposure to increases in market rates of interest to an acceptable level by:

• Originating adjustable rate loans;

• Incurring fixed-rate debt; and

• Purchasing interest rate caps to hedge a portion of variable-rate debt against increases in interest rates.

Nevertheless, we accept varying degrees of interest rate risk depending on market conditions. For additional discussion of our funding sources and asset liability management strategy, see Asset/Liability Management on page 39.

OUR OPERATION AS A RIC

We previously elected to be taxed as a RIC under Sections 851 through 855 of the Internal Revenue Code for each taxable year, assuming we satisfied the qualification requirements for RIC treatment in each year. As further described herein, and in the notes to the consolidated financial statements, during taxable year 2002 we did not qualify as a RIC and were therefore subject to tax as an ordinary corporation under Subchapter C of the Code. Importantly, because we had a net operating loss for 2002, our non-qualification of RIC status did not materially affect dividend distributions to our stockholders, and produced a potentially beneficial taxable loss to carry forward. The Company qualified as a RIC in 2003, but chose to be taxed as a C Corporation in 2003 in order to better utilize the net operating loss carryforwards generated in 2002 and prior years.

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The sections of the Code relating to qualification and operation as a RIC are highly technical and complex. The following discussion summarizes material aspects of the sections of the Code that govern the federal income tax treatment of a RIC and the treatment of stockholders. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations developed under the Code and the rules, and administrative and judicial interpretations of these provisions, rules and regulations.

In general, if certain detailed conditions of the Code are met (including the election of RIC taxation in each such year), Business Development Companies, like us in previous taxable years, are generally not taxed at the corporate level on the “investment company taxable income” and net capital gains that are distributed to stockholders, where they are taxed at ordinary income and capital gains rates, respectively. The income of a non-RIC corporation is generally subject to corporate tax. In addition, stockholders who receive income from non-RIC corporations are also taxed on the income they receive at the lower capital gains rate. Thus, the income of a non-RIC corporation is subject to “double taxation” (i.e., taxation at both the corporate and stockholder levels). RIC treatment reduces this “double taxation.” A RIC is, however, generally subject to federal income tax, at regular corporate rates, on undistributed investment company taxable income and net capital gains.

To avoid a 4% nondeductible federal excise tax on undistributed income and capital gains, we must distribute (or be deemed to have distributed) by December 31st of each year at least 98% of the sum of (1) our ordinary income for such year; (2) our capital gain net income (which is the excess of our capital gain over our capital loss and is generally computed on the basis of the one-year period ending on October 31st of such year); and (3) any amounts that were not distributed in the previous calendar year and on which no income tax has been paid.

As in 2002, if we do not qualify as a RIC in any year, we will be subject to income taxes as if we were a domestic corporation, and our stockholders will be taxed on any amounts distributed to them in the same manner as stockholders of an ordinary corporation. Depending on the relevant circumstances, if this were to occur, we could be subject to potentially significant tax liabilities and the amount of cash available for distribution to our stockholders could be reduced. In 2002, however, because we had a net operating loss we did not suffer any significant tax liabilities as a result of our loss of RIC status. Likewise, in 2003, we were not taxed as a RIC on our federal tax return, and were able to offset substantially all of our federal and state tax liabilities by the use of net operating loss carryforwards generated in prior years.

The Code’s definition of the term “RIC” includes a domestic corporation that has elected to be treated as a Business Development Company under the 1940 Act and meets certain requirements. These requirements are:

(a) The Company derives at least 90% of its gross income for each taxable year from dividends, interest, interest payments with respect to securities loans, and gains from the sale or other disposition of stocks or securities or foreign currencies; and

(b) The Company diversifies its holdings so that, at the close of each quarter of its taxable year,

(i) At least 50% of the value of its total assets is represented by (A) cash, and cash items (including receivables), US Government securities and securities of other RICs, and (B) other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the Company and to not more than 10% of the outstanding voting securities of such issuer; and

(ii) Not more than 25% of the value of total assets is invested in the securities (other than US Government securities or securities of other RICs) of any one issuer or two or more issuers controlled by the company and engaged in the same, similar or related trades or businesses.

These income and asset diversification requirements could restrict the expansion of our banking business conducted by MB.

In addition, to qualify as a RIC under the Code, in each taxable year a company also must distribute to its stockholders at least 90% of (a) its investment company taxable income and (b) the excess of its tax-exempt interest income over certain disallowed deductions.

If we satisfy these requirements, we would not be subject to federal income tax on the investment company taxable income and net capital gain distributed to our stockholders. However, any investment company taxable income and/or net capital gains retained by us would be subject to federal income tax at regular corporate income tax rates. However, we may designate retained net capital gains as a “deemed distribution” and pay a tax on this for the benefit of our stockholders.

As a RIC, if we acquire debt obligations that were originally issued at a discount, or bear interest rates that do not

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call for payments at fixed rates (or certain “qualified variable rates”) at regular intervals over the life of the obligation, we will be required to include, as interest income, in each year, a portion of the “original issue discount” that accrues over the life of the obligation regardless of whether we receive the income, and we will be obligated to make distributions accordingly. If this were to occur, we may borrow funds or sell assets to meet the distribution requirements. However, the 1940 Act prohibits us from making distributions to stockholders while senior securities are outstanding unless we meet certain asset coverage requirements. If we are unable to make the required distributions, we may be subject to the nondeductible 4% excise tax or we may fail to qualify as a RIC. In addition, the SBA restricts the amount of distributions to the amount of undistributed net realized earnings less the allowance for unrealized loan losses (which in our case includes unrealized depreciation).

If we qualify as a RIC, distributions made to our taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be considered ordinary income to them. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains, (to the extent they do not exceed our actual net capital gain for the taxable year) without regard to the period for which the stockholder has held the stock. Corporate stockholders, however, are subject to tax on capital gain dividends at the same rate as ordinary income.

To the extent that we made (or continue to make in 2005 and beyond) distributions in excess of current and accumulated earnings and profits, these distributions were (and would be) treated first as a tax-free return of capital to the stockholder, reducing the tax basis of a stockholder’s common stock by the amount of such distribution (but not below zero). Distributions in excess of the stockholder’s tax basis are taxable as capital gains (if the common stock is held as a capital asset). In addition, any dividends declared by us in October, November, or December of any year and payable to a stockholder of record on a specific date in any such month shall be treated as both paid by us and received by the stockholder on December 31st of such year, provided that the dividend is actually paid by us during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses by us.

If we choose to retain and pay tax on any net capital gain rather than distribute such gain to our stockholders, we will designate such deemed distribution in a written notice to stockholders within 60 days after the close of the taxable year. Each stockholder would then be treated, for federal income tax income tax purposes, as if we had distributed to such stockholder, on the last day of its taxable year, the stockholder’s pro rata share of the net long-term capital gain retained by us and the stockholder had paid its pro rata share of the taxes paid by and reinvested the remainder in us.

In general, any losses upon a sale or exchange of common stock by a stockholder who has held the stock for six months or less (after applying certain holding period rules) will be treated as long-term capital loss to the extent that distributions from us are required to be treated by the stockholder as long-term capital gains.

As noted above, we were not taxed as a RIC in 2002 or 2003, and were taxed as a RIC in 2004. If we fail to meet the RIC requirements for more than two consecutive years and then seek to requalify as a RIC, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period. Absent such special election, any gain we recognized would be deemed distributed to our stockholders as a taxable distribution.

OUR OPERATION AS A BDC

As a Business Development Company, or BDC, we are subject to regulation under the 1940 Act, and we are periodically examined by the SEC for compliance with the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between investment companies and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. In addition, the 1940 Act provides that we may not change the nature of our business in a way which would cause us to lose our status as a BDC or withdraw our election as a BDC, unless we are authorized by a vote of a “majority of the Company’s outstanding voting securities,” as defined under the 1940 Act.

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock (collectively, “senior securities,” as defined under the 1940 Act) senior to the shares of common stock if the asset coverage of the indebtedness and all senior securities is at least 200% immediately after the issuance. Subordinated SBA debentures guaranteed by or issued to the SBA by our RIC subsidiaries are not subject to this asset coverage test. In addition, while senior securities are outstanding, provisions must be made to prohibit the declaration of any dividend or other distribution to stockholders (except stock dividends) or the repurchase of securities or shares unless we meet the applicable asset coverage ratios at the time of the declaration of the dividend or distribution or repurchase after deducting such dividend, distribution or repurchase price.

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Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act (Qualifying Assets) unless, at the time the acquisition is made, certain Qualifying Assets represent at least 70% of the value of the Company’s total assets. The principal categories of Qualifying Assets relevant to our business are the following:

(1) Securities purchased in transactions not involving a public offering from the issuer of such securities, which issuer is an eligible portfolio company. An “eligible portfolio company” is defined in the 1940 Act as any issuer which:

(a) Is organized under the laws of, and has its principal place of business in, the United States;

(b) Is not an investment company other than a SBIC wholly-owned by the BDC; and

(c) Satisfies one or more of the following requirements:

(i) The issuer does not have a class of securities with respect to which a member of a national securities exchange, broker or dealer may extend margin credit, or

(ii) The issuer is controlled by a BDC, such BDC exercises a controlling influence over the issuer’s management or policies as a result of such control, and the BDC has an affiliated person serving as a director of issuer;

(iii) The issuer has total assets of not more than $4 million and capital and surplus (shareholder’s equity less retained earnings) of not less than $2 million, or such other amounts as the Securities and Exchange Commission (SEC) may establish by rule, regulation, or order; or

(iv) Issuer meets such other criteria as the SEC may establish from time to time by rule;

(2) Securities for which there is no public market and which are purchased in transactions not involving a public offering from the issuer of such securities where the issuer is an eligible portfolio company which is controlled by the BDC;

(3) Securities received in exchange for or distributed on or with respect to securities described in (1) or (2) above, or pursuant to the exercise of options, warrants or rights relating to such securities; and

(4) Cash.

In addition, a BDC’s cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment, must have been organized (and have its principal place of business) in the US for the purpose of making investments in the types of securities described in (1) or (2) above.

To count securities as Qualifying Assets for the purpose of the 70% test, a BDC must either control the issuer of the securities or must make available to the issuer of the securities significant managerial assistance; except that, where a BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available the required managerial assistance.

REGULATION BY THE SBA

MFC, MCI, and FSVC each operate as an SBIC. The Small Business Investment Act of 1958 (SBIA) authorizes the organization of SBICs as vehicles for providing equity capital, long term financing, and management assistance to small business concerns. The SBIA and the SBA regulations define a “small business concern” as a business that is independently owned and operated, which does not dominate its field of operation and which (i) has a net worth, together with any affiliates, of $18.0 million or less and average annual net income after US federal income taxes for the preceding two years of $6.0 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfies alternative criteria under SBA regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. In addition, at the end of each year, at least 20% of the total amount of loans made after April 25, 1994 must be made in “smaller businesses” which have a net worth of $6.0 million or less and average net income after federal income taxes for the preceding two years of $2.0 million or less. SBA Regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as relending and reinvestment.

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MFC is authorized to make loans to borrowers other than disadvantaged businesses (that is, businesses that are at least 50% owned, and controlled and managed, on a day to day basis, by a person or persons whose participation in the free enterprise system is hampered because of social or economic disadvantage) if, at the time of the loan, MFC has in its portfolio, outstanding loans to disadvantaged businesses with an aggregate cost basis equal to or exceeding the value of the unamortized repurchase discount under the preferred stock repurchase agreement between MFC and the SBA, which is currently zero.

Under current SBA Regulations, the maximum rate of interest that MFC may charge may not exceed the higher of (i) 19% or (ii) the sum of (a) the higher of (i) that company’s weighted average cost of qualified borrowings, as determined under SBA Regulations, or (ii) the current SBA debenture rate, plus (b) 11%, rounded to the next lower eighth of one percent. At December 31, 2005, our outstanding medallion loans had a weighted average rate of interest of 6.46% and our outstanding commercial loans had a weighted average rate of interest of 10.70%. Current SBA Regulations also require that each loan originated by an SBIC have a term of between one and 20 years; loans to disadvantaged businesses also may be for a minimum term of one year.

The SBA restricts the ability of SBICs to repurchase their capital stock, to retire their SBA debentures, and to lend money to their officers, directors, and employees or invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a “change of control” or transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC. A “change of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise.

Under SBA Regulations, without prior SBA approval, loans by licensees with outstanding SBA leverage to any single small business concern may not exceed 20% of an SBICs regulatory capital, as defined, however, under the terms of the respective conversion agreements with the SBA, MFC is authorized to make loans to disadvantaged borrowers in amounts not exceeding 30% of its respective regulatory capital.

SBICs must invest idle funds that are not being used to make loans in investments permitted under SBA Regulations. These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the government of the US with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. These permitted investments must be maintained in (i) direct obligations of, or obligations guaranteed as to principal and interest by, the US, which mature within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions with a maturity of seven days or less if the securities underlying the repurchase agreements are direct obligations of, or obligations guaranteed as to principal and interest by, the US, and such securities must be maintained in a custodial account in a federally insured institution; (iii) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (iv) a deposit account in a federally insured institution, subject to a withdrawal restriction of one year or less; (v) a checking account in a federally insured institution; or (vi) a reasonable petty cash fund.

SBICs may purchase voting securities of small business concerns in accordance with SBA Regulations. Although prior regulations prohibited an SBIC from controlling a small business concern except in limited circumstances, regulations adopted by SBA on October 22, 2002 (pursuant to Public Law 106-554) now allow an SBIC to exercise control over a small business for a period of seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with SBA’s prior written approval.

MEDALLION BANK’S OPERATION AS AN INDUSTRIAL BANK

In May 2002, the Company formed MB, which received approval from the FDIC for federal deposit insurance in October 2003. MB, a Utah-chartered industrial bank, is a depository institution subject to regulatory oversight and examination by both the FDIC and the Utah Department of Financial Institutions. Under its banking charter, MB is empowered to make consumer and commercial loans, and may accept all FDIC-insured deposits other than demand deposits (checking accounts). The creation of MB allows the Company to apply stable and low-cost bank deposit funding for key lending business activities throughout the Company, which initially included taxicab medallion and asset-based lending, and now also includes consumer loans.

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MB is subject to certain federal laws that restrict and control its ability to extend credit and provide or receive services between affiliates. See Note 18 to the consolidated financial statements. In addition, the FDIC has regulatory authority to prohibit MB from engaging in any unsafe or unsound practice in conducting its business. The effects of, and changes in, the level of regulatory scrutiny, regulatory requirements and initiatives, including certain mandatory and possibly discretionary actions by federal and State of Utah regulators, restrictions and limitations imposed by banking laws, examinations, audits, and possible agreements between MB and it regulators may affect the operations of MB.

MB is further subject to capital adequacy guidelines issued by the Federal Financial Institutions Examination Council (the FFIEC). These guidelines make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations and consider off-balance sheet exposures in determining capital adequacy. Under the rules and regulations of the FFIEC, at least half of a bank’s total capital is required to be Tier I capital, comprised of common equity, retained earnings and a limited amount of non-cumulative perpetual preferred stock. The remaining capital, Tier II capital, may consist of other preferred stock, certain hybrid debt/equity instruments, a limited amount of term-subordinated debt, or a limited amount of the reserve for possible credit losses. The FFIEC has also adopted minimum leverage ratios for banks, which are calculated by dividing Tier I capital by total average assets. Recognizing that the risk-based capital standards address only credit risk, and not interest rate, liquidity, operational, or other risks, many banks are expected to maintain capital in excess of the minimum standards.

In addition, pursuant to provisions of the FDIC Improvement Act of 1991 (FDICIA) and related regulations with respect to prompt corrective action, FDIC-insured institutions such as MB may only accept brokered deposits without FDIC permission if they meet specified capital standards, and are subject to restrictions with respect to the interest they may pay on deposits unless they are well-capitalized. To be well-capitalized under the prompt corrective action provisions, a bank must have a ratio of combined Tier I and Tier II capital to risk-weighted assets of not less than 10%, Tier I capital to risk-weighted assets of not less than 6%, and a Tier I capital to average assets of not less than 5%.

The FDIC, the Company, and MB have agreed that the capital levels of MB will at all times meet or exceed the levels required for MB to be considered well capitalized under the FDIC rules and regulations, that MB’s Tier 1 capital to total assets ratio will be maintained at not less than 15%, and that MB will maintain an adequate allowance for loan and lease losses. See Note 18 to the consolidated financial statements.

Transfers of Funds

Sections 23A and 23B of the Federal Reserve Act and applicable regulations also impose restrictions on MB. These restrictions limit the transfer of funds by a depository institution to certain of its affiliates, including the Company, in the form of loans, extensions of credit, investments, or purchases of assets. Sections 23A and 23B also require generally that the depository institution’s transactions with its affiliates be on terms no less favorable to MB than comparable transactions with unrelated third parties. See Note 18 to the consolidated financial statements.

Legislative and Regulatory Developments

The banking and finance businesses in general are the subject of extensive regulation at the state and federal levels, and numerous legislative and regulatory proposals are advanced each year which, if adopted, could affect our profitability or the manner in which we conduct our activities. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives, or whether any of the federal or state proposals will become law.

The USA Patriot Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (the USA Patriot Act) was enacted on October 26, 2001, and is intended to detect and prosecute terrorism and international money laundering. The USA Patriot Act establishes new standards for verifying customer identification incidental to the opening of new accounts. MB has undertaken appropriate measures to comply with the USA Patriot Act and associated regulations. Other provisions of the USA Patriot Act provide for special information sharing procedures governing communications with the government and other financial institutions with respect to suspected terrorists and money laundering activity, and enhancements to suspicious activity reporting, including electronic filing of suspicious activity reports over a secure filing network.

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COMPETITION

Banks, credit unions, and finance companies, some of which are SBICs, compete with the Company in originating medallion, commercial, and consumer loans. In addition, finance subsidiaries of equipment manufacturers also compete with the Company in originating commercial loans. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that the Company will be able to identify and complete the financing transactions that will permit it to compete successfully.

EMPLOYEES

As of December 31, 2005, the Company employed 99 persons. The Company believes that relations with all of its employees are good.

AVAILABLE INFORMATION

Our corporate website is located at www.medallion.com. We make copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendment to those reports filed with or furnished to the SEC available to investors on or through our website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our SEC filings can be found in the For Investors section of our website, the address of which is http://www.medallion.com/investors.htm. Our Code of Ethical Conduct and Insider Trading Policy can be located in the Corporate Governance section of our website at http://www.medallion.com/investors_governance.htm. These documents, as well as our SEC filings are available in print to any stockholder who requests a copy from our Secretary.

ITEM 1A. RISK FACTORS

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

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

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

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

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

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

• line of credit for medallion lending;

• raising deposits at MB;

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• loan amortization and prepayments;

• sales of participation interests in loans; and

• borrowings from other financial intermediaries.

In order to be taxed as a RIC, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. At December 31, 2005, we had $15,000,000 under a Fed Funds Line with a commercial bank, $12,343,000 available under revolving credit agreements with commercial banks, and $1,950,000 of additional deposits that can be raised by MB at existing capital levels. Additionally, In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a ten year period upon payment of a 1% fee and the infusion of $4,500,000 of additional capital.

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

Although the Company has demonstrated an ability to meet significant debt amortization requirements in the past, received approval to operate MB and begin raising federally-insured deposits, and has several existing sources of liquidity, there can be no assurance that additional funding sources to meet amortization requirements or future growth targets will be successfully obtained. See the additional discussion related to the credit facilities and note agreements in the Liquidity and Capital Resources section on page 40.

Due to the Company’s late filing of the 2004 Form 10-K, the Company could have restrictions imposed on it by rules of NASDAQ and the SEC. Such restrictions could include, and are not limited to, such items as not being able to file short form registration statements if the Company were to issue additional common stock to the public. The Company has no current plans for additional equity offerings.

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

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

Our borrowers may default on their loans.

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

• the failure to meet its business plan;

• a downturn in its industry or negative economic conditions;

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

• the inability to obtain additional financing from traditional sources.

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

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

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

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

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

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

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

Although we have diversified from the New York City area, a significant portion of our loan revenue is derived from New York City 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. There can be no assurance that we will be able to sufficiently diversify our operations geographically.

An economic downturn could result in certain of our commercial and consumer loan customers experiencing declines in business activities, which could lead to difficulties in their servicing of their loans with us, and increasing the level of delinquencies, defaults, and loan losses in our commercial and consumer loan portfolios. Although the Company believes the estimates and assumptions used in determining the recorded amounts of net assets and liabilities at December 31, 2005 are reasonable, actual results could differ materially from the estimated amounts recorded in the Company’s financial statements.

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

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

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

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

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

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

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

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

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In determining the value of our portfolio, management and the Board of Directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market interest rates, management and the Board of Directors could decrease its valuation of the portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values that 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 December 31, 2005, our net unrealized depreciation on investments was approximately $12,535,793 or 1.70% of our investment portfolio. Based upon current market conditions and current loan-to-value ratios, management believes, and our Board of Directors concurs, that the net unrealized depreciation on investments is adequate to reflect the fair value of the portfolio.

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

Every city in which we originate medallion loans, and most other major cities in the US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. New York City determined to increase the number of medallions by 900, auctioned over a three year period beginning in 2004, preceded by a 25% fare hike. The first of these auctions for 300 medallions concluded in April 2004, and the second for 300 medallions concluded in October 2004, and both generated high levels of bid activity and record medallion prices. Although there can be no assurances, we would expect the final auction in 2006 to obtain similar results. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

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

A significant portion of our loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City Taxi and Limousine Commission data, over the past 20 years New York City taxicab medallions have appreciated in value an average of 10% each year. However, for sustained periods during that time, taxicab medallions have declined in value. During 2005, the value of New York City taxicab medallions increased by approximately 5% for individual medallions and 4% for corporate medallions.

Our failure to re-establish our RIC status in 2004 and beyond could lead to a substantial reduction in the amount of income distributed to our shareholders.

In 2003, changes were enacted to the federal tax laws which, among other things, significantly reduced the tax rate on dividends paid to shareholders from a corporation’s previously taxed income. Assuming we qualify as a RIC for 2005 or subsequent taxable years, we are unable to predict the effect of such changes upon our common stock.

If we do not file as a RIC for more than two consecutive years, and then seek to requalify and elect RIC status, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period. Absent such special election, any gain we recognize would be deemed distributed to our stockholders as a taxable distribution.

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

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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. Qualification as a RIC is made on an annual basis and, although we and some of our subsidiaries qualified as regulated investment companies in the past, no assurance can be given that each will qualify for such treatment in 2005 and beyond. Failure to qualify as a RIC would subject us to tax on our income and could have material adverse effects on our financial condition and results of operations.

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

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

The Internal Revenue Code’s diversification requirements may limit our ability to expand our business.

These requirements provide that to qualify as a RIC, not more than 25% of the value of our total assets may be invested in the securities (other than US Government securities or securities of other RICs) of any one issuer. While our investments in RIC subsidiaries are not subject to this diversification test so long as these subsidiaries qualify as RICs, our investments in CCU and MB would be subject to this test, and could impact requalification as a RIC.

The merger of Media into CCU in exchange for stock created a diversification issue as well, as it represents 12% of the Company’s RIC assets. The level of the investment will need to be monitored to ensure it remains within the diversification guidelines.

Additionally the Company’s investment in MB, while representing 22% of the Company’s total RIC assets at December 31, 2005, currently falls within the guidelines of the 25% test described above. However, as an anticipated future growth vehicle of the Company, the investment in MB will need to be monitored for continued compliance with the test.

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, at that time.

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

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

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

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

We operate in a highly regulated environment.

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

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

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

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

The acquisition of the consumer loan portfolio, and the subsequent commencement of lending operations in this line of business, represents an entry into a new lending market for the Company. Although the purchased portfolio was seasoned, and MB management has considerable experience in originating and managing consumer loans, there can be no assurances that these loans will perform at their historical levels as expected under MB’s management.

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

ITEM 1B. UNRESOLVED STAFF COMMMENTS

None.

ITEM 2. PROPERTIES

The Company leases approximately 17,000 square feet of office space in New York City for its corporate headquarters under a lease expiring in June 2016, and leases a facility in Long Island City, New York, of approximately 6,000 square feet for certain corporate back-office operations. The Company also leases office space for loan origination offices and subsidiaries operations in Boston, MA, Chicago, IL, Minneapolis, MN, and Princeton, NJ. MB leases space in Salt Lake City, UT. The Company does not own any real property, other than that obtained as a result of lending relationships. The Company believes that its leased properties, taken as a whole, are in good operating condition and are suitable for the Company’s current business operations.

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ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the 2005 fourth quarter.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES

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 March 13, 2006, there were approximately 114 holders of record of the Company’s common stock.

On March 14, 2006, the last reported sale price of our common stock was $12.74 per share. Historically, our common stock has traded at a premium to net asset value per share, and although there can be no assurance, the Company anticipates that its stock will again trade at a premium in the future.

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

2005	HIGH		LOW
Fourth Quarter	$	11.50	$	9.20
Third Quarter		10.77		9.51
Second Quarter		9.78		9.10
First Quarter		9.80		8.92
2004
Fourth Quarter	$	9.70	$	8.52
Third Quarter		9.19		6.78
Second Quarter		9.03		7.46
First Quarter		9.25		7.91

Information about our equity compensation plan is incorporated by reference in all information under caption “Equity Compensation Plan Information” included in the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 16, 2006.

As a RIC, we intend to distribute at least 90% of our investment company taxable income to our shareholders. Distributions of our income are generally required to be made within the calendar year the income was earned as a RIC; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Investment company taxable income includes, among other things, interest, dividends, and capital gains reduced by deductible expenses. Our ability to make dividend payments as a RIC is restricted by certain asset coverage requirements under the 1940 Act and has been dependent upon maintenance of our status as a RIC under the Code in the past, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances, however, that we will have sufficient earnings to pay such dividends in the future.

We have adopted a dividend reinvestment plan pursuant to which shareholders may elect to have distributions reinvested in additional shares of common stock. When we declare a dividend or distribution, all participants will have credited to their plan accounts the number of full and fractional shares (computed to three decimal places) that could be obtained with the cash, net of any applicable withholding taxes that would have been paid to them if they were not participants. The number of full and fractional shares is computed at the weighted average price of all shares of common stock purchased for plan participants within the 30 days after the dividend or distribution is declared plus brokerage commissions. The automatic reinvestment of dividends and capital gains distributions will not release plan participants of any income tax that may be payable on the dividend or capital gains distribution. Shareholders 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

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issue to a shareholder 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. Shareholders may obtain additional information about the dividend reinvestment plan by contacting the American Stock Transfer & Trust Company at 59 Maiden Lane, New York, NY, 10038.

ISSUER PURCHASES OF EQUITY SECURITIES ⁽¹⁾

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs
November 5 through December 31, 2003	10,816	$	9.20	10,816	$	9,900,492
January 1 through December 31, 2004	952,517		9.00	952,517		11,329,294
January 1 through December 31, 2005(2)	389,900		9.26	389,900		7,720,523
Total	1,353,233		9.07	1,353,233		—

(1) The Company publicly announced its Stock Repurchase Program in a press release dated November 5, 2003, after the Board of Directors approved the repurchase of up to $10,000,000 of the Company’s outstanding common stock, which was increased by an additional $10,000,000 authorization on November 3, 2004. The stock repurchase program expires after a certain number of days, except in certain cases where it is extended through completion of the authorized amounts. In November 2005, the Company extended the terms of the Stock Repurchase Program. Purchases were to commence no earlier than December 4, 2005 and were to conclude 180 days after the commencement of the purchases.

(2) There were no repurchases made during the 2005 fourth quarter.

ITEM 6. 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 years ended December 31, 2005, 2004, 2003, 2002, and 2001.

	Year ended December 31,
Dollars in thousands	2005			2004			2003			2002			2001
Statement of operations
Investment income	$	57,173		$	39,119		$	26,214		$	33,875		$	42,102
Interest expense		24,397			16,063			12,042			20,243			25,576
Net interest income		32,776			23,056			14,172			13,632			16,526
Noninterest income		3,880			3,479			4,457			6,121			3,592
Operating expenses		21,235			18,937			17,174			27,565			17,619
Net investment income (loss)before income taxes		15,421			7,598			1,455			(7,812	)		2,499
Income tax provision (benefit)		1,959			2,171			41			85			(16	)
Net investment income (loss) after income taxes (1)		13,462			5,427			1,414			(7,897	)		2,515
Net realized gains (losses) on investments		1,081			(26	)		11,527			(6,335	)		(3,015	)
Net unrealized appreciation (depreciation) on investments (2)		(7,681	)		17,111			(10,923	)		1,620			(3,558	)
Net increase (decrease) in net assets resulting from operations (3)	$	6,862		$	22,512		$	2,018		$	(12,612	)	$	(4,058	)
Per share data
Net investment income (loss) (1)	$	0.88		$	0.41		$	0.08		$	(0.44	)	$	0.13
Income tax (provision) benefit		(0.11	)		(0.12	)		(0.00	)		(0.00	)		0.00
Net realized gains (losses) on investments		0.06			0.00			0.63			(0.35	)		(0.17	)
Net unrealized appreciation (depreciation) on investments		(0.44	)		0.93			(0.60	)		0.10			(0.20	)
Net increase (decrease) in net assets resulting from operations (3)	$	0.39		$	1.22		$	0.11		$	(0.69	)	$	(0.24	)
Dividends declared per share	$	0.54		$	0.37		$	0.16		$	0.03		$	0.38
Weighted average common shares outstanding
Basic		17,087,034			18,001,604			18,245,774			18,242,728			16,582,179
Diluted		17,552,228			18,424,518			18,287,952			18,242,728			16,582,179
Balance sheet data
Net investments	$	723,253		$	643,541		$	379,159		$	356,246		$	455,595
Total assets		792,973			709,910			456,494			425,288			507,756
Total borrowed funds		620,022			525,933			287,454			250,767			321,845
Total liabilities		626,919			539,448			294,378			263,423			332,732
Total shareholders’ equity		166,354			170,461			162,116			161,865			175,024

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	Year ended December 31,
Dollars in thousands	2005		2004		2003		2002		2001
Selected financial ratios and other data
Return on average assets (ROA) (4)
Net investment income (loss) after taxes	1.78	%	0.93	%	0.34	%	(1.71	)%	0.46	%
Net increase (decrease) in net assets resulting from operations	0.91		3.86		0.47		(2.72	)	(0.75	)
Return on average equity (ROE) (5)
Net investment income (loss) after taxes	8.02		3.33		0.90		(4.71	)	1.48
Net increase (decrease) in net assets resulting from operations	4.09		13.82		1.24		(7.47	)	(2.44	)
Weighted average yields	8.16	%	7.47	%	6.93	%	8.21	%	8.71	%
Weighted average cost of funds	3.51		3.10		3.21		4.91		5.27
Net interest margin (6)	4.65		4.37		3.72		3.30		3.44
Noninterest income ratio (7)	0.56		0.68		1.20		1.50		0.75
Operating expense ratio (8)	3.06		3.68		4.62		6.84		3.71
As a percentage of net investment portfolio
Medallion loans	62	%	61	%	76	%	59	%	55	%
Commercial loans	20		21		23		39		44
Consumer loans	12		11		—		—		—
Equity investments	3		2		1		2		1
Investment securities	3		5		—		—		—
Investments to assets (9)	91	%	91	%	83	%	84	%	90	%
Equity to assets (10)	21		24		36		38		34
Debt to equity (11)	373		309		177		155		184

(1) Excluding the $63,000 and $9,417,000 costs of debt extinguishment in 2003 and 2002, the $6,700,000 of charges related to Chicago Yellow, the excess servicing asset, the additional bank charges, and the writeoff of transaction costs in 2001, net investment income after taxes would have been $1,519,000 or $0.08, $1,605,000 or $0.09 per share, and $9,199,000 or $0.55 in 2003, 2002, and 2001, respectively.

(2) Unrealized appreciation (depreciation) on investments represents the increase (decrease) for the year in the fair value of the Company’s investments, including the results of operations for MTM, where applicable.

(3) Excluding the costs and charges described in note (1) and the $1,350,000 tax reserve adjustment in Media in 2001, net increase (decrease) in net assets resulting from operations would have been $2,081,000 or $0.11 per share, ($3,195,000) or ($0.18) per share, and $4,692,000 or $0.18 in 2003, 2002, and 2001, respectively.

(4) ROA represents the net investment income after taxes or net increase (decrease) in net assets resulting from operations, divided by average total assets. Excluding the costs and charges described in note (1), ROAs based on net investment income after taxes would have been 0.35%, 0.35%, and 1.71%, for 2003, 2002, and 2001, respectively. ROAs based on net increase (decrease) in net assets resulting from operations would have been 0.48%, (0.69%),and 0.49%, respectively.

(5) ROE represents the net investment income after taxes or net increase (decrease) in net assets resulting from operations divided by average shareholders’ equity. Excluding the costs and charges described in note (1), ROEs based on net investment income after taxes would have been 0.91%, 0.90%, and 5.54% for 2003, 2002, and 2001, respectively. ROEs based on net increase (decrease) in net assets resulting from operations would have been 1.28%, (1.89%), and 1.59%, respectively.

(6) Net interest margin represents net interest income for the year divided by average interest earning assets. Excluding the interest income-related costs described in note (1), net interest margin would have been 4.08% for 2001.

(7) Noninterest income ratio represents noninterest income divided by average interest earning assets. For 2001, noninterest income ratio adjusted for the excess servicing asset of $2,050,000 was 3.39%.

(8) Operating expense ratio represents operating expenses divided by average interest earning assets. Excluding the $63,000 and $9,417,000 costs of debt extinguishment in 2003 and 2002, and $550,000 in 2001 to write off transaction, acquisition-related, and other non-recurring charges, the ratios would have been 4.60%, 4.52%, and 3.60%, respectively.

(9) Represents net investments divided by total assets as of December 31.

(10) Represents total shareholders’ equity divided by total assets as of December 31.

(11) Represents total debt (floating rate and fixed rate borrowings) divided by total shareholders’ equity as of December 31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The information contained in this section should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the years ended December 31, 2005, 2004, and 2003. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors section on page 16.

CRITICAL ACCOUNTING POLICIES

The SEC has recently issued cautionary advice regarding disclosure about critical accounting policies. The SEC defines critical accounting policies as those that are both most important to the portrayal of a company’s financial condition

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and results, and that require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods. The preparation of the Company’s consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Significant estimates made by the Company include valuation of loans, evaluation of the recoverability of accounts receivable and income tax assets, and the assessment of litigation and other contingencies. The matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments. Although the Company believes that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at December 31, 2005, are reasonable, actual results could differ materially from the estimated amounts recorded in the Company’s financial statements.

GENERAL

The Company is a specialty finance company that has a leading position in originating and servicing loans that finance taxicab medallions and various types of commercial businesses. Since 1996, the year in which the Company became a public company, it has increased its medallion loan portfolio at a compound annual growth rate of 14%, and its commercial loan portfolio at a compound annual growth rate of 15%. Total assets under our management, which includes assets serviced for third party investors, were approximately $802,000,000 at December 31, 2005, and have grown at a compound annual growth rate of 16% from $215,000,000 at the end of 1996.

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

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

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

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

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Trends in Investment Portfolio

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

	December 31, 2005					December 31, 2004					December 31, 2003
(Dollars in thousands)	Interest Rate (1)		Principal Balance			Interest Rate (1)		Principal Balance			Interest Rate (1)		Principal Balance
Medallion loans
New York	6.23	%	$	351,014		5.76	%	$	305,157		6.00	%	$	231,955
Chicago	6.99			52,242		6.33			52,883		6.74			26,543
Boston	7.47			27,879		7.31			19,857		7.54			15,490
Newark	8.49			6,541		9.14			6,841		9.52			7,744
Cambridge	7.21			5,664		7.19			4,947		7.20			4,077
Other	7.53			6,464		8.18			2,804		9.77			2,556
Total medallion loans	6.46			449,804		6.01			392,489		6.29			288,365
Deferred loan acquisition costs				1,217					851					905
Unrealized depreciation on loans				(1,348	)				(1,209	)				(1,058	)
Net medallion loans			$	449,673				$	392,131				$	288,212
Commercial loans
Asset based	9.64	%	$	72,085		7.97	%	$	47,959		7.23	%	$	18,179
Secured mezzanine	14.06			53,207		14.28			49,006		13.02			27,166
Other secured commercial	7.06			28,058		8.28			27,247		7.58			30,202
SBA Section 7(a) (2)	—			—		7.65			19,703		6.93			17,540
Total commercial loans(2)	10.70			153,350		10.13			143,915		8.98			93,087
Deferred loan acquisition costs				67					798					741
Discount on SBA Section 7(a) loans sold(2)				—					(602	)				(998	)
Unrealized depreciation on loans				(7,621	)				(7,276	)				(6,860	)
Net commercial loans			$	145,796				$	136,835				$	85,970
Consumer loans
Marine	18.39	%	$	42,052		18.60	%	$	35,933		—	%	$	—
RV	18.49			41,945		18.56			15,896		—			—
Other	18.57			4,283		18.79			17,808		—			—
Total consumer loans	18.45			88,280		18.64			69,637		—			—
Deferred loan acquisition costs				1,350					106					—
Unrealized depreciation on loans				(3,952	)				(3,412	)				—
Net consumer loans			$	85,678				$	66,331				$	—
Equity investments	1.53	%	$	23,384		1.37	%	$	32,960		0.00	%	$	4,690
Unrealized appreciation on equities				629					685					287
Net equity investments			$	24,013				$	33,645				$	4,977
Investment securities	4.11	%	$	17,873		3.92	%	$	14,144		—	%	$	—
Unrealized depreciation on investment securities				(243	)				(49	)				—
Premiums paid on purchased securities				463					504					—
Net equity investments			$	18,093				$	14,599				$	—
Investments at cost (3)	8.58	%	$	732,691		7.99	%	$	653,146		6.86	%	$	386,142
Deferred loan acquisition costs				2,634					1,755					1,646
Unrealized appreciation on equities				629					685					287
Discount on SBA Section 7(a) loans sold(2)				—					(602	)				(998	)
Unrealized depreciation on investment securities				(243	)				(49	)				—
Premiums paid on purchased securities				463					504					—
Unrealized depreciation on loans				(12,921	)				(11,898	)				(7,918	)
Net investments			$	723,253				$	643,541				$	379,159

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

(2) The Company sold substantially all of the SBA Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005.

(3) The weighted average interest rate for the entire loan portfolio (medallion, commercial, and consumer loans) was 8.93%, 8.44%, and 6.95% at December 31, 2005, 2004, and 2003.

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PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio at December 31, 2005 was 8.58% (8.93% for the loan portfolio), an increase of 59 basis points from 7.99% at December 31, 2004, which was an increase of 113 basis points from 6.86% at December 31, 2003. The increase from 2004 to 2005 primarily reflected the market increase in interest rates. The increase from 2003 to 2004 primarily reflected the impact of the RV/Marine portfolio purchase and strong growth in the commercial loan portfolio, both at higher yields. The Company expects to try to increase the percentage of commercial and consumer loans in the total portfolio, the origination of floating and adjustable-rate loans, and the level of non-New York medallion loans to enhance our yields.

Medallion Loan Portfolio

The Company’s medallion loans comprised 62% of the net portfolio of $723,253,000 at December 31, 2005, compared to 61% of $643,541,000 at December 31, 2004 and 76% of $379,159,000 at December 31, 2003. The medallion loan portfolio increased by $57,541,000 or 15% in 2005, primarily reflecting increases in New York and Boston. The increase in the New York market can be attributed to new business marketing efforts, the conversion of participations into owned loans, and the general increase in medallion values and related refinancings. Total medallion loans serviced for third parties were $8,784,000, $16,658,000, and $36,245,000 at December 31, 2005, 2004, and 2003.

The weighted average yield of the medallion loan portfolio at December 31, 2005 was 6.46%, an increase of 45 basis points from 6.01% at December 31, 2004, which was a decrease of 28 basis points from 6.29% at December 31, 2003. The increase in yield primarily reflected the impact of rising interest rates in the economy and the effects of borrower refinancings. The decreases in yield a year ago primarily reflected the generally lower level of interest rates in the economy, and the effects of borrower refinancings. At December 31, 2005, 22% of the medallion loan portfolio represented loans outside New York, compared to 22% and 19% at year-end 2004 and 2003. The Company continues to focus its efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

Since 1997, and until 2002, the Company shifted the total portfolio mix toward a higher percentage of commercial loans, which historically had higher yields than medallion loans, and represented 20% of the net investment portfolio as of December 31, 2005, compared to 21% and 23% at December 31, 2004 and 2003, respectively. Commercial loans increased by $8,962,000 or 7% during 2005 primarily reflecting increased loan originations in the asset-based and mezzanine loan portfolios, partially offset by the sale of $19,414,000 of SBA Section 7 (a) loans. Total commercial loans serviced for third parties were $349,000, $106,508,000, and $138,643,000 at December 31, 2005, 2004, and 2003, and included $0, $98,773,000, and $117,548,000, respectively, related to the SBA Section 7(a) business. The Company sold substantially all of the Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005.

The weighted average yield of the commercial loan portfolio at December 31, 2005 was 10.70%, an increase of 57 basis points from 10.13% at December 31, 2004, which was up 115 basis points from 8.98% at December 31, 2003. The increased yield reflected the increases in market interest rates. The increase in 2004 was primarily due to the higher origination volume in the high yielding mezzanine loan portfolio, partially offset by increased customer refinancing activities at lower rates. The Company continues to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate its interest rate risk in a rising interest rate environment. At December 31, 2005, variable-rate loans represented approximately 54% of the commercial portfolio, compared to 43% and 58% at December 31, 2004 and 2003. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.

Consumer loan portfolios

The Company’s consumer loans represented 12% of the net investment portfolio as of December 31, 2005 compared to 11% at December 31, 2004. About half of the existing portfolio was purchased on April 1, 2004 from an unrelated financial institution and the transaction closed May 6, 2004. The Company started originating new adjustable rate consumer loans during the 2004 third quarter. Recreational vehicles, boats, and horse trailers located in all 50 states collateralize the loans. The portfolio is serviced by a third party subsidiary of a major commercial bank.

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The weighted average gross yield of the consumer loan portfolio at December 31, 2005 was 18.45%, a decrease of 19 basis points from 18.64% at December 31, 2004. For 2005 and 2004, the amortization of the portfolio purchase premium reduced the yield by an average of 1.90% and 2.62%, respectively. At December 31, 2005, adjustable rate loans represented approximately 89% of the consumer portfolio compared to 85% at December 31, 2004.

Delinquency and Loan Loss Experience

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

For the consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off to realized losses. If the collateral is repossessed, a realized loss is recorded to write the loan down to 75% of its net realizable value, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off as a realized loss, and any excess proceeds are recorded as a realized gain. Proceeds collected on charged off accounts are recorded as a realized gain. All collection, repossession, and recovery efforts are handled on behalf of MB by the servicer.

The following table shows the trend in loans 90 days or more past due as of December 31,

	2005				2004				2003
Medallion loans	$	6,080,000	0.9	%	$	7,547,000	1.2	% (1)	$	4,569,000	1.2	%(1)
Commercial loans
Secured mezzanine		7,970,000	1.1			8,171,000	1.4			7,543,000	2.0
SBA Section 7(a)(2)		—	0.0			1,884,000	0.3			4,143,000	1.1
Asset-based receivable		—	0.0			—	0.0			—	0.0
Other secured commercial		2,673,000	0.4			1,251,000	0.2			2,842,000	0.7
Total commercial loans		10,643,000	1.5			11,306,000	1.9			14,528,000	3.8
Total consumer loans		695,000	0.1			541,000	0.1			—	0.0
Total loans 90 days or more past due	$	17,418,000	2.5	%	$	19,394,000	3.2	%	$	19,097,000	5.0	%

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

(2) The company sold all of the SBA section 7 (a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005.

In general, collection efforts since the establishment of our collection department have substantially contributed to the sizable reduction in overall delinquencies. The decreases in medallion delinquencies primarily reflected the foreclosure of $2,869,000 of Chicago medallions, and improvements in other borrower payment patterns. Secured mezzanine financing delinquencies have decreased, primarily reflecting payment activity, and to a lesser extent chargeoffs. The Company sold all of the Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005. Included in the SBA Section 7(a) delinquency figures are $0, $288,000, and $845,000 at December 31, 2005, 2004, and 2003, which represented loans repurchased for the purpose of collecting on the SBA guarantee. The increase in other secured commercial loans primarily related to several customers being monitored by the collections group, and from an overall standpoint was down from a year ago. 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.

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

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

The following table sets forth the changes in the Company’s unrealized appreciation (depreciation) (excluding MTM and foreclosed properties) on investments for the years ended December 31, 2005, 2004 and 2003.

	Loans			Equity Investments			Total
Balance December 31, 2002 (1)	$	(6,997,426	)	$	6,039,584		$	(957,842	)
Increase in unrealized
Appreciation on investments		—			1,857,627			1,857,627
Depreciation on investments		(3,223,280	)		122,400			(3,100,880	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		(11,811	)		(7,732,566	)		(7,744,377	)
Losses on investments		2,314,726			—			2,314,726
Balance December 31, 2003 (1)		(7,917,791	)		287,045			(7,630,746	)
Increase in unrealized
Appreciation on investments		—			2,820,058			2,820,058
Depreciation on investments (2)		(6,258,518	)		(2,478,552	)		(8,737,070	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—
Losses on investments		5,522,591			7,588			5,530,179
RV/Marine reserve (3)		(4,243,854	)		—			(4,243,854	)
Other (4)		1,000,000			—			1,000,000
Balance December 31, 2004 (1)		(11,897,572	)		636,139			(11,261,433	)
Increase in unrealized
Appreciation on investments		157,693			(469,587	)		(311,894	)
Depreciation on investments (2)		(5,412,455	)		(1,266,799	)		(6,679,254	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			1,485,883			1,485,883
Losses on investments		3,151,315			—			3,151,315
Reversal of reserves on sold SBA Section 7(a) loans		1,339,875			—			1,339,875
Other		(260,284	)		(1	)		(260,285	)
Balance December 31, 2005 (1)	$	(12,921,428	)	$	385,635		$	(12,535,793	)

(1) Excludes unrealized depreciation of $1,396,750, $512,281, $317,361, and $128,738 on foreclosed properties at December 31, 2005, 2004, 2003, and 2002, respectively.

(2) Includes $193,878 and $49,220 of depreciation on investment securities for the years ended December 31, 2005 and 2004.

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

(4) Reflects the reclassification of a reserve related to collateral appreciation participation loans to accounts payable and accrued expenses.

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The following table presents credit-related information for the investment portfolios as of December 31.

	2005			2004			2003
Total loans
Medallion loans	$	449,672,510		$	392,131,108		$	288,211,557
Commercial loans		145,796,651			136,834,891			85,970,205
Consumer loans		85,678,412			66,330,748			—
Total loans		681,147,573			595,296,747			374,181,762
Equity investments (1)		24,012,508			33,645,424			4,976,763
Investment securities		18,092,838			14,598,837			—
Net investments	$	723,252,919		$	643,541,008		$	379,158,525
Unrealized appreciation (depreciation) on investments
Medallion loans	$	(1,348,535	)	$	(1,209,187	)	$	(1,058,196	)
Commercial loans		(7,621,156	)		(7,275,972	)		(6,859,595	)
Consumer loans		(3,951,737	)		(3,412,413	)		—
Total loans		(12,921,428	)		(11,897,572	)		(7,917,791	)
Equity investments		628,732			685,359			287,045
Investment securities		(243,097	)		(49,220	)		—
Total unrealized appreciation (depreciation) on investments	$	(12,535,793	)	$	(11,261,433	)	$	(7,630,746	)
Unrealized appreciation (depreciation) as a % of balances outstanding (2)
Medallion loans		(0.30	)%		(0.31	)%		(0.37	)%
Commercial loans		(4.97	)		(5.06	)		(7.98	)
Consumer loans		(4.41	)		(4.90	)		—
Total loans		(1.86	)		(1.96	)		(2.12	)
Equity investments		2.69			2.08			5.77
Investment securities		(1.33	)		(0.35	)		—
Net investments		(1.70	)		(1.72	)		(2.01	)

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

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

The following table presents the gain/loss experience on the investment portfolios for the years ended December 31, 2005, 2004 and 2003.

	2005			2004			2003
Realized gains (losses) on loans and equity investments
Medallion loans	$	(390,990	)	$	7,059		$	(121,664	)
Commercial loans		(326,483	)		(3,305,799	)		(2,153,677	)
Consumer loans (1)		(2,524,609	)		(2,348,862	)		—
Total loans		(3,242,082	)		(5,647,602	)		(2,275,341	)
Equity investments		4,323,087			5,627,794			13,801,969
Investment securities		—			(5,983	)		—
Total realized gains (losses) on loans and equity investments	$	1,081,005		$	(25,791	)	$	11,526,628
Realized gains (losses) as a % of average balances outstanding
Medallion loans		(0.09	)%		0.00	%		(0.05	)%
Commercial loans		(0.21	)		(2.64	)		(2.13	)
Consumer loans (2)		(3.18	)		(5.25	)		—
Total loans		(0.49	)		(1.12	)		(0.62	)
Equity investments		14.85			39.74			274.56
Investment securities		—			(0.08	)		—
Net investments		0.15			(0.01	)		3.10

(1) Includes realized losses of $162,037, $38,639, and $161,682 for the years ended December 31, 2005, 2004, and 2003, respectively, related to foreclosed properties which are carried in other assets on the consolidated balance sheet.

(2) Realized losses represented 2.69% of the acquired consumer portfolio in 2004, the lower average balance for the year has a distortive effect on the calculated number shown in the table above.

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Equity Investments

Equity investments were 3%, 5%, and 1%, of the Company’s total portfolio at December 31, 2005, 2004, and 2003. Equity investments are comprised of common stock and warrants. The decrease in equity investments during 2005 primarily reflected the sale of 200,000 of the 933,521 shares of common stock of CCU, and the increase during 2004 primarily reflected the receipt of 933,521 shares of common stock of CCU in a tax-free exchange for 100% of our ownership interest in Media, partially offset by the sale of 100,000 of the CCU shares.

Investment Securities

Investment securities were 3% and 2% of the Company’s total portfolio at December 31, 2005 and 2004. The investment securities are primarily adjustable-rate mortgage-backed securities purchased by MB to better utilize required cash liquidity.

Trend in Interest Expense

The Company’s interest expense is driven by the interest rates payable on its short-term credit facilities with banks, bank certificates of deposit, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. The establishment of the Merrill Lynch Commercial Finance Corp. (MLB) line of credit in September 2002 and its favorable renegotiation in September 2003 and January 2005 had the effect of substantially reducing the Company’s cost of funds. In addition, MB began raising brokered bank certificates of deposit during 2004, which were at the Company’s lowest borrowing costs. As a result of MB raising funds through certificates of deposits as previously noted, the Company was able to realign the ownership of some of its medallion loans and related assets to MB allowing the Company and its subsidiaries to use cash generated through these transactions to retire debt with higher interest rates. In addition, MB is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies.

During the 2002 third quarter, the Trust closed a $250,000,000 line of credit with MLB for lending on medallion loans (which was $325,000,000 through the end of 2005, and which was increased to $475,000,000 in January 2006), which was priced at LIBOR plus 1.50%, excluding fees and other costs. All of the draws on this line were paid to MFC for medallion loans purchased, and were used by MFC to repay higher priced debt with the banks and noteholders, and to purchase loans for the Trust from participants and affiliates. During the 2003 third quarter, this line was renewed and extended, and borrowings were generally at LIBOR plus 1.25%. During the 2005 first quarter, this line was further renewed and extended, and borrowings are now generally at LIBOR plus 0.75%. In addition, $20,060,000 of higher priced SBA debentures were repaid during 2003, and $15,150,000 was drawn back at lower borrowing rates.

The September 13, 2002 amendments repriced the bank loans to 5.25% for the Company and 4.75% for MFC, and repriced MFC’s senior secured notes to 8.85%. In addition to the interest rate charges, approximately $15,980,000 had been incurred through December 31, 2005 for attorneys and other professional advisors, most working on behalf of the lenders, and for prepayment penalties and default interest charges, of which $0, $0, and $63,000 was expensed as part of costs of debt extinguishment, and $765,000, $1,462,000, and $2,325,000 was expensed as part of interest expense in 2005, 2004, and 2003, respectively.

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

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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 2005, 2004, and 2003. Average balances have increased from a year ago, primarily reflecting the establishment of MB and its resulting growth, and the funding needs to support the growth in the Company’s other investment portfolios. The increase in borrowing costs reflected the trend of increasing interest rates in the economy and additional long-term SBA debt at higher rates, partially offset by the raising of low-cost deposits by MB.

	Interest Expense		Average Balance		Average Borrowing Costs
December 31, 2005
Floating rate borrowings	$	13,398,536	$	306,236,000	4.38	%
Fixed rate borrowings		10,998,237		267,370,000	4.11
Total	$	24,396,773	$	573,606,000	4.25
December 31, 2004
Floating rate borrowings	$	8,921,750	$	221,098,000	4.04	%
Fixed rate borrowings		7,141,833		192,000,000	3.72
Total	$	16,063,583	$	413,098,000	3.88
December 31, 2003(1)
Floating rate borrowings	$	7,862,552	$	198,207,000	3.97	%
Fixed rate borrowings		4,179,379		60,900,000	6.87
Total	$	12,041,931	$	259,107,000	4.65

(1) Included in interest expense in 2003 was $543,000 of interest reversals. Adjusted for this amount, the floating rate borrowings average borrowing costs would have been 4.24%, and the total average borrowing costs would have been 4.86%.

The Company will continue to seek SBA funding to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. The Company uses SBA funding to fund loans that qualify under SBIA and SBA regulations. The Company believes that financing operations primarily with short-term floating rate secured bank debt has generally decreased its interest expense, but has also increased the Company’s exposure to the risk of increases in market interest rates, which the Company mitigates with certain hedging strategies. At December 31, 2005, 2004, and 2003, short-term floating rate debt constituted 52%, 52%, and 80% of total debt, respectively. The decrease in 2004 reflects the issuance of bank certificates of deposit by MB, that are primarily of a short-term nature.

Taxicab Advertising

In addition to the Company’s finance business, MTM also conducted a taxicab rooftop advertising business primarily through Media, which began operations in November 1994, and ceased operations upon the merger of Media with and into a subsidiary of CCU, and the sale of MMJ to its management. See Note 3 to the financial statements for additional information. Although Media was a wholly-owned portfolio investment of the Company, its results of operations were not consolidated with the Company’s operations because SEC regulations prohibit the consolidation of non-investment companies with investment companies.

Factors Affecting Net Assets

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

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

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

Consolidated Results of Operations

For the Years Ended December 31, 2005 and 2004

Net increase in net assets resulting from operations was $6,862,000 or $0.39 per diluted common share in 2005, down $15,651,000 or 70% from $22,512,000 or $1.22 in 2004, which included net realized/unrealized gains of $22,417,000 primarily related to the 2004 exchange of our investment in Media for stock of Clear Channel. Excluding those gains, net increase in net assets resulting from operations increased primarily from higher net interest income resulting from portfolio growth, partially offset by increased operating expenses and increased net realized/unrealized losses in the portfolio for various mezzanine and consumer investments. Also reflected in 2005 was the full impact of the consumer business line, which commenced May 2004. Net investment income after taxes was $13,462,000 or $0.77 per diluted common share in 2005, up $8,035,000 from $5,427,000 or $0.29 per share in 2004.

Investment income was $57,173,000 in 2005, up $18,054,000 or 46% from $39,119,000 a year ago, and included $13,027,000 in income earned on the purchased/originated consumer portfolio, compared to $8,953,000 for 2004. Investment income in 2005 also benefited from interest recoveries of $1,480,000 from certain investments. Excluding those items, investment income increased $12,500,000 or 41% compared to a year ago, primarily reflecting growth in the other investment portfolios. The yield on the investment portfolio was 8.16% in 2005, up 9% from 7.47% a year ago, reflecting the impact of the higher yielding consumer portfolio, the general increase in market interest rates, and the interest recoveries. The yield on the investment portfolio excluding the consumer portfolio and the interest recoveries was 6.81% in 2005, up 9% from 6.25% in 2004. Average investments outstanding were $694,920,000 in 2005, up 34% from $518,078,000 a year ago. Excluding the consumer portfolio, average investments outstanding were $619,412,000, in 2005, up 30% from $475,566,000 a year ago, reflecting the growth in the other portfolios.

Medallion loans were $449,673,000 at year end, up $57,542,000 or 15% from $392,131,000 a year ago, representing 62% of the investment portfolio compared to 61% in 2004, and were yielding 6.46% compared to 6.01% in 2004, an increase of 7%. The increase in outstandings primarily reflected efforts to book new business and repurchase certain participations, primarily in the New York City and Boston markets, and also reflected the increase in medallion values. The managed medallion portfolio was $458,457,000 at year end, up $49,678,000 or 12% from $408,779,000 a year ago. The commercial loan portfolio was $145,797,000 at year end, compared to $136,835,000 a year ago, an increase of $8,962,000 or 7%, and represented 20% of the investment portfolio compared to 21% in 2004. Included in the 2004 amounts were $19,457,000 of SBA 7(a) loans which were sold for book value during 2005. Excluding those loans, commercial loans increased 24%. Commercial loans yielded 10.70% at year end, compared to 10.13% a year ago, an increase of 4%, reflecting the increases in market interest rates during year, the floating rate nature of much of the portfolio, and the growth in higher yielding portfolios. The increase in commercial loans was concentrated in asset based receivables and high-yield mezzanine loans. The managed commercial portfolio was $146,146,000 at year end, down $97,197,000 or 40% from $243,343,000 a year ago, but up $21,033,000 or 17% from $125,113,000 excluding the sold SBA 7(a) loans, primarily reflecting the increases described above, partially offset by increased loan participations purchased. The consumer loan portfolio of $85,678,000 was up $19,347,000 or 29% from $66,331,000 a year ago, and represented 12% of the investment portfolio at year end compared to 11% a year ago, and yielded 18.45% compared to 18.64% a year ago. The increase reflected the new origination volumes over the last year, partially offset by the runoff in the acquired portfolio. Equity investments were $24,013,000, down $9,632,000 or 29% from $33,645,000 a year ago, primarily reflecting the sale of a portion of the CCU common stock received for our ownership interest in Media, and losses taken on certain mezzanine investments, and represented 3% of the investment portfolio and had a dividend yield of 1.53%, compared to 5% and 1.37% a year ago. Investment securities of $18,093,000 were up $3,494,000 or 24% from $14,599,000 a year ago, and represented 3% of the investment portfolio, and yielded 4.11%, compared to 2% and 3.92% a year ago. See page 28 for a table that shows balances and yields by type of investment.

Interest expense was $24,397,000 in 2005, up $8,333,000 or 52% from $16,064,000 in 2004. The increase in interest expense was primarily due to higher average borrowed funds outstanding. Average debt outstanding was

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$573,606,000 for 2005, compared to $413,098,000 a year ago, an increase of 39%, primarily reflecting increased utilization of the MLB Line, the increase in brokered CD’s, and in other borrowings used to fund portfolio investment growth. The cost of borrowed funds was 4.25% in 2005, compared to 3.89% a year ago, an increase of 9%, reflecting increases in the general level of interest rates over the last year. See page 34 for a table which shows average balances and cost of funds for the Company’s funding sources.

Net interest income was $32,776,000 and the net interest margin was 4.65% for 2005, up $9,720,000 or 42% from $23,056,000 in 2004, which represented a net interest margin of 4.37%, all reflecting the items discussed above.

Noninterest income was $3,880,000 in 2005, up $401,000 or 12% from $3,479,000 a year ago. Gains on the sale of loans were $885,000 in 2005, down $19,000 or 2% from $904,000 in 2004. During 2005, $10,785,000 of guaranteed loans were sold under the SBA program, compared to $10,311,000 in 2004, an increase of 5%. The change in gains on sale under the SBA program primarily reflected the sale of the SBA loan portfolio during the 2005 fourth quarter, as well as the level of loan origination and sales activities during the rest of the year, partially offset by lower market-determined net premiums received on the sales in 2005. Other income, which is comprised of servicing fee income, prepayment fees, late charges, and other miscellaneous income, was $2,996,000 in 2005, compared to $2,575,000 a year ago, an increase of $421,000 or 16%. Included in 2005 were $892,000 of prepayment penalties from several large paid-off loans. Excluding the prepayment penalties, other income in 2005 decreased $471,000 or 18%, primarily reflecting the $447,000 decline in servicing fee income and other related income amounts associated with the sold SBA (7a) loan portfolio.

Operating expenses were $21,235,000 in 2005, compared to $18,937,000 in 2004, an increase of $2,298,000 or 12%, primarily reflecting increased expenses associated with the growth of MB, partially offset by the reduced costs associated with the sold SBA 7(a) loan portfolio. Salaries and benefits expense was $10,930,000 in 2005, up $1,513,000 or 16% from $9,417,000 in 2004, primarily reflecting an increase in headcount compared to 2004, mostly related to MB and BLL, and higher levels of salaries and bonuses, partially offset by higher amounts of salary deferrals related to loan originations. Professional fees were $2,267,000 in 2005, up $491,000 or 28% from $1,776,000 a year ago, primarily reflecting higher investment project-related professional costs, increased legal and accounting costs, including costs related to the Company’s compliance with Sarbanes-Oxley, and in 2004 was reduced by expense reimbursements for professional fees associated with the Media sale. Other operating expenses of $8,038,000 in 2005 were up $294,000 or 4% from $7,744,000 a year ago. The increase primarily reflected increased expenses associated with the growth of MB, including servicing costs for the consumer portfolio, greater usage of temporary help, and increased expenses associated with business development activities, partially offset by reduced levels of miscellaneous taxes, loan collections, insurance, and other expenses.

Income tax expense was $1,959,000 in 2005, compared to $2,171,000 a year ago, primarily reflecting MB’s provision for taxes, which in 2005 included a credit for refunded taxes of $365,000, and a reduction in the tax valuation reserve of $226,000.

Net unrealized depreciation on investments was $7,682,000 in 2005, compared to appreciation of $17,110,000 in 2004, a decrease of $24,792,000. During the 2004 third quarter, the Company exchanged its investment in Media for common stock of Clear Channel, resulting in an unrealized gain of $23,512,000 and a realized gain of $1,477,000. Net unrealized depreciation net of the exchange gain and Media’s pre-sale operations was $3,575,000 in 2004, resulting in increased depreciation of $4,107,000 in 2005. 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 2005 activity resulted from reversals of unrealized appreciation associated with equity investments that were sold of $5,514,000, net unrealized depreciation on loans of $5,049,000, and net unrealized depreciation on foreclosed property of $1,123,000, partially offset by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $3,602,000 and net unrealized appreciation on equity investments of $402,000. The 2004 activity resulted from net unrealized depreciation on loans of $6,258,000, the reversals of unrealized appreciation associated with equity investments that were sold of $2,676,000, net decreases in the valuation of equity investments of $2,479,000, and net unrealized depreciation of $512,000 on foreclosed property, partially offset by the reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $5,530,000 and unrealized appreciation on equity investments of $2,820,000.

Also included in unrealized appreciation (depreciation) on investments were the net losses of the MTM divisions of the Company prior to their sale during the 2004 third quarter. MTM generated net losses of $2,827,000 in 2004. The Company’s investment in Media was exchanged for stock in Clear Channel, as described above, and Japan was sold to its management, which resulted in a realized gain of $255,000.

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The Company’s net realized gain on investments was $1,081,000 in 2005, compared to losses of $26,000 in 2004, reflecting the above and net direct gains on sales of equity investments of $2,439,000, partially offset by net direct chargeoffs of $3,115,000 and net direct losses on sales of foreclosed property of $162,000. The 2004 activity reflected the above and net direct chargeoffs of $86,000 and direct losses on sales of foreclosed property of $25,000, partially offset by direct gains on sales of equity investments of $1,462,000.

The Company’s net realized/unrealized losses on investments were $6,601,000 in 2005, compared to gains of $17,085,000 in 2004, reflecting the above.

For the Years Ended December 31, 2004 and 2003

Net increase in net assets resulting from operations was $22,512,000 or $1.22 per diluted common share in 2004, up $20,494,000 from $2,018,000 or $0.11 per share in 2003, primarily reflecting the unrealized appreciation associated with the exchange of our investment in Media for CCU stock and the increased net interest income resulting from the RV/Marine portfolio purchase, partially offset by higher taxes and higher operating expenses associated with servicing those acquired assets, and the 2003 realized gains associated with the sale of Select Comfort. Net investment income after taxes was $5,427,000 or $0.29 per diluted common share in 2004, up $4,013,000 from $1,414,000 or $0.08 per share in 2003.

Investment income was $39,119,000 in 2004, up $12,905,000 or 49% from $26,214,000 a year ago, primarily reflecting $8,953,000 in income earned on the newly purchased/originated RV/Marine portfolio. Excluding that, investment income increased $3,952,000 or 15% compared to a year ago, primarily reflecting the growth in the other investment portfolio’s, partially offset by lower investment yields. The yield on the investment portfolio was 7.47% in 2004, up 8% from 6.93% a year ago, reflecting the impact of the higher yielding RV/Marine portfolio, partially offset by the reduction in market interest rates in the traditional businesses over the last several years as borrowers refinance. The yield on the investment portfolio excluding the RV/Marine portfolio purchase was 6.25% in 2004, down 10% from 2003. Average investments outstanding were $518,078,000 in 2004 ($475,566,000 excluding the RV/Marine portfolio), up 38% from $375,491,000 a year ago (up 27% excluding the RV/Marine portfolio), reflecting the RV/Marine purchase and growth in most other portfolios.

Medallion loans were $392,131,000 at year end, up $103,919,000 or 36% from $288,212,000 a year ago, representing 61% of the investment portfolio compared to 76% in 2003, and were yielding 6.01% compared to 6.29%, a decrease of 4%. The increase in outstandings primarily reflected efforts to book new business and repurchase certain participations, primarily in the New York City and Chicago markets, to maximize the utilization of the lower cost MLB line, and reflects the success of the recent New York medallion auctions and the increase in medallion values. As medallion loans renewed during the year and new business was booked, they were priced at generally lower current market rates compared to a year ago. The commercial loan portfolio was $136,835,000 at year end, compared to $85,970,000 a year ago, an increase of $50,865,000 or 59%, and represented 21% of the investment portfolio compared to 23% in 2003. Commercial loans yielded 10.13% at year end, compared to 8.98% a year ago, reflecting the increases in market interest rates during the last half of the year, the floating rate nature of much of the portfolio, and the growth in higher yielding portfolios. The increase in commercial loans was concentrated in asset based receivables (including repurchased participations) and high-yield mezzanine loans. The new consumer loan portfolio of $66,331,000, which is composed primarily of purchased loans, represented 11% of the investment portfolio at year end, and yielded 18.64%. Equity investments were $33,645,000, up $28,668,000 from a year ago, primarily reflecting the receipt of CCU common stock for our ownership interest in Media, and represented 5% of the investment portfolio and had a dividend yield of 1.37% at year end. Investment securities of $14,599,000, or 2% of the investment portfolio, represented more liquid investments in 2004 required by MB, and yielded 3.92%. See page 28 for a table that shows balances and yields by type of investment.

Interest expense was $16,064,000 in 2004, up $4,022,000 or 33% from $12,042,000 in 2003. Included in interest expense in 2004 was $1,432,000 related to the amortization of debt origination costs on the ML Line, compared to $2,325,000 in 2003, which was partially offset by $543,000 of interest reversals. The increase in interest expense was due to higher average borrowed funds outstanding, partially offset by lower borrowing costs. Average debt outstanding was $413,098,000, compared to $259,107,000 a year ago, an increase of 59%, reflecting the newly raised brokered CD’s, increased utilization of the ML Line, and other borrowings used to fund portfolio investment growth, including the RV/Marine portfolio purchase. The cost of borrowed funds was 3.88% in 2004, compared to 4.65% a year ago, a decrease of 17%, primarily attributable to the increased utilization of low cost brokered deposit financing and the lower cost ML Line. Approximately 53% of the Company’s debt was short-term and floating or adjustable rate at year end, compared to 80% a year ago. See page 34 for a table which shows average balances and cost of funds for the Company’s funding sources.

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Net interest income was $23,056,000, and the net interest margins was 4.37%, for 2004, up $8,884,000 or 63% from $14,172,000 in 2003, which represented a net interest margin of 3.72%, all reflecting the items discussed above.

Noninterest income was $3,479,000 in 2004, down $978,000 or 22% from $4,457,000 a year ago. Gains on the sale of loans were $904,000 in 2004, up $48,000 or 6% from $856,000 in 2003, which included $202,000 of gains from the sale of $4,395,000 of unguaranteed portions of the SBA portfolio. During 2004, $10,311,000 of guaranteed loans were sold under the SBA program, compared to $7,163,000 in 2003, an increase of 44%. The increase in gains on sale under the SBA program primarily reflected the pickup in loan origination and sales activities as new loan originators began producing, partially offset by lower market-determined net premiums received on the sales in 2004. Other income, which is comprised of servicing fee income, prepayment fees, late charges, and other miscellaneous income, was $2,575,000 in 2004, compared to $3,601,000 a year ago, a decrease of $1,026,000 or 28%. Included in 2003 was $400,000 related to reversing a portion of the servicing asset impairment reserve which was no longer required due to improved prepayment patterns in the servicing asset pools and $246,000 from deal-termination and extension fees. Excluding those items, the decreases generally reflected lower servicing fee income from the SBA 7(a) business and lower fee income from prepayments and other refinancing activities.

Operating expenses were $18,937,000 in 2004, compared to $17,174,000 in 2003, an increase of $1,763,000 or 10%. Salaries and benefits expense was $9,417,000, up $307,000 or 3% from $9,110,000 in 2003, primarily reflecting higher levels of salaries and increased headcount in 2004, including the first full year of MB operations , partially offset by reductions related to loan origination activities. Professional fees were $1,776,000 in 2004, up $528,000 or 42% from $1,248,000 a year ago, primarily reflecting increased legal and accounting costs, including costs related to the Company’s compliance with Sarbanes-Oxley, compared to unusually low amounts in 2003, which reflected transitional changes in the Company’s accounting and legal relationships. Other operating expenses of $7,744,000 in 2004 were up $928,000 or 14% from $6,816,000 a year ago (which included $63,000 of costs of debt extinguishment), primarily reflecting a higher level of operating expenses, mostly due to the growth of MB, including $892,000 of newly incurred service costs for the RV/Marine portfolio, increased directors fees, and higher levels of rent, partially offset by lower loan collection expenses.

Income tax expense was $2,171,000 in 2004, compared to $41,000 a year ago, primarily reflecting MB’s provision for taxes.

Net unrealized appreciation on investments was $17,110,000 in 2004, compared to depreciation of $10,923,000 a year ago, an improvement of $28,033,000. During the 2004 third quarter, the Company exchanged its investment in Media for common stock of CCU, resulting in an unrealized gain of approximately $23,512,000 and a realized gain of approximately $1,477,000. Net unrealized depreciation net of the exchange gain and Media’s pre-sale operations was $3,575,000 in 2004, compared to $6,990,000 in 2003, an improvement of $3,415,000. Unrealized appreciation (depreciation) arises when the Company makes valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2004 activity resulted from net unrealized depreciation on loans of $6,258,000, the reversals of unrealized appreciation associated with equity investments that were sold of $2,676,000, net decreases in the valuation of equity investments of $2,479,000, and net unrealized depreciation of $512,000 on foreclosed property, partially offset by the reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $5,530,000 and unrealized appreciation on equity investments of $2,820,000. The 2003 activity resulted from the reversals of unrealized appreciation primarily associated with appreciated equity investments that were sold of $7,744,000, net unrealized depreciation on loans and equities of $3,101,000, and net unrealized depreciation of $318,000 on foreclosed property, partially offset by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $2,315,000, and increases in the valuation of equity investments of $1,858,000.

Also included in unrealized appreciation (depreciation) on investments were the net losses of the MTM divisions of the Company prior to their sale during the 2004 third quarter. MTM generated net losses of $2,827,000 in 2004, improvements of $1,106,000 or 28% from net losses of $3,933,000 in 2003. Included in 2003 was a $985,000 net gain from the settlement of a lawsuit with one of our fleet operators and a $389,000 reversal of accrued fleet costs which resulted from continued contract renegotiations, partially offset by a $346,000 writeoff of damaged/missing tops. The Company’s investment in Media was exchanged for stock in CCU, as described above, and MMJ was sold to its management, which resulted in a realized gain of $255,000.

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The Company’s net realized loss on investments was $26,000 in 2004, compared to a gain of $11,527,000 in 2003, reflecting the above, and net direct chargeoffs of $86,000 and direct losses on sales of foreclosed property of $25,000, partially offset by direct gains on sales of equity investments of $1,462,000. The 2003 activity reflected the above and direct gains on sales of equity investments of $6,223,000 and by net recoveries of $36,000, partially offset by $161,000 of realized losses on foreclosed properties.

The Company’s net realized/unrealized gains on investments was $17,085,000 in 2004, compared to a gain of $604,000 in 2003, reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

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

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

In addition, the Company manages its exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals or the maturities of tranches drawn under the revolving line of credit or issued as certificates of deposit, for terms of up to five years. The Company had outstanding SBA debentures of $77,250,000 with a weighted average interest rate of 6.02%, constituting 13% of the Company’s total indebtedness as of December 31, 2005. Also, as of December 31, 2005, portions of the adjustable rate debt with Banks repriced at intervals of as long as 22 months, and certain of the certificates of deposit were for terms of up to 45 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from the Company’s interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

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The following table presents the Company’s interest rate sensitivity gap at December 31, 2005, compared to the respective positions at the end of 2004 and 2003. The principal amount of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. The Company has not reflected an assumed annual prepayment rate for such assets in this table.

	December 31, 2005 Cumulative Rate Gap (1) (In 000’s)
(Dollars in thousands)	Less Than 1 Year			More Than 1 and Less Than 2 Years			More Than 2 and Less Than 3 Years		More Than 3 and Less Than 4 Years		More Than 4 and Less Than 5 Years		More Than 5 and Less Than 6 Years			Thereafter			Total
Earning assets
Floating-rate	$	112,688		$	—		$	—	$	—	$	—	$	—		$	—		$	112,688
Adjustable rate		98,944			15,047			54,018		716		1,196		7			499			170,427
Fixed-rate		54,605			70,504			171,699		72,627		50,217		6,841			19,897			446,390
Cash		22,838			—			—		—		—		—			—			22,838
Total earning assets	$	289,075		$	85,551		$	225,717	$	73,343	$	51,413	$	6,848		$	20,396		$	752,343
Interest bearing liabilities
Revolving line of credit	$	235,115		$	80,000		$	—	$	—	$	—	$	—		$	—		$	315,115
Certificates of deposit		127,768			40,188			31,358		19,793		—		—			—			219,107
Notes payable to banks		8,550			—			—		—		—		—			—			8,550
SBA debentures		—			—			—		—		—		17,985			59,265			77,250
Total liabilities	$	371,433		$	120,188		$	31,358	$	19,793	$	—	$	17,985		$	59,265		$	620,022
Interest rate gap	$	(82,358	)	$	(34,637	)	$	194,359	$	53,550	$	51,413	$	(11,137	)	$	(38,869	)	$	132,321
Cumulative interest rate gap (2)	$	(82,358	)	$	(116,995	)	$	77,364	$	130,914	$	182,327	$	171,190		$	132,321			—
December 31, 2004 (2)	$	27,175		$	52,388		$	62,710	$	108,181	$	173,610	$	176,752		$	131,520			—
December 31, 2003 (2)		(61,987	)		(6,176	)		104,121		123,280		181,851		189,272			141,674			—

(1) The ratio of the cumulative one year gap to total interest rate sensitive assets was 11%, 4%, and (14%) as of December 31, 2005, 2004, and 2003.

(2) Adjusted for the medallion loan 40% prepayment assumption results in cumulative one year positive interest rate gap and related ratio of $47,912,000 or 6%, $136,030,000 or 21%, and $19,136,000 or 4% for December 31, 2005, 2004, and 2003, respectively.

The Company’s interest rate sensitive assets were approximately $752,343,000 and interest rate sensitive liabilities were $620,022,000 at December 31, 2005. The one-year cumulative interest rate gap was a negative $82,358,000 or 11% of interest rate sensitive assets, compared to a positive $27,175,000 or 4% at December 31, 2004. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a positive gap of $47,912,000 or 6% at December 31, 2005. The Company seeks 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.

Interest Rate Cap Agreements

From time-to time, the Company enters into interest rate cap agreements to manage the exposure of the portfolio to increases in market interest rates by hedging a portion of its variable-rate debt against increases in interest rates. There were no interest rate caps outstanding during 2005, 2004, and 2003.

Liquidity and Capital Resources

        Our sources of liquidity are the revolving line of credit with MLB, revolving lines of credit with other financial institutions, loan amortization and prepayments, participations or sales of loans to third parties, and our ability to raise brokered certificates of deposit through MB. As a RIC, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. The Trust’s 325,000,000 revolving line of credit with MLB had availability of $20,547,000 as of December 31, 2005. At the current required capital levels, it is expected, although there can be no guarantee, that deposits of approximately $1,950,000 could be raised by MB to fund future loan origination activity. In addition, MB as a non-RIC subsidiary of the Company is allowed (and for three years required) to retain all earnings in the business to fund future growth, and has $15,000,000 available under a Fed Funds Line with a commercial bank. Lastly, $12,343,000 was available under a revolving credit agreements with commercial banks, and in March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a ten year period upon payment of a 1% fee and the infusion of $4,500,000 of additional capital.

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The components of our debt were as follows at December 31, 2005:

	Balance		Percentage		Rate (1)
Revolving line of credit	$	304,453,000	49	%	4.53	%
Certificates of deposit		219,107,000	35		3.47
SBA debentures		77,250,000	13		6.02
Margin loan		10,662,000	2		5.00
Notes payable to banks		8,550,000	1		6.76
Total outstanding debt	$	620,022,000	100	%	4.38

(1) Weighted average contractual rate as of December 31, 2005.

The Company’s contractual obligations expire on or mature at various dates through September 1, 2015. The following table shows all contractual obligations at December 31, 2005.

	Payments due by period
	Less than 1 year		1 – 2 years		2 – 3 years		3 – 4 years		4 – 5 years		More than 5 years		Total
Floating rate borrowings	$	322,106,000	$	1,559,000	$	—	$	—	$	—	$	—	$	323,665,000
Fixed rate borrowings		127,768,000		40,188,000		31,358,000		19,793,000		—		77,250,000		296,357,000
Operating lease obligations		1,067,000		1,153,000		1,032,000		1,025,000		1,025,000		5,144,000		10,446,000
Total	$	450,941,000	$	42,900,000	$	32,390,000	$	20,818,000	$	1,025,000	$	82,394,000	$	630,468,000

The Company values its portfolio at fair value as determined in good faith by management and approved by the Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. The Company records unrealized appreciation on equities if it has a clear indication that the underlying portfolio company has appreciated in value and, therefore, the Company’s equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect management’s estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in the Company’s statement of operations as net unrealized appreciation (depreciation) on investments. The Company’s investment in MTM, as wholly-owned portfolio investments, was also subject to quarterly assessments of its fair value. The Company used MTM’s actual results of operations as the best estimate of changes in fair value, and recorded 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 by 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 negatively impacted net increase (decrease) in net assets resulting from operations as of at December 31, 2005 by approximately ($100,000) on an annualized basis, compared to a positive impact of $992,000 as of December 31, 2004, and the impact of such an immediate 1% change over a one year period would have been ($753,000), compared to $517,000 for 2004. 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

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business developments that could affect net increase (decrease) in net assets resulting from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

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

The following table illustrates sources of available funds for the Company and each of the subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2005. See notes 4 and 5 to the consolidated financial statements for additional information about each credit facility.

(Dollars in thousands)	The Company			MFC			MCI			MBC		FSVC			MB			Total			12/31/04
Cash	$	2,119		$	2,200		$	9,813		$	3,492	$	5,185		$	20,227		$	43,036		$	37,267
Bank loans (1)		15,000			4,000														19,000			15,000
Amounts undisbursed		9,500			4,000														13,500			3,300
Amounts outstanding		5,500			3,050														8,550			15,003
Average interest rate		7.25	%		5.86	%													6.76	%		4.97	%
Maturity		06/06			02/06-6/07														2/06-6/07			4/05-6/07
Lines of Credit (2)					325,000														325,000			250,000
Amounts undisbursed					20,547														20,547			43
Amounts outstanding					304,453														304,453			249,957
Average interest rate					4.53	%													4.53	%		3.85	%
Maturity					9/06														9/06			9/05
Margin loan		10,663																	10,663			10,000
Average interest rate		5.00	%																5.00	%		3.01	%
Maturity		N/A																	N/A			N/A
SBA debentures (3)								33,250					44,000						77,250			80,000
Amounts undisbursed								0					0						0			15,565
Amounts outstanding								33,250					44,000						77,250			64,435
Average interest rate								6.02	%				6.02	%					6.02	%		6.11	%
Maturity								9/11-9/15					9/11-9/15						9/11-9/15			9/11-3/14
Certificates of deposit																219,107			219,107			186,538
Average interest rate																3.47	%		3.47	%		2.46	%
Maturity																1/06-9/09			1/06-9/09			1/05-5/09
Total cash and amounts remaining undisbursed under credit facilities	$	11,619		$	26,748		$	9,813		$	3,492	$	5,185			20,227		$	77,083		$	56,175
Total debt outstanding	$	16,163		$	307,503		$	33,250		$	—	$	44,000			219,107		$	620,022		$	525,933

(1) In January 2005, MFC entered into a $4 MM revolving note agreement with Atlantic Bank that matures in August 2006, and is secured by medallion loans in process of being sold to the Trust.

(2) In January 2006, this line of credit was extended for an additional two years to September 2008, with the committed amount adjusting to $475,000,000.

(3) In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a ten year period upon payment of a 1% fee and the infusion of $4,500,000 of additional capital.

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. The Company believes that its credit facilities with MLB, deposits generated at MB, and cash flow from operations (after distributions to shareholders) will be adequate to fund the continuing operations of the Company’s loan portfolio. Also, MB is not a RIC, and therefore is able to retain earnings to finance growth.

Recently Issued Accounting Standards

        In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” an amendment of SFAS No. 133 and 140. This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are free standing derivatives or that are hybrid financial instruments that

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contain an embedded derivative that require bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, as defined. The Company does not expect that the adoption of SFAS No. 155 will have a material impact on its consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS No. 123R), which supercedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based transactions using APB No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated financial statements. FAS No. 123R requires additional disclosures relating to the income tax and cash flow effects resulting from share-based payments. On April 14, 2005, the United States Securities and Exchange Commission announced it would permit most registrants subject to its oversight additional time to implement the requirements in SFAS No. 123(R). As announced, the SEC will permit companies to implement SFAS No. 123(R) at the beginning of their next fiscal year (instead of their next reporting period) that begins after June 15, 2005. The Company is evaluating the requirements of SFAS No. 123(R) and expects that the adoption of SFAS No. 123(R), effective January 1, 2006, will have an immaterial impact on its consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the potential financial impact of adopting SFAS No. 123(R).

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

In December 2003, the American Institute of Certified Public Accountants issued Statement of Position No. 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). Loans carried at fair value and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3, thus the adoption of this standard had no impact on the Company’s financial condition and results of operations.

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

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s business activities contain elements of risk. The Company considers the principal types of risk to be fluctuations in interest rates and portfolio valuations. The Company considers the management of risk essential to conducting its businesses. Accordingly, the Company’s risk management systems and procedures are designed to identify and analyze the Company’s risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.

The Company values its portfolio at fair value as determined in good faith by management and approved by the Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. The Company records unrealized appreciation on equities if it has a clear indication that the underlying portfolio company has appreciated in value and, therefore, the Company’s security has also appreciated in value. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect management’s estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in the Company’s statement of operations as net unrealized appreciation (depreciation) on investments. The Company’s investment in MTM, as wholly-owned portfolio investments, were also subject to quarterly assessments of its fair value. The Company used MTM’s actual results of operations as the best estimate of changes in fair value, and recorded 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 negatively affected net increase (decrease) in net assets at December 31, 2005, by approximately ($100,000) on an annualized basis, compared to a positive impact of $992,000 as of December 31, 2004, and the impact of such an immediate 1% change over a one year period would have been ($753,000) compared $517,000 for 2004. Although management believes that this measure is indicative of the Company’s sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet, and other business developments that could affect net increase (decrease) in net assets in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements set forth under Item 15(A)(1) in this Annual Report on Form 10-K, which financial statements are incorporated herein by reference in response to this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

In April and early May of 2005, management made contact with potential candidates to replace Eisner LLP (“Eisner”) as the Company’s independent registered public accountants. Management held several meetings with such firms,

42

and also received a bid offer. Eisner later resigned. On July 25, 2005, the Company engaged Weiser LLP (“Weiser”) of New York, New York as the independent registered public accountants to audit the Company’s financial statements. Prior to formally engaging Weiser, the Audit Committee of the Company’s Board of Directors approved said action at a meeting held on July 13, 2005.

The audit report of Eisner on the financial statements of the Company for the 2004 fiscal year contained no adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principle. In connection with its audit and reviews of the Company’s financial statements through the date hereof, there were no reportable events and there were no disagreements with Eisner on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Eisner, would have caused Eisner to make reference thereto in their report on the financial statements for such years.

The Audit Committee of the Board of Directors (the Audit Committee) of the Company annually considers and recommends to the Board of Directors the selection of the Company’s independent public accountants. During the 2004 third quarter, the Audit Committee of the Company’s Board of Directors recommended that the Company change audit firms, and directed the process of review of candidate firms to replace PwC, who had previously served as the Company’s independent accountants, and selected the registered public accounting firm of Eisner LLP (Eisner). On August 25, 2004, the Company dismissed PwC and engaged Eisner as its new accounting firm.

The reports of PwC on the financial statements of the Company for the 2003 fiscal year contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.

In connection with its audits and reviews of the Company’s financial statements through the date hereof, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in their report on the financial statements for such years.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of its disclosure controls and procedures as of the end of the fiscal year covered by this annual report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of the end of the fiscal year covered by this annual report.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the fourth quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such material change during the fourth quarter of 2005.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

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• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on its assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2005.

The Company’s Independent Registered Public Accounting Firm, Weiser LLP, has audited and issued a report on management’s assessment of the Company’s internal control over financial reporting. The report of Weiser LLP appears below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Medallion Financial Corp.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Medallion Financial Corp. (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In our opinion, management’s assessment that Medallion Financial Corp. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by COSO. Also, in our opinion, Medallion Financial Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Medallion Financial Corp. and subsidiaries as of December 31, 2005 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended, and our report dated February 21, 2006 expressed an unqualified opinion on those consolidated financial statements.

Weiser LLP

New York, New York

February 21, 2006

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from the Company’s Definitive Proxy Statement expected to be filed by April 30, 2006 for its fiscal year 2006 Annual Meeting of Shareholders under the caption “Directors and Officers of the Registrant.”

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the Company’s Definitive Proxy Statement expected to be filed by April 30, 2006 for its fiscal year 2006 Annual Meeting of Shareholders under the caption “Compensation of Directors and Executive Officers.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the Company’s Definitive Proxy Statement expected to be filed by April 30, 2006 for its fiscal year 2006 Annual Meeting of Shareholders under the caption “Stock Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Company’s Definitive Proxy Statement expected to be filed by April 30, 2006 for its fiscal year 2006 Annual Meeting of Shareholders under the caption “Certain Transactions.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from the Company’s Definitive Proxy Statement expect to be filed by April 30, 2006 for its fiscal year 2006 Annual Meeting of Shareholders under the caption “Independent Public Accountants.”

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)   1. FINANCIAL STATEMENTS

The consolidated financial statements of Medallion Financial Corp. and the Report of Independent Public Accountants thereon are included as set forth on the Index to Financial Statements on F-1.

2. FINANCIAL STATEMENT SCHEDULES

See Index to Financial Statements on F-1.

3. EXHIBITS

Number	Description
2.1	Agreement and Plan of Merger, dated September 3, 2004, between Medallion Financial Corp., Medallion Taxi Media, Inc., Clear Channel Communications, Inc., and Checker Acquisition Corp. Filed as Exhibit 2.1 to the Current Report on Form 8-K, filed on September 10, 2004 (File No. 000-27812) and incorporated by reference herein.
2.2	Amended and Restated Asset Purchase Agreement, dated October 17, 2005, by and among Medallion Financial Corp., Business Lenders, LLC, and BLL Acquisition LLC. Filed as Exhibit 2.1 to the Current Report on Form 8-K, filed on October 18, 2005 (File No. 000-27812) and incorporated by reference herein.
3.1(a)	Restated Medallion Financial Corp. Certificate of Incorporation. Filed as Exhibit 2(a) to the Company’s Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein.
3.1(b)	Amendment to Restated Certificate of Incorporation. Filed as Exhibit 3.1.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (File No. 814-00188) and incorporated by reference herein.
3.2	Restated By-Laws. Filed as Exhibit (b) to the Company’s Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein.
4.1	Amended and Restated Promissory Note, dated January 7, 2005, in the amount of $325,000,000, from Taxi Medallion Loan Trust I, payable to Merrill Lynch Commercial Finance Corp. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 11, 2005 (File No. 000-27812) and incorporated by reference herein.
4.2	Promissory Note, dated April 30, 2003, in the amount of $7,000,000 from Medallion Financial Corp., payable to Atlantic Bank of New York. Filed as Exhibit 4.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 and incorporated by reference herein.
4.3	Revolving Secured Line of Credit Promissory Note, dated January 25, 2005, in the amount of $4,000,000 from Medallion Funding Corp., payable to Atlantic Bank of New York. Filed herewith.
10.1	First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Alvin Murstein dated May 29, 1998. Filed as Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*
10.2	First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Andrew Murstein dated May 29, 1998. Filed as Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*

46

10.3	Medallion Financial Corp. Amended and Restated 1996 Stock Option Plan. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No. 000-27812) and incorporated by reference herein.*
10.4	Medallion Financial Corp. Amended and Restated 1996 Non-Employee Directors Stock Option Plan. Filed as Exhibit A to the Company’s Request Form on Amendment and the Order by the Commission approving the plan as of April 3, 2000 (File No. 812-11800) and incorporated by reference herein.*
10.5	Non-Employee Director Compensation Summary Sheet. Filed herewith.*
10.6	Indenture of Lease, dated October 31, 1997, by and between Sage Realty Corporation, as Agent and Landlord, and Medallion Financial Corp., as Tenant. Filed as Exhibit 10.64 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated by reference herein.
10.7	First Amendment of Lease, dated September 6, 2005, by and between Medallion Financial Corp. and Sage Realty Corporation. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 12, 2005 (File No. 000-27812) and incorporated by reference herein.
10.8	Amended and Restated Loan and Security Agreement dated as of September 13, 2003, by and among Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 000-27812) and incorporated by reference herein.
10.9	Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated August 12, 2004, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed herewith.
10.10	Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated January 7, 2005, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 11, 2005 (File No. 000-27812) and incorporated by reference herein.
10.11	Loan and Sale Contribution Agreement, dated as of September 13, 2002, between Medallion Financial Corp. and Taxi Medallion Loan Trust I. 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.
10.12	Loan Sale and Exchange Agreement, dated as of September 13, 2002, between Medallion Financial Corp. and Medallion Funding Corp. 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.
10.13	Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp., and Merrill Lynch Bank USA, 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.
10.14	Amendment to Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp. and Merrill Lynch Commercial Finance Corp. as successor in interest to Merrill Lynch Bank USA, dated as of September 12, 2003. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 000-27812) and incorporated by reference herein.
10.15	Amendment No. 2 to Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp. and Merrill Lynch Commercial Finance Corp. as successor in interest to Merrill Lynch Bank USA, dated as of September 1, 2004. Filed herewith.
10.16	Custodial Agreement, dated as of September 13, 2002, among the lenders thereto, Taxi Medallion Loan Trust I, Medallion Funding Corp. and Wells Fargo Bank Minnesota, N.A. 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.

47

10.17	Amended and Restated Trust Agreement, dated as of September 13, 2002, by and between Medallion Funding Corp. and Wachovia Trust Company, N.A. 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.
10.18	Loan and Security Agreement, dated April 26, 2004, by and between Medallion Financial Corp. and Sterling National Bank. Filed herewith.
10.19	Extension Letter to Loan and Security Agreement, dated as of June 28, 2005, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 (File No. 000-27812) and incorporated by reference herein.
10.20	First Amendment to Loan and Security Agreement, dated as of July 28, 2005, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 (File No. 000-27812) and incorporated by reference herein.
10.21	Amendment to Revolving Secured Line of Credit Promissory Note, dated December 1, 2005, by Medallion Funding Corp., in favor of Atlantic Bank of New York. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on December 5, 2005 (File No. 000-27812) and incorporated by reference herein.
12.1	Computation of ratio of debt to equity.
16.1	Letter, dated June 3, 2005, from Eisner LLP to the Securities and Exchange Commission, regarding change in certifying accountant of Medallion Financial Corp. Filed as Exhibit 16.1 to the Current Report on Form 8-K filed on June 3, 2005 (File No. 000-27812) and incorporated by reference herein.
21.1	List of Subsidiaries of Medallion Financial Corp. Filed herewith.
23.1	Consent of Weiser LLP, Independent Registered Public Accounting Firm.
23.2	Consent of Eisner LLP, Independent Registered Public Accounting Firm.
23.3	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
31.1	Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.
32.1	Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2	Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

* Compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this Annual Report on Form 10-K.

IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-K and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-K

48

were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-K will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled by or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-K should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-K. The inclusion of the forward-looking statements contained in this Form 10-K should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-K will be achieved. In light of the foregoing, readers of this Form 10-K are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-K and other documents that the Company files from time to time with the Securities and Exchange Commission, including quarterly reports on Form 10-Q and any current reports on Form 8-K must be considered by any investor or potential investor in the Company.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEDALLION FINANCIAL CORP.

Date:	March 15, 2006
By:	/s/ Alvin Murstein
	Alvin Murstein
	Chairman and Chief Executive Officer

49

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Alvin Murstein Alvin Murstein	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	March 15, 2006
/s/Larry D. Hall Larry D. Hall	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 15, 2006
/s/ Andrew M. Murstein Andrew M. Murstein	President and Director	March 15, 2006
/s/ Henry L. Aaron Henry L. Aaron	Director	March 15, 2006
/s/ Mario M. Cuomo Mario M. Cuomo	Director	March 15, 2006
/s/ Henry D. Jackson Henry D. Jackson	Director	March 15, 2006
/s/ Stanley Kreitman Stanley Kreitman	Director	March 15, 2006
/s/ Frederick A. Menowitz Frederick A. Menowitz	Director	March 15, 2006
/s/ David L. Rudnick David L. Rudnick	Director	March 15, 2006
/s/ Lowell P. Weicker, Jr. Lowell P. Weicker, Jr.	Director	March 15, 2006

50

MEDALLION FINANCIAL CORP.

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firms	F-2
Consolidated Statements of Operations for the Years ended December 31, 2005, 2004, and 2003	F-5
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-6
Consolidated Statements of Changes in Shareholders’ Equity for the Years ended December 31, 2005, 2004, and 2003	F-7
Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004, and 2003	F-8
Notes to Consolidated Financial Statements	F-9
Consolidated Schedules of Investments as of December 31, 2005 and 2004	F-30

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Medallion Financial Corp.

We have audited the accompanying consolidated balance sheet of Medallion Financial Corp. and subsidiaries as of December 31, 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medallion Financial Corp. and subsidiaries as of December 31, 2005, and the consolidated results of their operations and cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

In connection with our audit of the consolidated financial statements enumerated above, we audited the consolidated schedule of investments as of December 31, 2005. In our opinion, the consolidated schedule of investments, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information stated therein.

We also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Medallion Financial Corp. and subsidiaries internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework Issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”), and our report dated February 21, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Weiser LLP

New York, New York

February 21, 2006

F-2

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Medallion Financial Corp.

We have audited the accompanying consolidated balance sheet of Medallion Financial Corp. and subsidiaries as of December 31, 2004, including the consolidated schedule of investments as of December 31, 2004 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows and the selected ratios and other data (Note 15) for the year then ended. These financial statements and the selected ratios and other data are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the selected ratios and other data based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the selected ratios and other data are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and the selected ratios and other data referred to above present fairly, in all material respects, the consolidated financial position of Medallion Financial Corp. and subsidiaries as of December 31, 2004 and their consolidated results of operations and cash flows and the selected ratios and other data for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Florham Park, New Jersey

March 25, 2005

F-3

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Medallion Financial Corp.:

In our opinion, the accompanying consolidated balance sheets, including the consolidated schedules of investments, and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Medallion Financial Corp. and its subsidiaries (the “Company”) at December 31, 2003 and 2002, the results of its operations, the changes in its shareholders’ equity and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements (hereafter referred to as “financial statements”) are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

March 15, 2004

F-4

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2005			2004			2003
Interest income on investments	$	55,008,203		$	37,875,698		$	25,794,577
Dividends and interest income on short-term investments		1,700,263			809,368			223,178
Medallion lease income		464,750			434,315			196,610
Total investment income		57,173,216			39,119,381			26,214,365
Interest on floating rate borrowings		13,398,536			8,921,750			7,862,552
Interest on fixed rate borrowings		10,998,237			7,141,833			4,179,379
Total interest expense		24,396,773			16,063,583			12,041,931
Net interest income		32,776,443			23,055,798			14,172,434
Gain on sales of loans		884,608			904,074			856,083
Other income		2,995,749			2,575,355			3,600,783
Total noninterest income		3,880,357			3,479,429			4,456,866
Salaries and benefits		10,930,137			9,417,185			9,110,058
Professional fees		2,266,839			1,776,251			1,247,687
Other operating expenses		8,038,363			7,743,645			6,815,918
Total operating expenses		21,235,339			18,937,081			17,173,663
Net investment income before income taxes		15,421,461			7,598,146			1,455,637
Income tax provision		1,959,095			2,170,737			41,149
Net investment income after income taxes		13,462,366			5,427,409			1,414,488
Net realized gains (losses) on investments		1,081,005			(25,791	)		11,526,628
Net change in unrealized appreciation (depreciation) on investments		(7,681,869	)		17,110,411			(10,923,093	)
Net realized/unrealized gain (loss) on investments		(6,600,864	)		17,084,620			603,535
Net increase in net assets resulting from operations	$	6,861,502		$	22,512,029		$	2,018,023
Net increase (decrease) in net assets resulting from operations per common share
Basic	$	0.40		$	1.25		$	0.11
Diluted		0.39			1.22			0.11
Dividends declared per share	$	0.54		$	0.37		$	0.16
Weighted average common shares outstanding
Basic		17,087,034			18,001,604			18,245,774
Diluted		17,552,228			18,424,518			18,287,952

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

F-5

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2005			2004
Assets
Medallion loans, at fair value	$	449,672,510		$	392,131,108
Commercial loans, at fair value		145,796,651			136,834,891
Consumer loans, at fair value		85,678,412			66,330,748
Equity investments, at fair value		24,012,508			33,645,424
Investment securities, at fair value		18,092,838			14,598,837
Total investments ($380,267,000 at December 31, 2005 and $312,330,000 at December 31, 2004 pledged as collateral under borrowing arrangements)		723,252,919			643,541,008
Cash ($574,000 in 2005 and $690,000 in 2004 restricted as to use by lender)		43,035,506			37,267,122
Accrued interest receivable		3,580,460			3,062,608
Servicing fee receivable		—			2,312,040
Fixed assets, net		614,858			991,901
Goodwill, net		5,007,583			5,007,583
Other assets, net		17,481,876			17,727,362
Total assets	$	792,973,202		$	709,909,624
Liabilities
Accounts payable and accrued expenses	$	4,837,461		$	11,756,337
Accrued interest payable		1,759,737			1,758,956
Floating rate borrowings		323,664,951			274,959,911
Fixed rate borrowings		296,357,214			250,973,035
Total liabilities		626,619,363			539,448,239
Shareholders’ equity
Preferred Stock (1,000,000 shares of $0.01 par value stock authorized - none outstanding)		—			—
Common stock (50,000,000 shares of $0.01 par value stock authorized - 18,546,648 shares and 18,328,450 shares in December 31, 2005 and 2004 outstanding)		185,271			183,077
Treasury stock at cost, 1,373,351 shares in 2005 and 983,451 shares in 2004		(12,611,113	)		(9,002,382	)
Capital in excess of par value		175,259,730			174,095,094
Accumulated net investment income		3,519,951			5,185,596
Total shareholders’ equity		166,353,839			170,461,385
Total liabilities and shareholders’ equity	$	792,973,202		$	709,909,624
Number of common shares outstanding		17,173,297			17,344,999
Net asset value per share	$	9.69		$	9.83

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

F-6

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Common Stock				Treasury Stock					Capital In Excess Of Par Value		Cumulative Effect of Foreign Currency Translation			Accumulated Net Investment Income (Losses)
	# of Shares(1)		Amount		# of Shares		Amount
Balance at December 31, 2002	18,242,728		$	182,421	(20,118	)	$	(331,640	)	$	173,781,362	$	—		$	(11,767,464	)
Exercise of stock options	10,266			103	—						49,687		—			—
Net increase in net assets resulting from operations	—			—	—			—			—		—			2,018,023
Dividends declared on common stock ($0.09 per share)	—			—	—			—			—		—			(1,643,365	)
Treasury stock acquired	(10,816	)		—	(10,816	)		(99,944	)		—		—			—
Cumulative effect of foreign currency translation	—			—	—			—			—		(72,861	)		—
Balance at December 31, 2003	18,242,178			182,524	(30,934	)		(431,584	)		173,831,049		(72,861	)		(11,392,806	)
Exercise of stock options	55,338			553	—			—			264,045		—			—
Net increase in net assets resulting from operations	—			—	—			—			—		—			22,512,029
Dividends declared on common stock ($0.33 per share)	—			—	—			—			—		—			(5,933,627	)
Treasury stock acquired	(952,517	)		—	(952,517	)		(8,570,798	)		—		—			—
Cumulative effect of foreign currency translation	—			—	—			—			—		72,861			—
Balance at December 31, 2004	17,344,999			183,077	(983,451	)		(9,002,382	)		174,095,094		—			5,185,596
Exercise of stock options	218,198			2,194	—			—			1,164,636		—			—
Net increase in net assets resulting from operations	—			—	—			—			—		—			6,861,502
Dividends declared on common stock ($0.50 per share)	—			—	—			—			—		—			(8,527,147	)
Treasury stock acquired	(389,900	)			(389,900	)		(3,608,731	)		—		—			—
Balance at December 31, 2005	17,173,297		$	185,271	(1,373,351	)	$	(12,611,113	)	$	175,259,730	$	—		$	3,519,951

(1) Shown net of Treasury shares held

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

F-7

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations	$	6,861,502		$	22,512,029		$	2,018,023
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Depreciation and amortization		703,731			635,758			643,809
Amortization of origination costs		1,935,600			1,704,194			1,376,641
Increase in net unrealized depreciation on investments		7,681,869			3,575,088			6,990,265
Net realized (gains) losses on investments		(1,081,005	)		1,502,791			(11,526,628	)
Gains on sales of loans		(884,608	)		(904,074	)		(856,083	)
(Increase) decrease in accrued interest receivable		(660,562	)		(430,333	)		960,570
Decrease in servicing fee receivable		182,969			786,428			574,949
(Increase) decrease in other assets, net		4,984,276			4,134,367			(1,067,518	)
Increase (decrease) in accounts payable and accrued expenses		(4,511,859	)		1,074,536			(1,481,477	)
Increase (decrease) in accrued interest payable		(79,496	)		561,708			(4,392,505	)
Gain on sale of Media		—			(24,989,099	)		—
Increase in unrealized depreciation on MTM		—			2,826,600			3,932,828
Increase in valuation of servicing fee receivable		—			—			(400,000	)
Net cash provided by (used for) operating activities		15,132,417			12,989,993			(3,227,126	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments originated		(337,885,639	)		(303,369,002	)		(248,225,892	)
Proceeds from principal receipts, sales, and maturities of investments		225,381,052			144,835,651			232,171,193
Cash received for sold BLL SBA Section 7 (a) loans		20,472,386			—			—
Capital expenditures		(451,357	)		(281,741	)		(301,346	)
Purchase of consumer loan portfolio		—			(87,213,656	)		—
Investments in and loans to MTM, net		—			(1,608,722	)		(3,103,874	)
Net cash used for investing activities		(92,483,558	)		(247,637,470	)		(19,459,919	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from floating rate borrowings		130,431,934			165,493,591			193,216,383
Repayments of floating rate borrowings		(81,727,539	)		(121,052,737	)		(143,305,813	)
Proceeds from fixed rate borrowings		192,797,000			260,973,102			9,150,000
Repayments of fixed rate borrowings		(147,412,821	)		(66,935,067	)		(22,373,753	)
Proceeds from exercise of stock options		1,166,830			264,598			49,790
Payments of declared dividends		(8,527,147	)		(5,933,627	)		(1,643,366	)
Purchase of treasury stock at cost		(3,608,731	)		(8,570,798	)		(99,944	)
Net cash provided by financing activities		83,119,526			224,239,062			34,993,297
NET INCREASE (DECREASE) IN CASH		5,768,384			(10,408,415	)		12,306,252
CASH, beginning of year		37,267,122			47,675,537			35,369,285
CASH, end of year	$	43,035,506		$	37,267,122		$	47,675,537
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest	$	22,699,270		$	13,387,325		$	13,745,950
Cash paid during the year for income taxes		1,198,750			2,157,000			41,149
Non-cash investing activities-net transfers to (from) other assets		7,011,897			1,439,831			(2,362,534	)

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

F-8

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005

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

Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company had wholly owned portfolio investments which conducted taxicab rooftop advertising through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (MMJ), (together MTM). During the 2004 third quarter, Media was merged with and into a subsidiary of Clear Channel Communications, Inc. (CCU), and MMJ was sold in a stock sale to its management. (See Note 3).

The Company also conducts business through Medallion Business Credit, LLC (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables; Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business; Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and commercial loans; and Medallion Bank (MB), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank that primarily originates medallion loans, commercial loans, and consumer loans, raises deposits, and conducts other banking activities. MFC, MCI, and FSVC, as SBICs, are regulated and financed in part by the SBA. Until October 2005, the Company also conducted business through Business Lenders, LLC (BLL), licensed under the Small Business Administration (SBA) Section 7(a) program. On October 17, 2005, the Company completed the sale of the loan portfolio and related assets of BLL. In connection with this transaction, the Company sold assets in the amount of $22,799,000, less liabilities assumed by the buyer in the mount of $2,327,000. The assets were sold at book value, and therefore no gain or loss, excluding transaction costs, was recognized as a result of this transaction. For 2005, BLL generated net decease in net assets resulting from operations of $1,003,000, compared to a net decrease of $419,000 for 2004, and BLL’s net investment loss after taxes was $696,000, compared to a loss of $201,000 in 2004.

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

MB is a wholly-owned subsidiary of the Company and was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions (licenses), 2) asset-based commercial loans and 3) SBA 7(a) loans. The loans are marketed and serviced by MB’s affiliates who have extensive prior experience in these asset groups. The Company sold all of the SBA Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005. Additionally, MB began issuing brokered certificates of deposit in January 2004, and purchased over $84,150,000 of taxicab medallion and asset-based loans from affiliates of the Company. Additionally, on April 1, 2004, MB purchased a consumer loan portfolio with a principal amount of $84,875,000, net of $4,244,000, or 5.0%, of unrealized depreciation, from an unrelated financial institution for consideration of $86,309,000. The purchase was funded with $7,700,000 of additional capital contributed by the Company and with deposits raised by MB. The purchase included a premium of approximately $5,678,000 to the book value of assets acquired, which is amortized to interest income over the expected life of the acquired loans, and which is carried in other assets on the consolidated balance sheets.

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

In September 2002, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust I (Trust), for the purpose of owning medallion loans originated by MFC or others. The Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of the Trust, will be entitled to be satisfied out of the Trust’s assets prior to any value in the Trust becoming available to the Trust’s equity holders. The assets of the Trust, aggregating $344,594,000 at December 31, 2005 and $280,414,000 at December 31, 2004, 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.

F-9

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the US and general practices in the investment company industry. The preparation of financial statements in conformity with generally accepted accounting principles in the US requires the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates are subject to change over time, and actual results could differ from those estimates. The determination of fair value of the Company’s investments is subject to significant change within one year.

Principles of Consolidation

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

Investment Valuation

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

Equity investments (common stock and stock warrants) and investment securities (mortgage backed bonds) are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation, respectively. The fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies as well as general market trends for businesses in the same industry. Included in equity investments at December 31, 2005 are marketable and non-marketable securities of $23,032,000 and $981,000, respectively. At December 31, 2004, the respective balances were $29,926,000 and $3,719,000. Because of the inherent uncertainty of valuations, management’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

The Company’s investments consist primarily of long-term loans to persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 62% and 61% of the Company’s investment portfolio at December 31, 2005 and December 31, 2004 had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 78% were in New York City in both periods. 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 (20% in 2005 and 21% in 2004) represents loans to various commercial enterprises, in a variety of industries, including wholesaling, food services, financing, broadcasting, communications, real estate, and lodging. These loans are made primarily in the metropolitan New York City area, and historically included loans guaranteed by the SBA under its Section 7(a) program, less the sale of the guaranteed portion of those loans. The Company sold all of the SBA Section 7(a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005. Approximately 12% of the Company’s portfolio (up from 11% in 2004) consists of consumer loans in all 50 states collateralized by recreational vehicles, boats, and trailers.

F-10

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At December 31, 2005 and December 31, 2004 net origination costs totaled approximately $2,634,000 and $1,755,000. Amortization expense for the years ended December 31, 2005, 2004, and 2003 was approximately 1,936,000, $1,704,000 and $1,377,000.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At December 31, 2005 and 2004, the net premium on investment securities totaled $463,000 and $504,000, and amortization expense was $177,000 and $81,000 for 2005 and 2004. There were no premiums or amortization expense in 2003.

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectibility of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. At December 31, 2005, 2004, and 2003, total nonaccrual loans were approximately $22,641,000, $28,523,000, and $26,769,000, and represented 4%, 5%, and 7% of the gross medallion and commercial loan portfolio, respectively. 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 $6,744,000, $6,016,000, and $3,856,000 as of December 31, 2005, 2004, and 2003, of which $2,904,000, $2,812,000, and $2,310,000 would have been recognized in the years ended December 31, 2005, 2004, and 2003.

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

Loan Sales and Servicing Fee Receivable

The Company 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 $9,133,000 and $123,166,000 at December 31, 2005 and December 31, 2004.

Gain or losses on loan sales were primarily attributable to the sale of commercial loans which have been at least partially guaranteed by the SBA, and was conducted by the Company’s BLL subsidiary. The Company sold all of the SBA Section 7 (a) loans in its portfolio in connection with the sale of the assets of BLL to a subsidiary of Merrill Lynch in October 2005. The Company recognized 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 was surrendered. The gains were calculated in accordance with SFAS 140, which required that the gain on the sale of a portion of a loan be based on the relative fair values of the loan portion sold and the loan portion retained. The gain on loan sales was 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 represented 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 made certain assumptions including the cost of servicing a loan including a normal profit, the estimated life of the underlying loan that would be serviced, and the discount rate used in the present value calculation. The Company considered 40 basis points to be its cost plus a normal profit and used 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 was generally the prime rate plus 2.75%.

The servicing fee receivable was 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 reviewed 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 stratified its servicing fee receivable into pools, generally by the year of creation,

F-11

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 was less than the carrying amount, the Company established an impairment reserve and adjusted future amortization accordingly. If the fair value exceeded the carrying value, the Company may have reduced future amortization. The servicing fee receivable was carried at the lower of amortized cost or fair value.

The estimated net servicing income was based, in part, on management’s estimate of prepayment speeds, including default rates, and accordingly, there was no assurance of the accuracy of these estimates. If the prepayment speeds occurred at a faster rate than anticipated, the amortization of the servicing asset would be accelerated and its value would have declined; and as a result, servicing income during that and subsequent periods would have declined. If prepayments occurred slower than anticipated, cash flows would have exceeded estimated amounts and servicing income would have increased. The constant prepayment rates utilized by the Company in estimating the lives of the loans depended on the original term of the loan, industry trends, and the Company’s historical data on prepayments and delinquencies, and ranged from 15% to 35%. The Company evaluated the temporary impairment to determine if any such temporary impairment would be considered to be permanent in nature. In the first quarter of 2003, the Company determined that $856,000 of the temporary impairment reserve had suffered a permanent loss in value and was now permanent. Additionally, during 2003, the Company determined that $400,000 of the temporary impairment reserve was no longer warranted due to the above discussed prepayment patterns and consequently, was reversed and recognized as servicing fee income. The prepayment rate of loans may have been 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:

	Year Ended December 31,
	2005			2004			2003
Beginning Balance	$	1,036,500		$	1,037,500		$	2,293,500
Reversal related to sale of servicing asset		(1,063,000	)		(1,000	)		—
Increases (decreases) charged to operations		26,500			—			(400,000	)
Adjustments to carrying values (1)		—			—			(856,000	)
Ending Balance	$	—		$	1,036,500		$	1,037,500

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

The Company also had the option to sell the unguaranteed portions of loans to third party investors. The gain or loss on such sales is calculated in accordance with SFAS No. 140. The discount related to unguaranteed portions sold would be reversed, and the Company would recognize a servicing fee receivable or liability based on servicing fees retained by the Company. The Company was required to retain at least 5% of loans sold under the SBA Section 7(a) program. The Company had sales of unguaranteed portions of loans to third party investors of $0, $0, and $4,395,000 for the years ended December 31, 2005, 2004, and 2003, generating net gains on sale of $0, $0, and $202,000.

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 writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized depreciation on net investments (which excludes MTM and foreclosed properties) was $12,536,000 as of December 31, 2005 and $11,261,000 as of December 31, 2004. The Company’s investment in MTM, as wholly-owned portfolio investments, was also subject to quarterly assessments of its fair value. The Company used MTM’s actual results of operations as the best estimate of changes in its fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments. See Note 3 for the presentation of financial information for MTM.

F-12

The following table sets forth the changes in the Company’s unrealized appreciation (depreciation) (excluding MTM and foreclosed properties) on investments for the years ended December 31, 2005, 2004 and 2003.

	Loans			Equity Investments			Total
Balance December 31, 2002 (1)	$	(6,997,426	)	$	6,039,584		$	(957,842	)
Increase in unrealized
Appreciation on investments		—			1,857,627			1,857,627
Depreciation on investments		(3,223,280	)		122,400			(3,100,880	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		(11,811	)		(7,732,566	)		(7,744,377	)
Losses on investments		2,314,726			—			2,314,726
Balance December 31, 2003 (1)		(7,917,791	)		287,045			(7,630,746	)
Increase in unrealized
Appreciation on investments		—			2,820,058			2,820,058
Depreciation on investments (2)		(6,258,518	)		(2,478,552	)		(8,737,070	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—
Losses on investments		5,522,591			7,588			5,530,179
RV/Marine reserve (3)		(4,243,854	)		—			(4,243,854	)
Other (4)		1,000,000			—			1,000,000
Balance December 31, 2004 (1)		(11,897,572	)		636,139			(11,261,433	)
Increase in unrealized
Appreciation on investments		157,693			(469,587	)		(311,894	)
Depreciation on investments (2)		(5,412,455	)		(1,266,799	)		(6,679,254	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			1,485,883			1,485,883
Losses on investments		3,151,315			—			3,151,315
Reversal of reserves on sold SBA Section 7(a) loans		1,339,875			—			1,339,875
Other		(260,284	)		(1	)		(260,285	)
Balance December 31, 2005 (1)	$	(12,921,428	)	$	385,635		$	(12,535,793	)

(1) Excludes unrealized depreciation of $1,396,750, $512,281, $317,361, and $128,738 on foreclosed properties at December 31, 2005, 2004, 2003, and 2002, respectively.

(2) Includes $193,878 and $49,220 of depreciation on investment securities for the years ended December 31, 2005 and 2004.

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

(4) Reflects the reclassification of a reserve related to collateral appreciation participation loans to accounts payable and accrued expenses.

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

	Year Ended December 31,
	2005			2004			2003
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	1,136,016		$	2,820,058		$	1,857,627
Unrealized depreciation		(5,782,500	)		(8,737,070	)		(3,100,880	)
Unrealized gain on the sale of Media		—			23,512,099			—
Unrealized depreciation on MTM		—			(2,826,600	)		(3,932,828	)
Realized gains		(5,514,345	)		(2,675,974	)		(7,744,377	)
Realized losses		3,602,096			5,530,179			2,314,726
Unrealized gains (losses) on foreclosed properties		(1,123,136	)		(512,281	)		(317,361	)
Total	$	(7,681,869	)	$	17,110,411		$	(10,923,093	)
Net realized gains (losses) on investments
Realized gains	$	5,514,345		$	5,628,629		$	13,966,891
Realized losses		(4,038,482	)		(5,530,179	)		(2,314,726	)
Direct recoveries (charge-offs)		(2,765,918	)		(85,602	)		36,145
Other gains		2,533,097			—			—
Realized losses on foreclosed properties		(162,037	)		(38,639	)		(161,682	)
Total	$	1,081,005		$	(25,791	)	$	11,526,628

F-13

Goodwill

Effective January 1, 2002, coincident with the adoption of SFAS No.142, “ Goodwill and Intangible Assets,” the Company tests its goodwill for impairment, and engages a consultant to help management evaluate its carrying value. The results of this evaluation demonstrated no impairment in goodwill for 2005, 2004, and 2003. The Company conducts annual appraisals of its goodwill, and will recognize any impairment in the period the impairment is identified.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $704,000, $636,000, and $644,000 for the years ended December 31, 2005, 2004, and 2003.

Deferred Costs

Deferred financing costs represent costs associated with obtaining the Company’s borrowing facilities, and is amortized over the lives of the related financing agreements. Amortization expense was $1,777,000, $2,085,000, and $2,771,000 for the years ended December 31, 2005, 2004, and 2003. In addition, the Company capitalizes certain costs for transactions in the process of completion, including those for acquisitions and the sourcing of other financing alternatives, and during 2004 was increased by the purchase premium paid on the consumer portfolio purchase of $5,678,000, of which $1,511,000 and $1,288,000 was amortized into interest income during 2005 and 2004. 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 included in other assets on the balance sheet for all of these purposes were $5,501,000 and $7,460,000 as of December 31, 2005 and 2004.

Federal Income Taxes

Traditionally, the Company and each of its corporate subsidiaries other than Media and MB (the RIC subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries’ policy to comply with the provisions of the Code. The Company did not qualify to be treated as a RIC for 2003, as a result, the Company was treated as a taxable entity in 2003, which had an immaterial effect on the Company’s financial position and results of operations for 2003. The Company qualified and filed its federal tax returns as a RIC for 2004, and anticipates qualifying and filing as a RIC for 2005.

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

Media and MB are not RICs and are taxed as regular corporations. For 2004, Media filed a partial year tax return covering the period prior to the merger with CCU. The Trust is not subject to federal income taxation. Instead, the Trust’s taxable income is treated as having been earned by MFC.

During the 2004 second quarter, BLL changed its tax status from that of a disregarded “pass-through” entity of the Company to that of a company taxable as a corporation. For 2005 and 2004, BLL has no tax liability as a result of this election.

F-14

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

Basic earnings per share are 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. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

	Years Ended December 31,
	2005		2004		2003
Net increase in net assets resulting from operations available to common shareholders	$	6,861,502	$	22,512,029	$	2,018,023
Weighted average common shares outstanding applicable to basic EPS		17,087,034		18,001,604		18,245,774
Effect of dilutive stock options		465,194		422,914		42,178
Adjusted weighted average common shares outstanding applicable to diluted EPS		17,552,228		18,424,518		18,287,952
Basic earnings per share	$	0.40	$	1.25	$	0.11
Diluted earnings per share		0.39		1.22		0.11

Potentially dilutive common shares excluded from the above calculations aggregated 585,677 and 721,840 shares as of December 31, 2005 and 2004.

Dividends to Shareholders

The table below shows the tax character of distributions for tax reporting purposes.

	Years Ended December 31,
	2005		2004		2003
Dividends paid from
Ordinary income	$	4,894,078	$	2,582,057	$	1,643,366
Long-term capital gain		3,633,069		3,351,572		—
Total dividends	$	8,527,147	$	5,933,629	$	1,643,366

Our ability to make dividend payments is restricted by SBA regulations and under the terms of the SBA debentures. As of December 31, 2005, the Company anticipates paying an estimated $2,057,000 of ordinary income dividends for tax purposes by September 15, 2006.

F-15

Stock-Based Compensation

The Company applies APB Opinion No. 25 and related Interpretations in accounting for all the plans. Accordingly, no compensation cost has been recognized under these plans. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, which was released in December 2002 as an amendment to SFAS No. 123. The following table illustrates the effect on the Company’s increase net assets net value per share if the fair value based method had been applied to all awards:

	2005			2004			2003
Net increase in net assets resulting from operations	$	6,861,502		$	22,512,029		$	2,018,023
Add: stock-based employee compensation expense determined under APB No.25, included in net increase in net assets resulting from operations		—			—			—
Less: stock-based employee compensation expense determined under fair value method		(24,982	)		(150,717	)		(4,246	)
Net increase in net assets resulting from operations, pro forma	$	6,836,520		$	22,361,312		$	2,013,777
Net value per share
Basic-as reported	$	0.40		$	1.25		$	0.11
Basic-pro forma		0.40			1.24			0.11
Diluted-as reported		0.39			1.22			0.11
Diluted-pro forma		0.39			1.21			0.11

Derivatives

The Company had no interest rate cap agreements or other derivative investments outstanding during 2005 and 2004.

Reclassifications

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

(3) INVESTMENT IN AND LOANS TO MTM

On September 3, 2004, Media entered into a merger agreement with CCU, whereby 100% of the Company’s investment in Media was exchanged on a tax deferred basis for 933,521 shares of CCU stock (NYSE: CCU) and a cash payment of $1,477,000, resulting in an unrealized gain of approximately $23,512,000 and a realized gain of approximately $1,477,000, after costs associated with completing the merger, including costs accrued for potential contractual purchase accounting adjustments in the 2004 third quarter. Additionally, during the 2004 third quarter, the Company sold its investment in MMJ to MMJ’s management team for $1,600,000, which after considering all sales costs, resulted in a gain on sale of approximately $255,000 in the 2004 third quarter.

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The following table presents MTMs combined statements of operations, where applicable, through the respective dates of sale in September 2004, and for the year ended December 31, 2003. As a result of the sale of MTM during the 2004 third quarter, there was no balance sheet for MTM as of December 31, 2005 and 2004.

	Period Ended September 30, 2004 (1)			Year Ended December 31, 2003
Advertising revenue	$	4,302,993		$	6,234,409
Cost of fleet services		3,305,579			4,518,994
Gross profit		997,414			1,715,415
Depreciation and other non cash adjustments		860,431			2,413,071
Other operating expenses		3,031,722			4,299,096
Loss from operations		(2,894,739	)		(4,996,752	)
Other income		—			1,035,633
Loss before taxes		(2,894,739	)		(3,961,119	)
Income tax provision (benefit)		2,005			(28,291	)
Net loss	$	(2,896,744	)	$	(3,932,828	)

(1) Represents combined statements of operations through the respective dates of sale in September 2004.

During 2003, continued negotiations with certain fleets were concluded with the result that $389,000 that Media had accrued as payments to these fleets was reversed against Media’s cost of fleet services. Also during 2003, Media settled a claim against one of its fleet operators. The result was a termination of certain contractual relations, the payment of $1,052,000 to Media, the transfer of certain assets to the fleet operator, and the forgiveness of certain liabilities Media owed the fleet operator. The net result of this settlement was a $985,000 gain reflected as other income in the Media’s consolidated statement of operations for the year ended December 31, 2003. A portion of the proceeds from this settlement was used by Media to repay the balance of its US third-party outstanding debt. Also during 2003, Media determined that certain tops were no longer usable, and $196,000 of these tops were considered to be permanently impaired with a charge for such impairment reflected in depreciation expense.

The Company charged Media $94,000 in 2004 and $170,000 in 2003 for salaries and benefits and corporate overhead paid by the Company on Media’s behalf. During 2004 and 2003, these amounts owed by Media and MMJ to the Company were contributed to Media and MMJ as equity.

In July 2001, through its subsidiary MMJ, the Company acquired certain assets and assumed certain liabilities of a taxi advertising operation similar to those operated by Media in the US, which had advertising rights on approximately 4,800 cabs servicing various cities in Japan. The terms of the agreement provided for an earn-out payment to the sellers based on average net income over the next three years. MMJ accounted for approximately 6% and 4% of MTM’s combined revenue during 2004 and 2003.

(4) FLOATING RATE BORROWINGS

The outstanding balances were as follows:

	Payments Due for year ended December 31,												December 31,				Interest Rate (1)
	2006		2007		2008		2009		2010		Thereafter		2005		2004
Revolving line of credit	$	304,453,000	$	—	$	—	$	—	$	—	$	—	$	304,453,000	$	249,957,000	4.53	%
Notes payable to banks		6,991,000		1,559,000		—		—		—		—		8,550,000		15,003,000	6.76
Margin loan		10,662,000		—		—		—		—		—		10,662,000		10,000,000	5.00
Total	$	322,106,000	$	1,559,000	$	—	$	—	$	—	$	—	$	323,665,000	$	274,960,000	4.60

(1) Weighted average contractual rate as of December 31, 2005.

(A) REVOLVING LINE OF CREDIT

In September 2002, and as renegotiated in September 2003 and January 2005, the Trust entered into a revolving line of credit agreement (amended) with Merrill Lynch Commercial Finance Corp., as successor to Merrill Lynch Bank, USA (MLB) to

F-17

provide up to $325,000,000 of financing to acquire medallion loans from MFC (MLB line). Borrowings under the Trust’s revolving line of credit are collateralized by the Trust’s assets. MFC is the servicer of the loans owned by the Trust. The MLB line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The MLB line matures in September 2006. Effective January 2005, the interest rate was generally LIBOR plus 0.75% with an unused facility fee of 0.375% on unused amounts up to $250,000,000, and effective September 2003, was LIBOR plus 1.25% and 0.125%, and prior to that was LIBOR plus 1.50% and 0.375%. The facility fee was $375,000 in September 2003, $900,000 in September 2004, and $300,000 in September 2005. See also Note 19.

(B) NOTES PAYABLE TO BANKS AND MARGIN LOAN

On January 25, 2005, MFC entered into a $4,000,000 revolving note agreement with Atlantic Bank of New York that matured on December 1, 2005, and which maturity was extended by Atlantic Bank to February 1, 2006. See also Note 19. The line is secured by medallion loans of MFC that are in process of being sold to the Trust, any draws being payable from the receipt of proceeds from the sale. The line bears interest at the prime rate minus 0.25%, payable monthly. As of December 31, 2005, $0 had been drawn down under this line.

In November 2004, the Company entered into a margin loan agreement with Bear Stearns, & Co. Inc. The margin loan is secured by the pledged stock of CCU held by the Company, and is generally available at 60% of the current fair market value of the CCU stock, or $12,577,000 as of December 31, 2005. The margin loan bears interest at the federal funds rate plus 0.75%. As of December 31, 2005, $10,662,000 had been drawn down under this margin loan.

On April 26, 2004, the Company entered into a $15,000,000 revolving note agreement with Sterling National Bank that matured on April 25, 2005, and which maturity was extended by Sterling National Bank for 60 days. On June 28 2005, the maturity date was further extended to July 31, 2005. On July 28, 2005, the note agreement was amended, and the maturity date was extended until June 30, 2006. The line is secured by certain pledged assets of the Company and MBC, and is subject to periodic borrowing base requirements. The line bears interest at the prime rate, payable monthly, and is subject to an unused fee of 0.125%. As of December 31, 2005, $5,500,000 had been drawn down under this line.

On July 11, 2003 certain operating subsidiaries of MFC entered into an aggregate $1,700,000 of note agreements with Atlantic Bank of New York and Israel Discount Bank, collateralized by certain taxicab medallions owned by Medallion Chicago of which $1,371,000 was outstanding at December 31, 2005. The notes mature July 8, 2006 and bear interest at LIBOR plus 2%, adjusted annually, payable monthly. Principal and interest payments of $17,000 are due monthly, with the balance due at maturity.

On June 30, 2003, an operating subsidiary of MFC entered into a $2,000,000 note agreement with Banco Popular North America, collateralized by certain taxicab medallions owned by Medallion Chicago, of which $1,679,000 was outstanding at December 31, 2005. The note matures June 1, 2007 and bears interest at Banco Popular’s prime rate less 0.25%, adjusted annually, payable monthly. Principal and interest payments of $18,000 are due monthly, with the balance due at maturity.

(5) FIXED RATE BORROWINGS

The outstanding balances of fixed rate borrowings were as follows:

	Payments Due for year ended December 31,												December 31,				Interest Rate (1)
	2006		2007		2008		2009		2010		Thereafter		2005		2004
Certificates of deposit	$	127,768,000	$	40,188,000	$	31,358,000	$	19,793,000	$	—	$	—	$	219,107,000	$	186,538,000	3.47	%
SBA debentures		—		—		—		—		—		77,250,000		77,250,000		64,435,000	6.02
Total	$	127,768,000	$	40,188,000	$	31,358,000	$	19,793,000	$	—	$	77,250,000	$	296,357,000	$	250,973,000	4.14

(1) Weighted average contractual rate as of December 31, 2005.

In January 2004, MB commenced raising deposits to fund the purchase of various affiliates’ loan portfolios. The deposits were raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to MB. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions and include a brokerage fee of 0.25% to 0.55%, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at December 31, 2005 and 2004 was $747,000 and $624,000, and $585,000 and $395,000 was amortized to interest expense during 2005 and 2004. Interest on the deposits is accrued daily and paid monthly, semiannually, or at maturity.

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During 2001, FSVC and MCI were approved by the SBA to receive $36,000,000 each in funding over a period of five years. In November 2003, FSVC applied for and received an additional commitment of $8,000,000. As of December 31, 2005, these commitments had been fully utilized. See also note 19.

(6) INCOME TAXES

The Company and its RIC subsidiaries are non-taxpaying RICs in 2005 and 2004. MB and BLL were taxable entities in 2005, and MB, BLL, and MTM were taxable entities in 2004. The Company was considered to be a taxable entity for US Federal income tax purposes for 2003. The results of the Company’s operations were also subject to state taxation in various jurisdictions in 2003.

The provision (benefit) for income taxes consisted of the following components for the years ended December 31, 2005, 2004, and 2003. For 2005 and 2004, the provision is primarily composed of the provision of MB. BLL had taxable losses of $215,000 for 2005, and both MTM and BLL (subsequent to its change in tax status) had taxable losses of $2,308,000 and $99,000, respectively, for 2004. MTM’s losses were transferred to CCU as a part of that merger and BLL’s losses reflect a net operating loss carryforward that is fully reserved.

	2005			2004			2003
Current
US federal	$	1,924,730		$	2,445,634		$	41,149
State		303,255			220,412			—
		2,227,985			2,666,046			41,149
Deferred
US federal		(37,107	)		(433,395	)		951,372
State		(5,580	)		(61,914	)		—
		(42,687	)		(495,309	)		951,372
Provision for income taxes before utilization of net operating loss carryforwards and valuation allowance for tax assets		2,185,298			2,170,737			992,521
Utilization of net operating loss carryforwards		—			—			(951,372	)
Change in valuation allowance for tax assets		(226,202	)		—			—
Net provision for income taxes	$	1,959,096		$	2,170,737		$	41,149

The following table reconciles the provision for income taxes to the US federal statutory income tax rate for the years ended December 31, 2005, 2004, and 2003.

	2005		2004		2003
US federal statutory tax rate	34.0	%	34.0	%	34.0	%
Nontaxable RIC income	(6.2	)	(27.7	)	—
Prior year overaccrual	(2.5	)	—		—
Change in valuation allowance	(0.9	)	—		(32.0	)
Other	(2.2	)	2.5		—
Effective income tax rate	22.2	%	8.8	%	2.0	%

Deferred income taxes, solely related to MB, reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Total tax assets are primarily represented by temporary differences for unrealized losses on investments and income that was not recognized for financial reporting purposes but was taxable in the amount of approximately $934,000 in 2005, $577,000 in 2004, and $2,185,000 in 2003; partially offset by temporary differences for deferred income to be recognized in future years of $692,000 in 2005, $82,000 in 2004, and $1,199,000 in 2003. The resulting net deferred tax asset of $242,000 is carried in other assets on the balance sheet and is expected to be fully realizable. As the Company could not estimate if there will be sufficient taxable income in the years in which certain of the temporary tax differences will reverse, a valuation allowance had been established in the amount of $297,000 in 2003 for the net tax assets position described above, which has subsequently been reversed. The Company has qualified as a RIC for tax purposes, and net operating losses will not be utilizable unless the Company, in future periods, does not qualify as a regulated investment company for tax purposes and has capital gains, in which case some or all capital loss carryforwards may be available to be utilized.

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(7) STOCK OPTIONS

The Company has a stock option plan (1996 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 1996 Stock Option Plan, which was approved by the Board of Directors and shareholders on May 22, 1996, provides for the issuance of a maximum of 750,000 shares of common stock of the Company. On June 11, 1998, the Board of Directors and shareholders approved certain amendments to the Company’s 1996 Stock Option Plan, including increasing the number of shares reserved for issuance from 750,000 to 1,500,000. In addition, on June 11, 2002 an additional 750,000 shares were approved, bringing the shares reserved for issuance to 2,250,000. At December 31, 2005, 67,094 shares of the Company’s common stock remained available for future grants. The 1996 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years.

A non-employee director stock option plan (the Director Plan) was also approved by the Board of Directors and shareholders on May 22, 1996. On February 24, 1999, the Board of Directors amended and restated the Director Plan in order to adjust the calculation of the number of shares of the Company’s common stock issuable under options to be granted to a non-employee director upon his or her re-election. Under the prior plan the number of options granted was obtained by dividing $100,000 by the current market price for the common stock. The Director Plan now calls for the grant of options to acquire 9,000 shares of common stock upon election of a non-employee director. It provides for an automatic grant of options to purchase 9,000 shares of the Company’s common stock to an Eligible Director upon election to the Board, with an adjustment for directors who are elected to serve less than a full term. A total of 100,000 shares of the Company’s common stock are issuable under the Director Plan. At December 31, 2005, 3,827 shares of the Company’s common stock remained available for future grants. The grants of stock options under the Director Plan are automatic as provided in the Director Plan. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. Options granted under the Director Plan are exercisable annually, as defined in the Director Plan. The term of the options may not exceed five years.

The weighted average fair value of options granted during the years ended December 31, 2005, 2004, and 2003 was $1.97, $1.74, and $0.89 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants in 2005, 2004, and 2003:

	Year ended December 31,
	2005		2004		2003
Risk free interest rate	4.32	%	4.13	%	3.53	%
Expected dividend yield	8.00		8.00		8.00
Expected life of option in years	7.00		7.00		7.00
Expected volatility	44.00		44.00		44.00

F-20

The following table presents the activity for the stock option program under the 1996 Stock Option Plan and the Director Plan for the years ended December 31, 2005, 2004, and 2003:

	Number of Options		Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2002	1,810,538		$	4.73-29.25	$	12.16
Granted (1)	278,659			3.50-8.40		4.55
Cancelled(1)	(175,352	)		3.89-29.25		11.12
Exercised	(10,266	)		4.85-4.85		4.85
Outstanding at December 31, 2003	1,903,579		$	3.50-29.25	$	10.91
Granted	284,204			7.68-9.07		8.56
Cancelled	(249,236	)		4.00-29.25		18.39
Exercised	(55,338	)		4.00-6.98		4.79
Outstanding at December 31, 2004	1,883,209		$	3.50-29.25	$	9.75
Granted	38,000			9.27-9.60		9.44
Cancelled	(48,607	)		4.85-18.75		13.61
Exercised	(218,198	)		3.87-8.72		5.30
Outstanding at December 31, 2005	1,654,404		$	3.50-29.25	$	10.21
Options exercisable at
December 31, 2003	1,116,034		$	3.50-29.25	$	14.90
December 31, 2004	1,137,687			3.50-29.25		10.54
December 31, 2005	1,505,067			3.50-29.25		10.10

(1) As originally reported, these amounts were 283,910 for grants and 175,502 for cancellations. These numbers have been adjusted to reflect an adjustment to an overstated option grant and a 2004 forfeiture recorded in 2003. The proper inclusion of these amounts in prior calculations had no impact on calculations, such as EPS.

The following table summarizes information regarding options outstanding and options exercisable at December 31, 2005 under the 1996 Stock Option Plan and the Director Plan:

		Options Outstanding				Options Exercisable
		Weighted average				Weighted average
Range of Exercise Prices		Shares at December 31, 2005	Remaining contractual life in years	Exercise price		Shares at December 31, 2005	Remaining contractual life in years	Exercise price
$	3.50-5.51	688,952	6.55	$	4.82	686,406	6.49	$	4.82
	6.50-13.75	488,193	6.79		9.16	341,401	5.32		8.16
	14.25-15.56	52,848	4.24		14.67	52,848	4.24		14.67
	16.00-18.75	347,034	3.49		17.47	347,034	3.49		17.47
	29.25-29.25	77,377	2.34		29.25	77,378	2.34		29.25
$	3.50-29.25	1,654,404	5.71		10.21	1,505,067	5.24		10.10

F-21

(8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table represents the Company’s quarterly results of operations for the years ended December 31, 2005, 2004, and 2003:

(In thousands except per share amounts)	March 31			June 30		September 30		December 31
2005 Quarter Ended
Investment income	$	12,966		$	14,138	$	14,699	$	15,370
Net investment income after income taxes		2,760			3,753		3,186		3,763
Net increase in net assets resulting from operations		2,236			447		3,575		603
Net increase (decrease) in net assets resulting from operations per common share
Basic	$	0.13		$	0.03	$	0.21	$	0.04
Diluted		0.13			0.03		0.20		0.03
2004 Quarter Ended
Investment income	$	6,485		$	10,401	$	10,978	$	11,255
Net investment income(loss) after income taxes		(62	)		1,510		1,841		2,138
Net increase (decrease) in net assets resulting from operations		(1,380	)		249		20,055		3,588
Net increase (decrease) in net assets resulting from operations per common share
Basic	$	(0.08	)		0.01	$	1.11	$	0.21
Diluted		(0.08	)		0.01		1.09		0.20
2003 Quarter Ended
Investment income	$	6,528		$	6,468	$	6,693	$	6,525
Net investment income after income taxes (1)		295			302		643		174
Net increase (decrease) in net assets resulting from operations		430			755		1,111		(278	)
Net increase (decrease) in net assets resulting from operations per common share
Basic	$	0.02		$	0.04	$	0.06	$	(0.01	)
Diluted		0.02			0.04		0.06		(0.01	)

(1) As originally reported, these amounts were $305,000, $312,000, and $696,000 for the 2003 quarters ended March 31, June 30, and September 30, respectively, reflecting the exclusion of capital-based tax accruals which are now more properly reflected in operating expenses.

(9) NEW ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” an amendment of SFAS No. 133 and 140. This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are free standing derivatives or that are hybrid financial instruments that contain an embedded derivative that require bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, as defined. The Company does not expect that the adoption of SFAS No. 155 will have a material impact on its consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS No. 123R), which supercedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based transactions using APB No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated financial statements. FAS No. 123R requires additional disclosures relating to the income tax and cash flow effects resulting from share-based payments. On April 14, 2005, the United States Securities and Exchange Commission announced it would permit most registrants subject to its oversight additional time to implement the requirements in SFAS No. 123(R). As announced, the SEC will permit companies to implement SFAS No. 123(R) at the

F-22

beginning of their next fiscal year (instead of their next reporting period) that begins after June 15, 2005. The Company is evaluating the requirements of SFAS No. 123(R) and expects that the adoption of SFAS No. 123(R), effective January 1, 2006, will have an immaterial impact on its consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the potential financial impact of adopting SFAS No. 123(R).

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

In December 2003, the American Institute of Certified Public Accountants issued Statement of Position No. 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). Loans carried at fair value and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3, thus the adoption of this standard had no impact on the Company’s financial condition and results of operations.

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

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

(10) SEGMENT REPORTING

For 2003, the Company had two reportable business segments, lending and taxicab rooftop advertising. The lending segment originates and services medallion and secured commercial loans. The taxicab rooftop advertising segment sold advertising space to advertising agencies and companies in several major markets across the US and Japan, and was conducted by Media. Media was reported as a portfolio investment of the Company and was accounted for using the equity method of accounting. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The lending segment is presented in the consolidated financial statements of the Company. Financial information relating to the taxicab rooftop advertising segment is presented in Note 3.

For taxicab rooftop advertising, the increase in unrealized appreciation (depreciation) on the Company’s investment in 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 were reflected in investment in and loans to Media on the consolidated balance sheets. See Note 3.

F-23

As described in Note 3, in 2004 the Company exchanged its investment in Media, a portfolio investment company, for shares of CCU and other consideration.

(11) COMMITMENTS AND CONTINGENCIES

(a) Employment Agreements

The Company has employment agreements with certain key officers for either a three or five-year terms. Annually, the contracts with a five-year term will renew for new five-year terms unless prior to the end of the first year, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. In the event of a change in control, as defined, during the employment period, the agreements provide for severance compensation to the executive in an amount equal to the balance of the salary, bonus, and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period.

(b) Other Commitments

The Company had loan commitments outstanding of $4,571,000 at December 31, 2005 that are generally on the same terms as those to existing borrowers. Commitments generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, the Company had approximately $31,465,000 of undisbursed funds relating to revolving credit facilities with borrowers. These amounts may be drawn upon at the customer’s request if they meet certain credit requirements.

Commitments for leased premises expire at various dates through June 30, 2016. At December 31, 2005, minimum rental commitments for non-cancelable leases are as follows:

2006	$	1,067,000
2007		1,153,000
2008		1,032,000
2009		1,025,000
2010		1,025,000
2011 and thereafter		5,144,000
Total	$	10,446,000

Rent expense was $1,361,000, $1,296,000, and $1,144,000, for the years ended December 31, 2005, 2004, and 2003.

(c) Litigation

The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on 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 impact on the financial condition or results of operations of the Company.

(12) RELATED PARTY TRANSACTIONS

Certain directors, officers, and shareholders of the Company are also directors of its wholly-owned subsidiaries, MFC, BLL, MCI, MBC, FSVC, and MB. Officer salaries are set by the Board of Directors of the Company.

During 2005, 2004 and 2003, a member of the Board of Directors of the Company was also a partner in the Company’s primary law firm. Amounts paid to the law firm were approximately $198,000, $251,000, and $280,000 in 2005, 2004, and 2003.

F-24

(13) SHAREHOLDERS’ EQUITY

In November 2003, the Company announced a stock repurchase program which authorized the repurchase of up to $10,000,000 of common stock during the following six months, with an option for the Board of Directors to extend the time frame for completing the purchases. In November 2004, the repurchase program was increased by an additional $10,000,000. As of December 31, 2005, 1,353,233, shares were repurchased for $12,279,000.

In the normal course of business, the Company and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in dividend and loan restrictions.

FDIC-insured banks, including MB, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, MB is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.

(14) OTHER INCOME AND OTHER OPERATING EXPENSES

The major components of other income were as follows:

	Year ended December 31,
	2005		2004		2003
Prepayment penalties	$	998,261	$	331,506	$	444,213
Servicing fees		580,037		978,806		1,311,399
Late charges		363,213		526,708		795,512
Accretion of discount		350,344		284,093		462,797
Revenue sharing		—		—		34,275
Other		703,894		454,242		552,587
Total other income	$	2,995,749	$	2,575,355	$	3,600,783

Included in prepayment penalties in 2005 was $892,000 related to the early payoff of several large loans; otherwise, the decreases in prepayment penalties and late charges reflected fewer refinancings and improved payment patterns. The decrease in servicing fees over the last year reflects the sale of the SBA Section 7 (a) loan portfolio, and its general shrinkage prior to the sale. Included in servicing fees was $400,000 in 2003 to reduce the valuation reserve for the servicing fee receivable, which resulted from improvements in prepayment patterns (see Note 2). The reduction in accretion of discount in 2004 from 2003 was primarily due to the lower amounts of SBA Section 7(a) loans outstanding. The increase in other income was primarily due to fee income received by MB reflecting the increased lending activity there, and included $115,000 of termination fees earned on deals that were not consummated in 2003.

F-25

The major components of other operating expenses were as follows:

	Year ended December 31,
	2005		2004		2003
Rent expense	$	1,361,206	$	1,295,871	$	1,144,124
Consumer loan servicing		1,072,294		639,352		—
Travel meals and entertainment		709,510		561,233		501,040
Depreciation and amortization		703,731		635,758		643,809
Loan collection expense		619,205		696,510		813,421
Directors fees		496,517		416,341		229,556
Insurance		477,015		555,741		631,586
Office expense		368,032		287,446		308,141
Temporary help		279,469		97,537		215,422
Telephone		276,499		217,201		187,612
Miscellaneous taxes		252,766		385,537		455,016
Advertising, marketing, and public relations		208,088		108,573		86,551
Computer expense		197,266		232,090		242,156
Printing and stationary		163,919		156,037		121,686
Dues and subscriptions		126,118		105,521		93,235
Bank charges		91,995		155,284		212,596
Other expenses		634,733		1,197,613		929,967
Total operating expenses	$	8,038,363	$	7,743,645	$	6,815,918

Consumer loan servicing increased in the 2005, reflecting the May 2004 consumer loan portfolio purchase and increase lending activity by MB. Travel and entertainment increased as a result of more extensive business development activities. Loan collections expense decreased in 2005 and 2004 as the number of loans over 90 days past due has declined due to better collection efforts. Directors fees increased primarily due to increases in the amounts paid to directors, in the number of directors serving on Boards, and in the number of Board meetings held. Insurance expense decreased as a result of lower premiums charged in a more competitive insurance market. Temporary help expense grew from increased use of temporary employees for special projects. Included in miscellaneous taxes for 2004 were $71,000 related to sales tax audit results covering years dating back to 1995, and in 2003 included capital-based state taxes due. Advertising, marketing, and public relations expense was up in 2005 primarily reflecting the consumer portfolio marketing efforts of MB. Bank charges continued to drop reflecting improved utilization of banking relationships.

F-26

(15) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data:

	Year ended December 31,
	2005			2004			2003			2002			2001
Net share data:
Net asset value at the beginning of the period	$	9.83		$	8.89		$	8.87		$	9.59		$	10.16
Net investment income (loss)		0.88			0.41			0.08			(0.44	)		0.13
Income tax (provision) benefit		(0.11	)		(0.12	)		(0.00	)		(0.00	)		0.00
Net realized gains (losses) on investments		0.06			0.00			0.63			(0.35	)		(0.17	)
Net change in unrealized appreciation (depreciation) on investments		(0.44	)		0.93			(0.60	)		0.10			(0.20	)
Net increase (decrease) in net assets resulting from operations		0.39			1.22			0.11			(0.69	)		(0.24	)
Issuance of common stock		(0.06	)		0.00			0.00			0.00			0.01
Repurchase of common stock		0.02			0.05			—			—			—
Distribution of net investment income		(0.50	)		(0.33	)		(0.09	)		(0.03	)		(0.34	)
Net asset value at the end of the period	$	9.69		$	9.83		$	8.89		$	8.87		$	9.59
Per share market value at beginning of period	$	9.70		$	9.49		$	3.90		$	7.90		$	14.63
Per share market value at end of period		11.26			9.70			9.49			3.90			7.90
Total return (1)		21	%		6	%		146	%		(50	)%		(44	)%
Ratios/supplemental data
Average net assets	$	167,909,130		$	162,843,480		$	162,265,000		$	168,627,645		$	166,379,846
Operating expenses to average net assets (2)		12.65	%		11.63	%		10.55	%		10.92	%		10.34	%
Net investment income (loss) after taxes to average net assets (3)		8.02			3.33			0.91			(0.90	)		5.54

(1) Total return is calculated by dividing the change in market value of a share of common stock during the year plus distributions, divided by the per share market value at the beginning of the year.

(2) Operating expense ratios presented exclude the $63,000 and $9,417,000 costs of debt extinguishment in 2003 and 2002, and $550,000 in 2001 to write off transaction, acquisition-related, and other nonrecurring charges. Unadjusted, the ratios would have been 10.59%, 16.50%, and 10.67% in 2003, 2002, and 2001, respectively.

(3) Net investment income ratios presented exclude the $63,000 and $9,417,000 costs of debt extinguishment in 2003 and 2002, and the $6,700,000 of charges related to Chicago Yellow, the excess servicing asset, the additional bank charges, and the write-off of transaction costs in 2001. Unadjusted, the ratios would have been 0.87%, (4.68%), and 1.51%, in 2003, 2002, and 2001, respectively.

(16) EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Investment Plan (the 401(k) Plan) which covers all full-time and part-time employees of the Company who have attained the age of 21 and have a minimum of one year of service. Under the 401(k) Plan, an employee may elect to defer not less than 1% and no more than 15% of the total annual compensation that would otherwise be paid to the employee, provided, however, that employee’s contributions may not exceed certain maximum amounts determined under the Code. Employee contributions are invested in various mutual funds according to the directions of the employee. Beginning September 1, 1998, the Company elected to match employee contributions to the 401(k) Plan in an amount per employee up to one-third of such employee’s contribution but in no event greater than 2% of the portion of such employee’s annual salary eligible for 401(k) Plan benefits. The Company’s 401(k) plan expense was approximately $67,000, $68,000, and $61,000 for the years ended December 31, 2005, 2004, and 2003.

(17) FAIR VALUE OF FINANCIAL INSTRUMENTS

        Statement of Financial Accounting Standard No. 107, “Disclosures About Fair Value of Financial Instruments” (SFAS 107) requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

(a) Investments-The Company’s investments are recorded at the estimated fair value of such investments.

F-27

(b) Servicing fee receivable-The fair value of the servicing fee receivable is estimated based upon expected future service fee income cash flows discounted at a rate that approximates that currently offered for instruments with similar prepayment and risk characteristics.

(c) Floating rate borrowings-Due to the short-term nature of these instruments, the carrying amount approximates fair value.

(d) Commitments to extend credit-The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At December 31, 2005 and 2004, the estimated fair value of these off-balance-sheet instruments was not material.

(e) Interest rate cap agreements-The fair value is estimated based on market prices or dealer quotes. At December 31, 2005 and 2004, the estimated fair value of these off-balance-sheet instruments was not material.

(f) Fixed rate borrowings-The fair value of federally insured bank certificates of deposit and of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.

	December 31, 2005				December 31, 2004
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Investments	$	723,253,000	$	723,253,000	$	643,541,000	$	643,541,000
Cash		43,036,000		43,036,000		37,267,000		37,267,000
Servicing fee receivable		0		0		2,312,000		2,312,000
Financial Liabilities
Floating rate debt		323,665,000		323,665,000		274,960,000		274,960,000
Fixed rate debt		296,357,000		296,357,000		250,973,000		250,973,000

(18) MB REGULATORY GUIDELINES

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

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

F-28

The following table represents MB’s actual capital amounts and related ratios as of December 31, 2005 and 2004, compared to required regulatory minimum capital ratios and the ratio required to be considered well capitalized. Management believes, as of December 31, 2005, that MB meets all capital adequacy requirements to which it is subject, and is well-capitalized.

	Regulatory
	Minimum		Well-capitalized		December 31, 2005			December 31, 2004
Tier I capital					$	39,379,000		$	33,492,000
Total capital						42,288,000			35,971,000
Average assets						234,976,000			210,906,000
Risk-weighted assets						276,402,000			195,964,000
Leverage ratio (1)	4	%	5	%		15.8	%		15.9	%
Tier I capital ratio (2)	4		6			14.2			17.1
Total capital ratio (2)	8		10			15.3			18.4

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

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

(19) SUBSEQUENT EVENTS

On March 9, 2006, affiliates of the Company purchased $35,553,000 of floating rate New York medallion loans from Banco Popular for par plus a 1% premium. The purchase was funded by a combination of cash on hand and draws under the MLB line.

On March 6, 2006, the line of credit with Atlantic Bank was increased to $6,000,000. On February 1, 2006, the line’s maturity date was further extended until August 1, 2006.

On March 1, 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a ten year period upon payment of a 1% fee and the infusion of $4,500,000 of additional capital.

On February 15, 2006, the Company’s board of directors declared a $0.15 per share common stock dividend, payable on March 27, 2006 to shareholders of record on March 10, 2006.

On January 10, 2006, an amendment was made to the MLB line to increase the facility to $475,000,000 from $325,000,000, and extend the maturity date to September 2008. The facility fee for the new amendment was $200,000 payable in January 2006 and $200,000 payable in February 2006.

F-29

MEDALLION FINANCIAL CORP.

Consolidated Schedule of Investments

December 31, 2005

	# Of Loans	Balance Outstanding			Interest Rate
	58	$	2,579,463		0.00-4.99	%
	21		8,494,786		5.00-5.24
	20		3,791,989		5.25-5.49
	133		43,840,593		5.50-5.74
	173		55,250,468		5.75-5.99
	249		62,935,982		6.00-6.24
	222		67,104,376		6.25-6.49
	254		54,880,893		6.50-6.74
	228		43,402,409		6.75-6.99
	199		49,561,554		7.00-7.24
	101		16,926,674		7.25-7.49
	75		9,728,927		7.50-7.74
	65		27,186,795		7.75-7.99
	59		7,513,816		8.00-8.49
	28		4,134,479		8.50-8.74
	33		15,084,434		8.75-8.99
	68		5,163,318		9.00-9.24
	23		24,412,316		9.25-9.49
	46		6,619,117		9.50-9.74
	24		4,766,620		9.75-9.99
	31		10,219,311		10.00-10.24
	17		12,945,069		10.25-10.49
	14		5,476,589		10.50-10.74
	12		5,053,720		10.75-10.99
	21		5,531,547		11.00-11.99
	43		13,182,653		12.00-12.49
	64		1,291,247		12.75-12.99
	16		10,972,042		13.00-13.74
	112		1,090,696		13.75-13.99
	41		11,407,980		14.00-14.49
	21		804,468		14.50-14.74
	188		1,979,150		14.75-14.99
	63		552,565		15.00-15.24
	84		707,052		15.25-15.49
	180		1,699,948		15.50-15.74
	70		640,994		15.75-15.99
	100		909,233		16.00-16.24
	26		259,142		16.25-16.49
	46		378,288		16.50-16.74
	220		3,416,224		16.75-17.24
	37		375,812		17.50-17.74
	2,045		26,397926		17.75-18.24
	15		196,614		18.25-18.49
	216		6,730,708		18.50-18.74
	1,878		27,992,644		18.75-18.99
	13		5,280,294		19.00-19.49
	97		883,910		19.50-19.74
	1,959		21,679,829		19.75-20.49
Total loans	9,708	$	691,434,664		8.93	%
CCU		$	20,464,314
LYV			1,037,389
PMC			900,897
Investment in Hampton LLC			874,846
Micromedics			58,829
Star Concession			40,000
Appliance			7,500
Total equity investments		$	23,383,775
FNMA		$	7,299,404
FHLMC			5,693,019
GNMA			3,385,581
UTHSG			1,495,000
Total investment securities		$	17,873,003
Investments at cost		$	732,691,442		8.58	%
Deferred loan acquisition costs			2,634,337
Unrealized appreciation on equity investments			628,732
Unrealized depreciation on investment securities			(243,097	)
Premiums paid on purchased securities			462,932
Unrealized depreciation on loans			(12,921,428	)
Net investments		$	723,252,919

The accompanying notes are an integral part of this consolidated schedule.

F-30

MEDALLION FINANCIAL CORP.

Consolidated Schedule of Investments

December 31, 2004

	# Of Loans	Balance Outstanding			Interest Rate
	55	$	3,399,348		0.00-3.74	%
	31		1,103,786		4.00-4.49
	41		16,344,177		4.50-4.74
	39		15,160,438		4.74-4.99
	88		33,197,856		5.00-5.24
	45		17,499,728		5.25-5.49
	213		67,637,044		5.50-5.74
	129		52,486,357		5.75-5.99
	291		53,203,384		6.00-6.24
	281		51,867,576		6.25-6.49
	191		26,868,140		6.50-6.74
	126		24,558,727		6.75-6.99
	115		13,757,361		7.00-7.24
	113		19,418,831		7.25-7.49
	132		12,820,366		7.50-7.74
	334		20,178,849		7.75-7.99
	79		13,991,678		8.00-8.49
	73		13,396,806		8.50-8.99
	62		5,781,412		9.00-9.49
	53		5,946,699		9.50-9.99
	51		6,927,272		10.00-10.49
	21		6,658,876		10.50-10.99
	13		1,340,011		11.00-11.49
	27		1,109,886		11.50-11.99
	79		15,681,647		12.00-12.24
	21		1,114,868		12.25-12.49
	17		12,811,057		13.00-13.24
	5		144,940		13.25-13.74
	16		6,708,826		14.00-14.74
	270		3,100,410		14.75-14.99
	102		1,894,664		15.00-15.74
	58		630,590		15.75-16.74
	334		4,039,263		16.75-16.99
	47		1,533,313		17.00-17.74
	1,619		17,964,116		17.75-17.99
	15		10,871,248		18.00-18.24
	27		352,965		18.25-18.49
	510		6,111,721		18.50-18.74
	299		3,169,358		18.75-18.99
	16		3,593,738		19.00-19.49
	157		1,504,978		19.50-19.74
	2,928		30,114,507		19.75-19.99
	4		45,080		20.00-20.49
Total loans	9,127	$	606,041,897		8.44	%
CCU		$	28,289,702
Unimark			3,620,636
PMC			900,897
Micromedics			58,828
Appliance			50,000
Star Concession			40,000
Total equity investments		$	32,960,063
GNMA		$	5,717,087
FNMA			4,475,486
FHLMC			3,701,649
UTHSG			250,000
Total investment securities		$	14,144,222
Gross investments		$	653,146,182
Deferred loan acquisition costs			1,754,722
Discounts on SBA Section 7(a) loans			(602,301	)
Unrealized depreciation on loans			(11,897,571	)
Unrealized appreciation on equity investments			685,360
Unrealized depreciation on investment securities			(49,219	)
Premiums paid on purchased securities			503,835
Net investments		$	643,541,008

The accompanying notes are an integral part of this consolidated schedule.

F-31

EX-4.3

Exhibit 4.3

REVOLVING SECURED LINE OF CREDIT PROMISSORY NOTE

$4,000,000.00 New York, New York
January 25, 2005

1. FOR VALUE RECEIVED, on December 1, 2005 (the “Maturity Date”), the undersigned, Medallion Funding Corp. (the “Borrower”), promise(s) to pay to the order of ATLANTIC BANK OF NEW YORK (the “Bank”) at its offices at 960 Avenue of the Americas, New York, New York 10001, or at such other place as the Bank may designate in writing, the lesser of: (a) the principal sum of Four Million Dollars ($4,000,000) (the “Maximum Amount”) or (b) if less than the Maximum Amount, then the aggregate unpaid principal sum of all loans made by the Bank in its sole discretion to Borrower under this Revolving Line of Credit Promissory Note (this “Note”) from time to time. Within the limits of the Maximum Amount and pursuant to the terms hereof, Borrower may borrow, prepay and re-borrow funds under this Note. The Borrower authorizes the Bank to record all borrowings and payments on Schedule A hereto but the failure of the Bank to do so shall not affect the Borrower’s obligations hereunder.

Notwithstanding any terms to the contrary in this Note, the principal amount of loans hereunder shall not exceed the lesser of (i) ninety percent (90%) of the principal amount of Eligible Loans or (ii) eighty percent (80%) of the Value of the Medallions.

As used herein, the following terms have the following meanings:

(a) “Commission” shall mean the New York City Taxi and Limousine Commission or any successor commission or the comparable commission or other sources that determine the value of 5 Medallions in the cities identified in (c) below.

(b) “Eligible Loans” shall mean a loan collateralized by Medallions which meet the eligibility requirements of and are made by Merrill Lynch Commercial Finance Corp. (“Merrill Lynch”) pursuant to the Master Agreement.

(c) “Medallions” shall mean New York City, Boston, Cambridge, Chicago, Philadelphia and Newark taxicab medallions issued by the applicable Commission.

(d) “Master Agreement” shall mean that certain Amended and Restated Loan and Security Agreement dated as of September 13, 2003 between Taxi Medallion Loan Trust 1 (the “Trust”) and Merrill Lynch, as the same may be amended or supplemented from time to time.

(e) “Value” shall mean the value assigned to a Medallion on the Commission sales reports issued monthly.

SPECIAL PREPAYMENTS

The Borrower shall make the following prepayments:

1) In the event any Eligible Loan is sold, transferred or otherwise assigned to the Trust, or is in any other way repaid, the Borrower shall immediately upon receipt of advanced funds by Merrill Lynch under the Master Agreement pay to the Bank the full amount advanced hereunder in respect of such Eligible Loan, and shall deliver to the Bank such information in respect of such sale, transfer or assignment as the Bank may reasonably request.

Page 1 of 10

2) If within thirty (30) days after any advance under this Note the related Eligible Loan is not sold, transferred or otherwise assigned to the Trust, then the Borrower shall immediately repay to the Bank the amount of such advance, together with interest accrued thereon per the terms of the Note.

2. Interest.

(a) Borrower will pay interest on the first day of each month on the unpaid principal amount hereof from time to time outstanding, computed on the basis of a 360-day year, at a rate per annum which shall be equal to the rate of interest designated by the Bank, and in effect from time to time, as its “Benchmark Rate” adjusted as and when said Benchmark Rate changes minus 25 basis points. Borrower acknowledges that the Benchmark Rate may not necessarily represent the lowest rate of interest charged by the Bank to its customers. Borrower will pay interest, at the rate described above, monthly on the last day of each month in each year, commencing immediately, at maturity (whether by acceleration or otherwise) and upon the making of any prepayment, as hereinabove or hereinafter provided.

(b) In the event that any payment shall become overdue for a period of 10 days, a late charge of 5% of such overdue payment may be charged by the Bank for the purposes of defraying the expense incident to handling such delinquent payment.

(c) Upon or following an Event of Default (as defined herein) and/or after maturity (whether by acceleration or otherwise), any principal, interest, fees or other amount due in connection with the Liabilities (as defined herein) shall bear interest at a per annum rate, determined daily and payable upon demand, of 500 basis points in excess of the interest rate then in effect hereunder. Notwithstanding the foregoing however, in no event shall interest exceed the maximum legal rate permitted by law. All payments, including insufficient payments, shall be credited, regardless of their designation by Borrower, first to outstanding late charges, then to interest and the remainder, if any, to principal.

3. Requests for Loans; Disbursement of Proceeds.

(a) Each request for borrowing shall be made by giving the Bank a notice of a proposed borrowing (“Notice”), in the form attached hereto as Schedule B, stating the amount requested, the name of the obligor, the original loan amount and wire instructions for the disbursement. The Notice may be delivered either by telephone or by facsimile transmission; if delivered by telephone, it shall promptly be confirmed in writing delivered by facsimile transmission.

(b) The Notice must be delivered to the Bank prior to 1:00 P.M. (New York City time) on the business day on which the proposed borrowing is requested to be made.

(c) The Notice shall be accompanied by a copy of the Note evidencing the Eligible Loan, which Note shall be in the form of Exhibit A hereto and otherwise in conformity with the requirements of the Master Agreement. Each Notice shall constitute a representation by Borrower that all representations and warranties contained in this Note shall be true and correct after giving effect to the requested loan, and that no default hereunder or Event of Default shall have occurred or would result from the making of the requested loan. Each Notice shall be irrevocably binding on Borrower. The minimum amount that Borrower may request for borrowing is $25,000.

4. Payments, Prepayments and Recording Loans.

(a) At its option, Borrower may make prepayments of principal hereof, in whole or in part, at any time, without penalty or premium, provided that on the date of each such prepayment the Borrower shall pay all then accrued and unpaid interest on the principal amount hereof.

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(b) Borrower authorizes Bank to enter and record on the Bank’s books and records, which may, at the Bank’s option, consist of computer or other electronically based and maintained records, and/or a grid or other written schedule hereto, the amount of each loan made under this Note and each payment and prepayment of principal thereon, without any further authorization on the part of Borrower or any endorser or guarantor of this Note. The entry of a loan, payment and/or prepayment in such computer or other electronically based format, and any printout or other record produced from such computer or electronically maintained records, or in said grid or schedule and/or otherwise maintained in the books and records of the Bank, shall be prima facie and presumptive evidence of the entered loan or advance and its condition, or payment or prepayment. The Bank’s failure to make an entry, however, shall not limit or otherwise affect the obligations of Borrower or any endorser or guarantor of this Note. The minimum amount Borrower may prepay in part is $25,000.

5. Security Interest.

(a) All Property shall be subject to a security interest in favor of the Bank as security for any and all Liabilities, and as security for such Liabilities, Borrower hereby grants to the Bank a continuing perfected lien on, and security interest in, and hereby pledges and assigns to the Bank, all of Borrower’s right, title and interest, whether now owned or hereafter acquired, howsoever arising, in and to the Property.

(b) The term “Property” shall mean all collateral securing, and all instruments evidencing, the Eligible Loans (subject in all events to the Master Agreement), the balance of every deposit account of Borrower with the Bank or any of the Bank’s nominees or agents and all other obligations of the Bank or any of its nominees or agents to Borrower, whether now existing or hereafter arising, and all other personal property of Borrower (including without limitation all money, accounts, general intangibles, goods, instruments, documents, and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered and any and all proceeds, howsoever arising, of the property described herein.

(c) The term “Liabilities” shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of Borrower to (i) the Bank, (ii) any group of which the Bank is a member, or (iii) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (x) for the Bank’s own account or as agent for others, (y) acquired directly or indirectly by the Bank from Borrower or others, (z) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortious, now existing or hereafter arising, or (zz) incurred by Borrower as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys’ fees and disbursements, incurred by the Bank in connection with any such indebtedness, liabilities, or obligations or any of the Property (including any sale or other disposition of the Property).

(d) The provisions of this Section 5 are in addition to, and do not limit, the terms of the Security Agreement executed and delivered by the Borrower simultaneously herewith.

6. Payments. If a payment becomes due on a day on which the Bank is closed such payment shall be made not later than the next business day, and such extension shall be included in computing interest in connection with such payment. All payments shall be made in lawful money of the United States of America, in immediately available funds.

7. Use Of Proceeds. Borrower will not, directly or indirectly, use any proceeds of loans hereunder for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any person for the purpose

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of purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent with, Regulation X of such Board of Governors.

8. Representations and Warranties.

Borrower represents and warrants to the Bank that:

(a) This Note is the legal, valid, and binding obligation of Borrower, and is enforceable against Borrower in accordance with its terms;

(b) Borrower and each of its subsidiaries, if any, is duly organized in its appropriate capacity (as a corporation, partnership, etc, as applicable), validly existing, and in good standing under the laws of the jurisdiction of its organization, has the corporate or other power and authority to own its assets and to transact the business in which it is now engaged or proposes to be engaged, and where applicable, is duly qualified as a foreign corporation or other business organization, and is in good standing under the laws of those other jurisdictions in which the failure of qualification would have a material adverse effect on the Borrower;

(c) Borrower has full power and authority to execute and deliver this Note, to borrow funds hereunder, and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary corporate or other action. No consent or approval of any person or entity, including, without limitation, any of Borrower’s stockholders or creditors, or any governmental or administrative authority, instrumentality, or agency, is required as a condition to the validity of this Note;

(d) Execution of this Note does not violate any material contractual or other obligation of Borrower with any other financial institution or other third party, including, without limitation, the Master Agreement;

(e) Neither Borrower nor any of its subsidiaries is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party or by which it or its property may be bound; and

(f) There is no pending or, to the knowledge of the Borrower, threatened action or proceeding against or affecting Borrower or any of its subsidiaries before any court, governmental agency, or arbitrator which may, in any one case or in the aggregate, materially and adversely affect the financial condition, operations, prospects, property, or business of Borrower or any subsidiary or the ability of Borrower to perform its obligations under this Note.

9. Affirmative Covenants. During the period this Note remains unpaid, and/ or the Line of Credit shall remain in effect, Borrower shall:

(a) at its own expense, furnish to the Bank, with reasonable promptness, such information concerning the business, operations, properties and conditions, financial or otherwise of Borrower and Guarantor as the Bank may request from time to time, including, without limitation:

(i) Within forty-five (45) days after each quarter, Borrower’s internally prepared quarterly financial statements in form satisfactory to the Bank, which financial statements shall be prepared in accordance with generally accepted accounting principles in the United States as in effect from time to time, applied consistently with prior practices, and shall include a balance sheet, a statement of operations, a statement of cash flows and a statement of changes in shareholder’s equity;

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(ii) Within ninety (90) days after each fiscal year, Borrower’s consolidating annual financial statements prepared and reviewed by independent public accountants selected by Borrower and satisfactory to the Bank, all of which financial statements shall be prepared in accordance with generally accepted accounting principles in the United States as in effect from time to time, applied consistently with prior practices, and shall include a balance sheet, a statement of operations, a statement of cash flows and a statement of changes in shareholder’s equity;

(iii) monthly borrowing base certificate signed by an authorized signer on all Eligible Loans, in form, scope and substance satisfactory to the Bank; and

(iv) such other information regarding Eligible Loans as the Bank may reasonably request.

(b) upon reasonable notice, permit the Bank or any of its agents or representatives to examine its records and books of accounts, visit its properties and discuss its affairs, finances and accounts with any of its officers;

(c) preserve and maintain, and cause each subsidiary, if any, to preserve and maintain, its corporate (or other organizational capacity, as applicable) existence and good standing in the jurisdiction of its incorporation, or other organizational registration, as applicable, and qualify and remain qualified, and cause each subsidiary to qualify and remain qualified as a foreign corporation or other business organization (as applicable) in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the Borrower;

(d) comply, and cause each subsidiary, if any, to comply, in all material respects with all laws, rules, regulations, and orders, applicable to the organization and its business, such compliance to include, without limitation, paying (before the same becomes delinquent) all taxes, assessments, and governmental charges imposed upon such organization and its property;

(e) promptly notify the Bank, in writing, of any of the following:

(i) any proceeding or action being instituted or threatened to be instituted by or against Borrower or any of its subsidiaries in any federal, state, local or foreign court, commission or other regulatory body where such proceeding or action involves an amount in controversy in excess of $1,500,000;

(ii) any order, judgment or decree being entered against Borrower or any of its subsidiaries or any other of their respective properties or assets involving an amount in controversy of more than $1,500,000,

(iii) any actual change, development or event which has had or could reasonably be expected to have a material adverse effect, on the affairs or condition (financial or otherwise) of Borrower or any of its subsidiaries;

(iv) the occurrence of a default or Event of Default hereunder; and

(v) the occurrence of a default or Event of Default under the Master Agreement that remains uncured beyond any applicable grace period.

10. Negative Covenants. During the period this Note remains unpaid, and/or the Line of Credit shall remain in effect, Borrower shall not:

(a) incur, create, assume or suffer to exist any indebtedness for borrowed money other than such indebtedness evidenced by this Note, and indebtedness as is otherwise outstanding as of the date hereof and, upon prior notice to the Bank of its proposed incurrence, indebtedness that is not senior to the debt evidenced by this Note;

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(b) guaranty, endorse or otherwise become liable for the payment or performance of the obligations of any other person or entity, except for the endorsement of negotiable instruments in the ordinary course of business; or

(c) create, incur, assume or suffer to exist any lien, encumbrance, security interest, charge or mortgage (collectively “Liens”) on any of its property now owned or hereafter acquired except (i) Liens granted to the Bank, (ii) Liens arising by operation of law for amounts that are not yet due and payable or which are being diligently contested in good faith by Borrower, so long as adequate reserves are maintained by Borrower for their payment, (iii) deposits or pledges to secure obligations under workmen’s compensation, social security or similar laws, or under unemployment insurance, (iv) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (v) Liens existing on the date hereof, (vi) Liens contemplated by the Master Agreement or (vii) Liens consented to by the Bank, which consent shall not be unreasonably withheld.

11. Events of Default. If any of the following events (each an Event of Default) shall occur and be continuing:

(a) Borrower shall fail to make any payment of principal or interest on this Note, or any fee provided for herein, when due;

(b) Borrower shall default in the performance or observance of any covenant or agreement contained herein and such default is not cured within thirty (30) days after its occurrence;

(c) any representation or warranty made by or on behalf of Borrower in this Note or in any other certificate, agreement, instrument, or statement delivered to the Bank by or on behalf of Borrower shall at any time prove to have been incorrect when made in any material respect;

(d) an event of default or default shall occur and be continuing under any other agreement, document or instrument executed and delivered to the Bank by Borrower or any endorser, guarantor or hypothecator solely relating to any Liabilities;

(e) any final, non-appealable judgment against Borrower or any guarantor of the Liabilities hereunder or any attachment, levy or execution against any of their properties for an amount in excess of $1,500,000 shall remain unpaid, or shall not be released, discharged, dismissed, stayed or fully bonded for a period of thirty (30) days or more after its entry, issue or levy, as the case may be;

(f) Borrower or any guarantor of the Liabilities hereunder shall become insolvent (however evidenced) or be unable, or admit in writing its inability, to pay its debts as they mature;

(g) Borrower or any guarantor of the Liabilities hereunder shall make an assignment for the benefit of creditors, or a trustee, receiver or liquidator shall be appointed for Borrower or any guarantor of the Liabilities or for any of their property;

(h) there exists a default or Event of Default under the Master Agreement remaining uncured after the expiration of any applicable grace period; or

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(i) the commencement of any proceedings by Borrower or any guarantor of the Liabilities hereunder under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute, or the commencement of any such proceedings without the consent of Borrower or any guarantor of the Liabilities hereunder and such proceedings shall continue undischarged for a period of ninety (90) days;

then, and in any such event, the Bank may declare the entire unpaid principal amount of this Note and all interest and fees accrued and unpaid hereon to be immediately due and payable (except with respect to any Event of Default described in paragraphs (f), (g), (h) or (i) above, in which case the entire unpaid principal amount of this Note and all interest and fees accrued and unpaid hereon shall be automatically due and payable without any further action on the Bank’s part), whereupon the same shall become and be forthwith due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrower. The balance of every account of Borrower with, and each claim of Borrower against, the Bank existing from time to time shall be subject to a lien and subject to be set off against any and all Liabilities, including those hereunder.

12. Governing Law. This Note shall be shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its rules on conflicts of laws.

13. Notices. Etc. All notices and other communications provided for under this Note shall be in writing (including telegraphic, telex, and facsimile transmissions) and mailed or transmitted or delivered, if to Borrower, at Borrower’s address indicated in the Bank’s records as of the date of such notice, and if to the Bank, at its address at Atlantic Bank of New York, 960 Avenue of the Americas, New York, New York 10001, Attention: Corporate Lending Department, or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this paragraph. Except as otherwise provided in this Note, all such notices and communications shall be effective when deposited in the mails, certified mail, return receipt requested, postage prepaid, addressed as aforesaid, except that notices to the Bank shall not be effective until received by the Bank.

14. No Waiver. No failure or delay on the part of the Bank in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.

15. Miscellaneous.

(a) Borrower shall reimburse the Bank for all costs and expenses incurred by the Bank (including without limitation the reasonable fees and disbursements of counsel to the Bank) in connection with the negotiation, preparation, execution, delivery or enforcement of this Note or any document, instrument or agreement relating thereto, and the administration of this Note and the loans made hereunder and Borrower shall also pay any and all taxes (other than taxes levied on the holder of this Note) incurred or payable in connection with the execution and delivery of this Note;

(b) this Note sets forth the entire agreement of Borrower and the Bank with respect to this Note and no amendment, modification, or waiver of any provision of this Note nor consent to any departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by the Bank and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given;

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(c) this Note shall be binding upon Borrower and its heirs, legal representatives, successors and assigns and the terms hereof shall inure to the benefit of the Bank and its successors and assigns, including subsequent holders hereof;

(d) the provisions of this Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Note in any jurisdiction;

(e) the headings herein are for convenience only and shall not limit or define the meaning of the provisions of this Note.

16. Jurisdiction; Service Of Process. Borrower agrees that in any action or proceeding brought on or in connection with this Note the Supreme Court of the State of New York for the County of New York, or (in a case involving diversity of citizenship) the United States District Court of the Southern District of New York shall have jurisdiction of any such action or proceeding.

17. WAIVER OF THE RIGHT TO TRIAL BY JURY. BORROWER, ANY ENDORSER, AND, BY ITS ACCEPTANCE HEREOF, THE BANK, HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, IN ANY MANNER CONNECTED WITH THIS NOTE OR ANY TRANSACTIONS HEREUNDER. NO OFFICER OF THE BANK HAS AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.

18. Guarantee. This Note is the Note referred to in, and is entitled to the benefits of, that certain Guarantee Agreement dated the date hereof executed and delivered by Medallion Financial Corp. in favor of the Bank.

19. Security Agreement. This Note is the Note referred to in, and is entitled to the benefits of, that certain Security Agreement dated the date hereof between the Borrower and the Bank.

Medallion Funding Corp.
By:	/s/ Michael J. Kowalsky
	Name:	Michael J. Kowalsky
	Title:	President

Accepted by: Atlantic Bank Of New York
By:	/s/ Ivan Feldman
	Name:	Ivan Feldman
	Title:	Vice President

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EX-10.5

EXHIBIT 10.5

Non-Employee Director Compensation Summary Sheet

Annual Retainer	$30,000.00
Type of Meeting	Amount Paid per Meeting
Board Meeting	$3,000.00
Special Meeting	$3,000.00
Telephonic Board Meeting	$750.00
Compensation & Nominating Committee Meeting	$1,200.00
Audit Committee Meeting	$2,000.00
Executive Committee Meeting	$3,000.00
Additional Fee for Chairperson	$1,200.00

EX-10.9

Exhibit 10.9

Execution Version

AMENDMENT NO. 1

TO AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

AMENDMENT NO. 1, dated as of August 12, 2004 (this “Amendment”), to the Amended and Restated Loan and Security Agreement, dated as of September 12, 2003 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Loan Agreement”; and as amended hereby and as further amended, restated, supplemented or otherwise modified and in effect from time to time, the “Loan Agreement”), by and between TAXI MEDALLION LOAN TRUST I (the “Borrower”) and MERRILL LYNCH COMMERCIAL FINANCE CORP. (the “Lender”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Loan Agreement.

RECITALS

The Borrower and the Lender are parties to the Existing Loan Agreement.

The Borrower and the Lender have agreed, subject to the terms and conditions of this Amendment, that the Existing Loan Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Loan Agreement.

Accordingly, the Borrower and the Lender hereby agree, in consideration of the mutual premises and mutual obligations set forth herein, that the Existing Loan Agreement is hereby amended as follows:

SECTION 1. Amendments.

(a) Section 1 of the Existing Loan Agreement is hereby amended by deleting clause (a)(vi) from the definition of “Collateral Value” and inserting in lieu thereof the following new clause (a)(vi):

“(vi) (A) the aggregate Collateral Value of all Eligible Medallion Loans which consist of Category II Medallion Loans (other than Category II Medallion Loans which have either (x) a maturity date that is not more than one (1) calendar year after any date of determination or (y) have a floating rate of interest that will be reset within one (1) calendar year after such date of determination (any such Category II Medallion Loan, a “Category II-A Medallion Loan”)) shall not exceed $40,000,000 and (B) the aggregate Collateral Value of all Eligible Medallion Loans which consist of Category II-A Medallion Loans shall not exceed $40,000,000;”.

(b) The form of Borrowing Base Certificate attached as Exhibit B to the Existing Loan Agreement is hereby deleted in its entirety and the form of Borrowing Base Certificate attached as Exhibit B hereto is inserted in lieu thereof.

SECTION 2. Conditions Precedent. This Amendment shall become effective on the first date (the “Amendment Effective Date”) on which all of the following conditions precedent shall have been satisfied:

(a) The Lender shall have received counterparts of this Amendment executed by a duly authorized officer of the Borrower; and

(b) (i) The Borrower shall be in compliance with all of the terms and provisions set forth in the Existing Loan Agreement and the other Loan Documents on its part to be observed or performed, (ii) the representations and warranties made and restated by the Borrower pursuant to Section 3 of this Amendment shall be true and complete in all material respects on and as of such date with the same force and effect as if made on and as of such date, and (iii) no Default or Event of Default shall have occurred and be continuing on such date.

SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants to the Lender that it is in compliance with all the terms and provisions set forth in the Loan Documents on its part to be observed or performed and that no Default or Event of Default has occurred or is continuing, and hereby confirms and reaffirms each of the representations and warranties contained in Article VI of the Loan Agreement.

SECTION 4. Limited Effect. Except as expressly amended and modified by this Amendment, the Existing Loan Agreement and each other Loan Document shall continue to be, and shall remain, in full force and effect in accordance with its terms; provided, however, that upon the Amendment Effective Date, all references therein and herein to the “Loan Documents” shall be deemed to include, in any event, this Amendment and each reference to the Loan Agreement in any of the Loan Documents shall be deemed to be a reference to the Loan Agreement as amended hereby.

SECTION 5. Counterparts. This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed signature page of this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of an executed original counterpart of this Amendment.

SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[SIGNATURES FOLLOW]

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IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Amendment to be executed on its behalf by its officer hereunto duly authorized, as of the date first above written.

BORROWER
TAXI MEDALLION LOAN TRUST I
By:	/s/ Andrew M. Murstein
	Name:	Andrew M. Murstein
	Title:	President
LENDER
MERRILL LYNCH COMMERCIAL FINANCE CORP.
By:	/s/ Joshua A. Green
	Name:	Joshua A. Green
	Title:	Director

AMENDMENT No. 1

EX-10.15

Exhibit 10.15

Execution Version

AMENDMENT NO. 2

TO SERVICING AGREEMENT

AMENDMENT NO. 2, dated as of September 1, 2004 (this “Amendment”), to that certain Servicing Agreement, dated as of September 13, 2002 (as modified by that certain Amendment to Servicing Agreement, dated as of September 12, 2003, and as further amended, supplemented or otherwise modified prior to the date hereof, the “Existing Servicing Agreement”; as modified hereby and as further amended, restated, supplemented or otherwise modified and in effect from time to time, the “Servicing Agreement”), by and among TAXI MEDALLION LOAN TRUST I (the “Borrower”), MERRILL LYNCH COMMERCIAL FINANCE CORP. (successor in interest to Merrill Lynch Bank USA, the “Lender”) and MEDALLION FUNDING CORP. (the “Servicer”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Servicing Agreement.

RECITALS

The Borrower, the Lender and the Servicer are parties to the Existing Servicing Agreement.

The Borrower, the Lender and the Servicer have agreed, subject to the terms and conditions of this Amendment, that the Existing Servicing Agreement shall be amended to reflect certain agreed upon revisions to the terms of the Existing Servicing Agreement.

Accordingly, the Borrower, the Lender and the Servicer hereby agree, in consideration of the mutual premises and mutual obligations set forth herein, the receipt and sufficiency of which is hereby acknowledged, that the Existing Servicing Agreement is hereby amended as follows:

SECTION 1. Amendment. Article X of the Existing Servicing Agreement is hereby amended by inserting in proper numerical order the following new Section 10.10:

“Section 10.10 Agreement Concerning Backup Servicer. Notwithstanding anything in this Servicing Agreement or any other Loan Document to the contrary, unless and until the Lender shall notify the Borrower and the Servicer that the Lender has determined (which determination shall be made by the Lender in its sole and absolute discretion) that the Borrower shall be required to designate and maintain a Backup Servicer in accordance with the provisions of this Servicing Agreement and the other Loan Documents, the Borrower shall have no obligation to designate or maintain any Backup Servicer and each of the provisions set forth in this Servicing Agreement and the other Loan Documents in respect of the Backup Servicer (including, without limitation, the provisions set forth in Sections 2.01(c), 3.05, 3.08, 3.14, 4.01, 7.01(b), 7.02, 8.02, 9.01 and 10.02 of this Servicing Agreement) shall be deemed to be of no force or effect and this Servicing Agreement and each of the other Loan Documents shall be read and construed as if such provisions were not included; provided, however, that if the Lender shall at any time notify the Borrower and the Servicer that the Lender has determined in its sole and absolute discretion that the Borrower shall be required to designate and maintain a Backup Servicer, then the Servicing Agreement and each of the other Loan Documents shall be read and construed to give full force and effect to all of the provisions set forth herein and therein

(including, without limitation, the Backup Servicer provisions set forth in Sections 2.01(c), 3.05, 3.08, 3.14, 4.01, 7.01(b), 7.02, 8.02, 9.01 and 10.02 of this Servicing Agreement).”

SECTION 2. Conditions Precedent. This Amendment shall become effective on the first date (the “Amendment Effective Date”) on which all of the following conditions precedent shall have been satisfied:

(a) The Lender shall have received counterparts of this Amendment executed by duly authorized officers of the Borrower and Servicer; and

(b) (i) The Servicer and Borrower shall be in compliance with all of the terms and provisions set forth in the Existing Servicing Agreement and the other Loan Documents on their parts to be observed or performed, (ii) the representations and warranties made and restated by the Servicer pursuant to Section 3 of this Amendment and Article V of the Existing Servicing Agreement shall be true and complete in all material respects on and as of such date with the same force and effect as if made on and as of such date, and (iii) no Default or Event of Default shall have occurred and be continuing on such date.

SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants to the Lender that it is in compliance with all the terms and provisions set forth in the Loan Documents on its part to be observed or performed and that no Default or Event of Default has occurred or is continuing, and hereby confirms and reaffirms each of the representations and warranties contained in Article VI of the Loan Agreement.

SECTION 4. Limited Effect. Except as expressly amended and modified by this Amendment, the Existing Servicing Agreement and each other Loan Document shall continue to be, and shall remain, in full force and effect in accordance with its terms; provided, however, that upon the Amendment Effective Date, all references therein and herein to the “Loan Documents” shall be deemed to include, in any event, this Amendment and each reference to the Servicing Agreement in any of the Loan Documents shall be deemed to be a reference to the Servicing Agreement as amended hereby.

SECTION 5. Counterparts. This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed signature page of this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of an executed original counterpart of this Amendment.

SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

[SIGNATURES FOLLOW]

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IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Amendment to be executed on its behalf by its officer hereunto duly authorized, as of the date first above written.

BORROWER
TAXI MEDALLION LOAN TRUST I
By:	/s/ Alvin Murstein
	Name:	Alvin Murstein
	Title:	Vice President
LENDER
MERRILL LYNCH COMMERCIAL FINANCE CORP.
By:	/s/ Joshua A. Green
	Name:	Joshua A. Green
	Title:	Director
SERVICER
MEDALLION FUNDING CORP.
By:	/s/ Michael J. Kowalsky
	Name:	Michael J. Kowalsky
	Title:	President

AMENDMENT NO. 2 TO SERVICING AGREEMENT

EX-10.18

Exhibit 10.18

LOAN AND SECURITY AGREEMENT

by and between

MEDALLION FINANCIAL CORP.

and

STERLING NATIONAL BANK

April 26, 2004

TABLE OF CONTENTS

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

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

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

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

RECITALS

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

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

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

AGREEMENT

I. DEFINITIONS

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

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

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

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

“Affiliate” shall mean as to any specified Person:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“Permitted Indebtedness” shall mean:

(i) Indebtedness owing to the Bank;

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

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

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

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

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

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

“Permitted Liens” shall mean:

(i) any Lien in favor of the Bank;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

II. LOANS

A. Revolving Credit Loan.

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

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

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

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

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

2.5 Payments Under Revolving Credit Note.

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

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

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

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

2.8 Mandatory Prepayment of Revolving Credit Note.

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

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

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B. General Provisions.

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

2.10 [Intentionally omitted]

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

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

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

2.14 Unused Line Fee.

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

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

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

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

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

III. SECURITY INTEREST

3.1 Grant of Security Interest.

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

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

(ii) the Collateral Proceeds Account;

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

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

(iv) all Proceeds of the foregoing.

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

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

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

3.2 Substitute or Additional Collateral.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IV. REPRESENTATIONS AND WARRANTIES.

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

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

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

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

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

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

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

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

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

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

4.10 [Intentionally omitted]

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

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

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

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

4.14 ERISA.

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

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

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

4.16 Collateral.

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

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

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

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

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

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

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

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

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

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

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

V. COVENANTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(iv) Copies of Other Reports.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5.14 [Intentionally omitted].

5.15 Collateral.

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

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

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

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

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

(f) [Intentionally omitted].

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

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

5.16 Financial Covenants.

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

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

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

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

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

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

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

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

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

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

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

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

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

VI. CONDITIONS PRECEDENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

VII. EVENTS OF DEFAULT

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

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

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

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

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

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

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

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

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

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

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

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

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

VIII. REMEDIES

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

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

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

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

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

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

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

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

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

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

IX. INDEMNIFICATION

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

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

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

35

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

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

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

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

X. MISCELLANEOUS

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

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

36

        - with a copy to –

Medallion Financial Corp.

437 Madison Avenue

New York, New York 10022

Attention: Michael C. Carroll, Esq.

Telecopy: (212) 328-3614

        - with a copy to –

Medallion Business Credit, LLC

437 Madison Avenue

New York, New York 10022

Attention: Gerald J. Grossman, Esq.

Telecopy: (609)524-4013

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

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

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

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

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

37

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

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

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

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

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

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

38

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

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

MEDALLION FINANCIAL CORP.
By:	/s/ Alvin Murstein
	Name:	Alvin Murstein
	Title:	Chairman & CEO

STERLING NATIONAL BANK
By:
	Name:
	Title:

39

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

On the 26^th day of April, 2004, before me, the undersigned, personally appeared Alvin Murstein, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

/s/ Marie Russo

Notary Public

MARIE RUSSO

Notary Public, State of New York

No. 31-3408167 - New York County

Term Expires 01-31-05

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

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

Notary Public

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

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

MEDALLION FINANCIAL CORP.
By:	/s/ Alvin Murstein
	Name: Alvin Murstein Title: Chairman & CEO

STERLING NATIONAL BANK
By:	/s/ Thomas Braunstein
	Name: Thomas Braunstein Title: Vice President

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

On the 26^th day of April, 2004, before me, the undersigned, personally appeared Alvin Murstein, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

/s/ Marie Russo

Notary Public

MARIE RUSSO

Notary Public, State of New York

No. 31-3408167 - New York County

Term Expires 01-31-05

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

On the 26^th day of April, 2004, before me, the undersigned, personally appeared Thomas Braunstein, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

/s/ Nannette K. Connors

Notary Public

NANNETTE K. CONNORS

Notary Public, State Of New York

No. 01CO4839158

Qualified In Nassau County

Commission Expires January 31, 2006

EX-12.1

EXHIBIT 12.1

Computation of Ratio of Debt to Equity

	Year ended December 31,
Dollars in thousands	2005		2004		2003		2002		2001
Debt	$	620,022,165	$	525,932,946	$	287,454,057	$	250,767,241	$	321,845,000
Equity		166,353,839		170,461,385		162,116,322		161,864,679		175,023,577
Debt to equity		373		309		177		155		184

EX-21.1

Exhibit 21.1

LIST OF SUBSIDIARIES OF MEDALLION FINANCIAL CORP.

Name	Jurisdiction of Incorporation or Formation
Medallion Funding Corp.	New York
Medallion Lending LLC (formerly Business Lenders, LLC for the period up to October 17, 2005)	Delaware
Medallion Capital, Inc.	Minnesota
Medallion Business Credit, LLC	Delaware
Freshstart Venture Capital Corp.	New York
Medallion Bank	Utah
MedOreo Co., Inc.	New York
Generation Outdoor, Inc	Delaware
Medallion Hamptons Holding LLC	Delaware

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference of our report dated February 21, 2006, included in this Form 10-K, into the Company’s previously filed Registration Statements on Form S-8 (File Nos. 333-19057 and 333-27977).

Weiser LLP

New York, New York

February 21, 2006

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-19057 and 333-27977) of our report dated March 25, 2005 relating to the consolidated financial statements and selected ratios and other data (Note 15) as of and for the year ended December 31, 2004 of Medallion Financial Corp. appearing in the Annual Report on Form 10-K of Medallion Financial Corp, for the year ended December 31, 2005.

Eisner LLP

Florham Park, New Jersey

March 9, 2006

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-19057 and 333-27977) of Medallion Financial Corp. of our report dated March 15, 2004 relating to the financial statements, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

New York, New York

March 8, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

Certification of Alvin Murstein

I, Alvin Murstein, certify that:

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

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d) Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: March 15, 2006
By:	/s/ Alvin Murstein
	Alvin Murstein
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Larry D. Hall

I, Larry D. Hall, certify that:

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

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d) Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: March 15, 2006
By:	/s/ Larry D. Hall
	Larry D. Hall
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Medallion Financial Corp. (the “Company”) for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

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

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

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

Date: March 15, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Medallion Financial Corp. (the “Company”) for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

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

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

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

Date: March 15, 2006