REPUBLIC LEASING INC /WA/, 10-K405, 1999-03-01

REPUBLIC LEASING INC /WA/
10-K405, 1999-03-01
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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

FORM 10-K

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

For the fiscal year ended MARCH 31, 1998 Commission File Number 2-95465-S

WESTAR FINANCIAL SERVICES INCORPORATED
(successor to REPUBLIC LEASING INCORPORATED)

(Exact name of registrant as specified in its charter)

Washington 91-1715252
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)

The Republic Building, Suite 300, Olympia, WA 98501
(address of principal executive office, zip code)

Registrant's telephone number, including area code (360) 754-6227

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value

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 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. [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Aggregate market value of voting and non-voting stock held
by non-affiliates of the registrant at December 31, 1998

$1,510,546
<TABLE>
<S><C>
2,187,300 shares of no par value Common Stock outstanding as of December 31, 1998
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement relating to its April 26, 1999,
Annual Meeting of Shareholders are incorporated into Parts II and III of this
annual report on Form 10-K.

Total of Sequentially Numbered Pages: 31
Exhibit Index is Located at Page 28

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PART I
ITEM 1. BUSINESS

GENERAL

Westar Financial Services Incorporated ("Westar"), successor to Republic
Leasing Incorporated ("RLI"), was originally formed in 1985 as Republic
Leasing VI, a limited partnership, and subsequently incorporated in 1989 in
the state of Delaware. At a special shareholders' meeting held on March 25,
1996, the shareholders of RLI approved a plan of merger between Westar and
RLI which effected the reincorporation of RLI in the State of Washington and
the name change to its current name of Westar.

Beginning in late 1995, Westar began full scale regional operations providing
prime credit quality consumer automobile lease financing through franchised
automobile dealers in the Northwest Region of the U.S. (Washington, Idaho
and Montana.) Westar has designed and developed a number of financing, lease
servicing and risk management innovations which, in management's opinion,
allows it to compete against major institutions and manufacturer's captive
financing companies.

FORWARD-LOOKING STATEMENTS

Although most of the information contained in this report is historical,
certain statements contain forward-looking information. To the extent these
statements involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenues,
expenses, profit, cash flow, balance sheet items, forecasts of demand or
market trends for the Company's products and for the auto finance industry or
any other guidance on future periods, these statements are forward-looking
and involve matters which are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those expressed in
such forward-looking statements. Readers of this report should consider,
along with other relevant information, the risks identified in this report,
and other risks identified from time to time in the Company's filings with
the Securities and Exchange Commission, press releases and other
communications.

BUSINESS STRATEGY

The Company's primary strengths are its technological sophistication,
management's extensive experience in the leasing business, its focus on
dealer service and low overhead compared to its institutional competition.
The Company's strategy for growth is to utilize these strengths to (i)
increase lease acquisitions by continuing to develop existing dealer
relationships within its current geographical market; (ii) by expanding into
new markets; (iii) and seeking additional opportunities and alliances.

The Company's business strategy is to (i) provide personal and attentive
service primarily to the manufacturer-franchised automobile dealers in its
network, (ii) lease to prime quality credit applicants in order to build and
service a lease portfolio with low delinquency and credit loss rates, (iii)
finance its lease portfolio in the short-term through warehouse credit
facilities and in the long-term through asset backed securitizations or
portfolio sales and (iv) manage its residual value risk.

The Company offers its Dealer-Direct Retail Leasing "DDRL" program to
selected automobile dealers based on their reputation, location and size.
Each participating dealer is required to sign a non-exclusive dealer
agreement which is primarily designed to protect Westar against potential
dealer misrepresentations and some forms of consumer fraud. The Company
attempts to meet the needs of its dealers through responsive customer service
to the dealer, extended hours operating across 361 business days a year,
rapid funding, consistent buying practices and competitive pricing. The
Company currently offers the DDRL program to automobile dealers in the
Northwest Region. At March 31, 1998 and 1997 the Company had 312 and 283
dealers signed, respectively.

Leases acquired from dealers are pre-approved by the Company's experienced
lease production officers ("LPOs") and must meet the Company's credit and
documentation standards prior to funding. Lessees must meet the Company's
established debt/income and payment ratios and must possess a credit history
exhibiting a willingness to pay creditors on an agreed basis. The Company has
implemented a proprietary and sophisticated risk management system

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which further enables the Company to control the consistency of the credit
quality of the applications approved and to segment its portfolio by risk.

The Company has initiated, funded and serviced nearly $119 million of
equipment and vehicle leases for hundreds of corporate clients since
inception. Over the past several years the Company has sold, while retaining
all servicing, approximately $15 million of lease production to other
financial institutions. In fiscal 1997, the Company sold through
securitization transactions $18.6 million of DDRL leases and the underlying
assets. Services provided by the Company to purchasers of its leases include,
but are not limited to, monthly billing, collecting and remarketing. At March
31, 1998, leased assets outstanding which are not held in the Company's
portfolio but are serviced by the Company for others approximated $13 million
of securitized DDRL leases. The Company also services approximately $19
million of DDRL leases held in its portfolio awaiting securitization.

COMPETITION

The retail automobile leasing industry within Westar's Northwest Region is
dominated by large banks and captive finance companies of the vehicle
manufacturers. Different banks currently dominate the U.S. market for new
vehicle leases but vary on a region-by-region basis. Vehicle manufacturers,
each of which sponsors either a subsidiary finance program or a
bank-sponsored program, can and do compete aggressively on price, but on a
very selective basis, typically promoting one model or another at price
levels roughly equivalent to, or even below, their cost of funds (known as
"subvention" programs), while other dealer models are priced at competitive,
rather than super-competitive, levels. Manufacturer's subvention programs
typically restrict, often substantially, the profit margin available to the
selling dealer. The remaining competitors-dealer-affiliated leasing
companies, independent leasing companies, other banks, credit unions-split
the remaining market among themselves, exercising neither significant
leadership or dominance.

Through the use of lower costs made possible by securitization as well as
lower overhead, lower regulatory burdens and lower transaction costs,
management believes the Company is fully price competitive with its largest
competitors and that it can surpass them with better service and
responsiveness.

CREDIT PRACTICES, DELINQUENCY AND CREDIT LOSS EXPERIENCE

The Company's success is, in part, dependent on its ability to develop a
portfolio of prime-credit leases so as to minimize its delinquency and credit
loss experience. Each lease applicant must pass the scrutiny of the Company's
semi-automated credit evaluation system and the review of its experienced
lease production personnel, both of which are components of Westar's
proprietary LASIR system.

In connection with the servicing of leases, the Company is responsible for
managing delinquent accounts, repossessing the underlying collateral in the
event of default and selling repossessed collateral. The Company provides an
allowance for credit losses at a rate which management believes will provide
adequately for current and probable future losses.

The Company considers a lease delinquent when the lessee fails to make an
installment payment by the due date. A delinquent lease may result in the
repossession and foreclosure of the collateral underlying the lease contract.
Losses resulting from repossession and foreclosure of leases are charged
against applicable allowances.

Although the Company's credit quality is at or above that of other
prime-credit producers based on a Consumer Banker Association survey, the
loss experience rate depicted in the table below is higher than management's
expectation for future periods. The leases contributing to the losses in 1996
were acquired during the Company's development and test phase and were not
approved using the credit policies, guidelines and procedures currently in
place and which the Company has been using since full-scale operations began
in October 1995. There are other factors that will influence the final
performance of the portfolio including residual value gains and termination
fees.

In fiscal 1997, the Company completed its first two lease securitizations,
referred to as "1996 PIC-A" and "1996 PIC-B", which are described in more
detail elsewhere in this report (see Financing). As a result, the Company has
established the PIC's as static pools in order to report credit losses and
repossession experience on a consistent and comparable basis. The credit and
repossession experience on the Company's DDRL leases serviced for the years
ended March 31, 1998 and 1997 is as follows:

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Credit Loss/Repossession Experience(1) 1998 1997
--------------------------------------------------- ----------------
DELINQUENCY EXPERIENCE: Static Pool Static Pool Total Portfolio Total Portfolio
1996 PIC-A 1996 PIC-B
------------ ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Static Pool $9,513,652 $8,935,147 $37,068,411 $26,451,606

Delinquencies at March 31:
31-60 days 72,628 51,644 221,374 59,977
61-90 days 33,222 31,081 64,303 51,213
91 days or more 45,755 28,111 73,866
-------- -------- -------- --------
Total delinquent 31 or more days $151,605 $110,836 $359,543 $111,190

Delinquencies as a % of static pool 1.59% 1.24% 0.97% 0.42%

Amount in repossession $23,928 $42,887 $66,815
Total delinquencies and amount in repossession $175,533 $153,723 $426,358 $111,190

Total delinquencies and amount in repossession
as a percentage of static pool 1.85% 1.72% 1.15% 0.42%

CREDIT LOSS/REPO EXPERIENCE:

Gross charge-offs(2) $ 437,596 $ 124,090 $ 717,817 $ 170,037
Recoveries at 3-31-98(3) (272,198) (59,500) (418,048) (118,948)
Recoveries subsequent to 3-31-98 (25,500) (21,500) (47,000)
-------- -------- -------- --------
Net Credit Losses $ 139,398 $ 43,090 $ 252,769 $ 51,089

Net losses as a % of static pool 1.47% 0.48% 0.68% 0.19%
Annualized lifetime static pool losses at 3-31-98 0.93% 0.39%

</TABLE>

(1) All amounts and percentages are based on the initial implicit principal
balance for the securitized leases and the original contract amount for non
securitized leases.
(2) Amount charged off includes the remaining net investment balance in the
lease.
(3) Represents recoveries pertaining to charges-offs as of 3-31-98.

FINANCING

The Company securitizes leases acquired as asset backed securities or sells
pools of leases in portfolio sale transactions. The Company services the
securitized or sold leases. As part of the securitization transactions the
Company sells the tax benefits to a third party. In March 1995, the Company
entered into an agreement with the Industrial Bank of Japan "IBJ" whereby IBJ
agreed to assist the Company in arranging the placement of up to $100 million in
securities backed by vehicle lease receivables. IBJ negotiated the pricing,
pre-sold and placed the Company's first two securitizations which were sold
during fiscal 1997, known as "1996 PIC-A" and "1996 PIC-B."

The Company entered into an agreement with Bank One, Columbus NA in July 1995
which was expanded in November 1996 from the initial $12 million limit to $25
million. In July 1998, the Company re-evaluated its interim financing needs
considering the expected future timing of sales and securitizations. Based on
this information, Management re-negotiated the financing facility to $15
million. This revolving credit warehouse facility is to be utilized as interim
financing for the acquisition of vehicle leases until sufficient volume is
achieved to securitize such leases through selected facilities or to sell in a
portfolio sale transaction. The Company must comply with quarterly debt/equity
ratios, net worth requirements and restrictions on the payment of dividends on
common stock to utilize the line. At March 31, 1998 the Company failed to
maintain the requirement of eligible lease originations and the ratio of
consolidated total indebtedness to consolidated tangible net worth. The lender
has waived this event through March 31, 1999.

The three-year warehouse facility allows short-term borrowing from 95% to 97% of
the cost of a lease and is secured by a security interest in the vehicle
specified in the lease at origination. In August 1996, the warehouse facility
was amended to be non-recourse to the Company. The interest rate, originally
30-day LIBOR plus 400bps, is now LIBOR plus 300bps, which approximates the prime
rate. Under the terms of the agreement, Bank One has the option of reviewing
each credit and rejecting any lease which it, in its sole discretion, believes
does not meet standards appropriate to prime credits.

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Principal and interest payments on the warehouse credit facility are generated
by monthly lease payments. Upon completion of a securitization or sale, the
warehouse loans are repaid. Any loan related to a lease which becomes
non-performing while covered by the credit facility is repaid.

REGULATORY MATTERS

The Company's operations are subject to regulation under federal, state and
local laws, rules and regulations. In addition, the Company is required to
obtain and maintain certain licenses and qualifications in the states in which
it operates.

Several states and the federal government have enacted "lemon laws" and similar
statutes containing warranty protections for consumers who purchase or lease new
or used motor vehicles. The application of these statutes may give rise to a
claim or defense by a consumer against the manufacturer of a purchased vehicle
or the dealer from or through whom such consumer leased such vehicle. The
Company may be required to cancel a lease contract with a consumer who
successfully asserts such a claim or defense, and, while the Company would have
a claim against the manufacturer or such dealer, there can be no assurance that
the Company will be made whole in every case in which the consumer successfully
asserts such rights.

The Company is also subject to the Consumer Leasing Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act and the rules and regulations
promulgated thereunder, and certain rules of the Federal Reserve Board and the
Federal Trade Commission. These laws require the Company to provide certain
disclosures to prospective lessees, prohibit misleading advertising and protect
against discriminatory financing or unfair credit practices.

Violations of the federal and state laws, rules and regulations described
above may result in actions for damages, claims for refunds of payments made,
fines and penalties, injunctions against illegal practices, license
revocation or the potential forfeiture of rights to repayment of amounts due
under leases. The Company has established internal controls to ensure that it
is in compliance with all legal and regulatory requirements. Further, the
Company maintains internal systems and controls to monitor, respond to and
resolve informal and formal complaints raised by the lessees of its vehicles.

EMPLOYEES

As of March 31, 1998 and 1997 the Company had 19 and 18, employees,
respectively. Many of Westar's employees are highly skilled and the Company's
continued success depends in part upon its ability to attract and retain
employees who are in great demand within our industry. At times, the Company may
experience difficulty in hiring and retaining experienced personnel. To date,
the Company has been successful in its efforts to recruit qualified employees,
but there is no assurance that it will continue to be as successful in the
future. None of the Company's employees are represented by a collective
bargaining unit and the Company believes relations with its employees are
favorable.

EXECUTIVE OFFICERS

Set forth below is certain information concerning the executive officers of the
Company:

Name Age Position
---- --- ---------
<S> <C> <C>
Robert W. Christensen, Jr. 49 President and CEO

Robert E. Kanatzar 45 Senior-Vice President, Risk
Management

Warren Kornfeld 37 Senior-Vice President, Finance

</TABLE>

R. W. CHRISTENSEN, JR., age 49, is the President (since 1978) and Chairman of
the Board of Directors (since 1995) of the Company. Prior to 1978 he held
positions as a financial analyst with Olympia Brewing Company, Assistant to
the President of Pacific Hide & Fur, a natural resources and steel
distribution firm, and as Corporate Pilot with Buttrey Food Stores. Mr.
Christensen served as Vice Chairman (1989-1990) and a member of the Board of
Directors (1987-1990) of Heritage Federal Savings & Loan Association. He is
President and director of Mud Bay Holdings Ltd., a privately held investment
firm. Mr. Christensen has previously served as an officer, director and
President of the National Vehicle Leasing Association (1981-1988) in which
capacities he presented dozens of articles and scores of speeches on the
state and future of the automobile leasing industry, subjects in which he is
regarded as expert. He was awarded the industry's most prestigious
recognition, the Clemens-Pender Award, in 1988.

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He has served as director of Washington Independent Bankshares (1982). Mr.
Christensen serves as the court-appointed Trustee of CASR Trust, a
multi-year, multi-million dollar fund established by the bankruptcy court for
the benefit of the creditors of All Seasons Resorts. He graduated from the
College of Great Falls (B.A. with Honors, Management and Economics) and
received an MBA from the University of Puget Sound.

ROBERT E. KANATZAR, age 45, is Senior Vice President of Risk Management with
responsibilities for all credit, collection and remarketing activities
(1997). Prior to joining the Company, he was Senior Vice President of Credit
Policy and Risk Management for NationsCredit Corporation, the largest
bank-owned finance company in the United States (since 1996). Prior to
joining NationsCredit, he was Vice President of Risk Management with Bank One
Credit Company (since 1992). Previously, he served as Vice President of
Consumer Lending for Texas Commerce Bank and Vice President-Finance with
Citicorp Acceptance Company's Automobile Finance Division. Mr. Kanatzar
received both his B.S. in Business Administration and MBA from the University
of Kansas.

WARREN KORNFELD, age 37, is Senior Vice President of Finance with
responsibilities for all accounting and finance functions (since 1998). Prior
to joining the Company, he was Vice President with the Industrial Bank of
Japan, Ltd. ("IBJ") in New York, responsible for heading up their term asset
backed effects (since 1994). Prior to joining IBJ, he was co-founder/partner
of Bickford & Partners, Inc., an investment banking firm specializing in
asset backed securities (since 1991). Previously, he served as First Vice
President at Trepp & Company Inc, where he headed up the asset backed
consulting group (since 1983). Mr. Kornfeld received his B.S. in Economics
with a dual concentration in Finance and Decision Sciences from the
University of Pennsylvania.

ITEM 2. PROPERTIES

The general and administrative offices of the Company are located at The
Republic Building, Olympia, Washington 98501, on leased premises with
approximately 4,400 square feet. The lease expires November 30, 2000. The
facilities are adequate for the Company's current and planned operations.

ITEM 3. LEGAL PROCEEDINGS

There are no reportable events.

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

There are no submission of matters to a vote of security holders.

PART II

ITEM 5. MARKET FOR THE COMPANY'S STOCK AND DIVIDEND POLICY

Trading of the Company's common stock began on November 28, 1995, and is
facilitated through the NASD OTC Bulletin Board (OTC:WEST). As of March 31,
1998, the Company had 349 stockholders of record. The Company has not paid any
dividends on the common stock. The borrowing agreement with Bank One, discussed
previously, and the redeemable preferred stock agreements (see note 7 to the
Financial Statements) restrict the payment of dividends on the common stock.
Management does not expect to pay dividends on the common stock in fiscal 1999.

The following table summarizes the high and low bid prices of the Company's
stock for fiscal years ended March 31, 1998 and 1997, adjusted for the
two-for-one stock split declared on May 10, 1996 (see note 8 to the Financial
Statements).

Fiscal 1997 High Low
----------- ---- ---
<S> <C> <C>
First quarter ended June 30, 1996 $12.50 $3.75
Second quarter ended September 30, 1996 13.00 7.00
Third quarter ended December 31, 1996 17.00 7.50
Fourth quarter ended March 31, 1997 10.00 6.87

Fiscal 1998
-----------
First quarter ended June 30, 1997 $8.00 $3.50
Second quarter ended September 30, 1997 7.00 2.75
Third quarter ended December 31, 1997 7.00 1.50
Fourth quarter ended March 31, 1998 3.25 1.88
</TABLE>

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The above over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data as of and for the five years ended March 31, are as
follows (all amounts in thousands except per share data):

<TABLE>
<CAPTION>
Years Ended March 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,246 $ 20,743 $ 1,629 $ 2,138 $ 1,054

Loss before cumulative effect of change
in accounting principle & extraordinary item (5,062) (1,898) (895) (468) (649)

Loss per common share before cumulative (2.99) (1.48) (.85) (.43) (.46)
effect of change in accounting
principle & extraordinary item per common share,
basic

Net Loss (5,062) (1,898) (852) (468) (649)

Net Loss per common share, basic & (2.99) (1.48) (.82) (.43) (.46)
diluted

Total assets 20,495 12,292 8,210 4,311 4,059

Total liabilities 23,228 10,134 5,814 3,263 3,283

Redeemable preferred stock 4,073 4,248 4,250 1,800 925

Shareholders' equity (deficiency) (6,806) (2,090) (1,853) (752) (149)
</TABLE>

The loss per common share for 1998, 1997, 1996, 1995 and 1994 has been
calculated on a basis after giving effect to preferred stock dividends of
approximately $391,000, $393,000, $275,000, $120,000 and $14,000, respectively
and have been adjusted for the 2-for-1 stock split.

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

FORWARD-LOOKING STATEMENTS

See the similarly captioned section in Item 1 regarding the existence of
forward-looking statements herein.

RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL POSITION

Beginning in late 1995, Westar began full scale regional operations providing
prime credit quality consumer automobile lease financing through franchised
automobile dealers in Western Washington. Westar has designed and developed a
number of financing, lease servicing and risk management innovations. As a
result, the Company committed significant personnel time and resources to its
development. While the Company's statement of operations reports a net loss of
approximately $5,062,000, $1,898,000 and $852,000 in fiscal 1998, 1997 and 1996,
respectively, it is management's opinion that DDRL is one of the most
sophisticated and marketable retail leasing programs currently available and
represents an investment in the Company's future operations.

The decrease in revenues of $18,497,000 (89%) from fiscal 1997 to 1998 was
mainly due to the lack of the Company's completion of asset backed
securitizations. In the prior year, two asset backed securitization
transactions of approximately $18,600,000 of lease contracts in private
placements took place. Due to the increased holding period of the
unsecuritized leases, earned income on direct financing leases increased
$608,000 (120%) in 1998 from 1997. Administrative income decreased $107,000
(42%) due to fewer leases funded in 1998 compared to 1997. Service fee income
rose $96,000 (2,403%) due to service fee's charged on the securitized assets
for a full fiscal year and other income decreased by $47,000 (38%) due to
fewer assets sold. The increase in revenues of $19,115,000

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(1,174%) from fiscal 1996 to 1997 was mainly due to the Company's completion
of the two asset backed securitization transactions as previously discussed.
Other increases are due to lease revenues prior to securitization which are a
consequence of substantial increases in lease volumes.

Direct costs decreased $19,427,000 (89%) from fiscal 1997 to 1998. This resulted
in an improvement in the gross margin from $(984,000) to $(55,000). During 1998,
the decrease in direct costs is due primarily to the Company not completing any
asset backed securitizations. Interest costs related to warehousing leases
increased by $784,000 due to the increased length of time assets are held prior
to securitization. Provision for credit losses decreased $(54,000) from 1997 to
1998 due to fewer assets funded. Other major decreases in direct costs related
also to volumes, were lease commissions and lease value deficiency ("GAP")
insurance expense. Direct costs increased $20,289,000 (1,411%) from 1996 to
1997 due primarily to the following factors: costs associated with the Company's
first two asset backed securitizations, the fixed costs related to relatively
small transactions and the cost premiums which apply to a new issuer. Interest
costs related to warehousing leases prior to securitization increased by
$354,000 due to the increased volume of leases written. Other major costs that
increased in total dollars which were also related to volume were the allowance
for bad debts as well as lease deficiency ("GAP") insurance expense.

General and administrative expenses increased $290,000 (13%) from fiscal 1997 to
1998. During 1998, a risk management function was added to the Company's
operations. Other expenses increased with system development and costs
pertaining to growth of the business. Other changes during the year including
reorganization of sales personnel and marketing philosophy caused a decrease in
travel and marketing expenses. Management expects the current level of general
and administrative expenses and marketing costs will increase with continuing
geographical expansion. General and administrative expenses increased $332,000
(19%) from fiscal 1996 to 1997. Costs have been incurred to cover the increase
in new dealers being signed and the increases in the leases being funded.
During 1997, a Vice President of Operations and a Controller were added to the
Company's personnel. Other expenses occurred with expansion such as a more
highly compensated personnel, system expenses and marketing.

The Company recorded a 100% valuation allowance against the deferred tax asset
in the fourth quarter of fiscal 1998. Recording the valuation allowance
resulted in net income tax expense in the current year as compared to tax
benefits in prior years.

The Company has developed a strategy to become a national financing organization
based on its experience in its current region, the Northwest. Substantial time
and efforts have been utilized for designing enhanced lease products and
services. Westar has introduced four of its enhancements to its dealers in
January 1998. As expected, application and lease volumes and dealer contracts
have increased substantially. By March 31, 1998, the Company had signed 45% of
the dealers in its region to non-exclusive leasing agreements and funded
approximately $13 million of leases in fiscal 1998. The Company also
demonstrated its ability to perform multiple securitizations completing over
$18 million in two securitization transactions in 1997. The organizational
activities have resulted in significant up-front costs to develop systems and
a structure capable of handling the Company's projected lease volumes.
Management believes that future revenues derived from this structure will
allow recovery of the Company's initial investment and return operating
profits on a quarterly basis before the end of fiscal 1999.

COMPUTER/YEAR 2000

The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

Based on a recent assessment, the Company determined that since it uses an
Apple Macintosh based system, and all related upgrades and system changes
have been made, the Company's systems are currently Year 2000 compliant.

The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The Company's total Year 2000 project cost and estimates to complete
include the minimal estimated costs and time associated with the impact of
third parties Year 2000 Issues, and are based on presently available
information. The Company has found no material problems to date with any of
its significant suppliers or customers. However, there can be no guarantee
that the systems of other companies (including financial institutions,
telecommunications and the US Government) on which the Company's systems rely
will be timely converted, or that a failure to convert by another company, or
a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company.

INFLATION AND CHANGING PRICES

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The Company's leases are written with fixed terms at fixed implicit rates.
Interim financing for the leases is provided through the Bank One warehouse
facility until sufficient volumes are pooled for securitization or sold
through portfolio sale transactions. The Company is at risk from interest
rate fluctuation during the time it owns the leases it originates. Management
has various tools available such as interest rate swaps and pre-funding rate
caps to minimize the risks associated with the effect of changing prices. The
effect of inflation on general and administrative expenses over the last
three years has been negligible.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires substantial cash to implement its business strategy,
including cash to: (i) acquire vehicles, (ii) pay sales or securitization
costs, including amounts required for credit enhancement, (iii) satisfy
working capital requirements, (iv) pay operating expenses, (v) satisfy debt
service and (vi) pay preferred stock dividends. Many of these cash
requirements increase as the Company's volume of leases increases. A
substantial portion of the Company's revenues in any period results from
sales or securitizations of leases in such period but in a securitization
transaction a portion of the cash underlying such revenues is received over
the life of the leases. The Company has historically been successful in
meeting its liquidity needs principally through borrowings from financial
institutions, securitizations, portfolio sales and sales of equity and debt
securities.

Westar was the third Company in the nation to structure a free standing lease
securitization and the first to originate multiple securitizations from
within a single bankruptcy remote structure and to originate a tax benefit
transfer from within a securitization. The Company retains the servicing of
leases securitized and receives the servicing income for the securitized
pools.

The Company entered into an agreement with Bank One, Columbus NA in July 1995
which was expanded in November 1996 from the initial $12 million limit to $25
million. In July 1998, the Company re-evaluated its interim financing needs
considering the expected future timing of sales and securitizations. Based
on this information, Management re-negotiated the financing facility to $15
million. This revolving credit warehouse facility is to be utilized as
interim financing for the acquisition of vehicle leases until sufficient
volume is achieved to securitize such leases through selected facilities or
to sell in a portfolio sale transaction. After repayment of the related
borrowings from Bank One, the net proceeds from the securitizations or sales
provide a source of cash for future acquisition of vehicle leases and general
and administrative expenses. At March 31, 1998 the unused portion of the
warehouse line is $6.7 million. The Company must comply with quarterly
debt/equity ratios, net worth requirements and restrictions on the payment of
dividends on common stock to utilize the line. At March 31, 1998 the Company
failed to maintain the requirement of eligible lease originations and the
ratio of consolidated total indebtedness to consolidated tangible net worth.
The lender has waived this event through March 31, 1999.

Since 1994, the Company has raised $4,250,000 from redeemable preferred stock
offerings. The proceeds were used for the development of DDRL and to fund
current operations and initial lease acquisitions. During the year ended
March 31, 1998, the Company issued 475,000 shares, the majority of which was
issued upon conversion of preferred stock, and received $365,000 from the
exercise of warrants and options. The Company anticipates redeeming a
significant portion of preferred stock from the issuance of subordinated debt.

It is the opinion of Management that, as of March 31, 1998, the liquidity
sources discussed above in conjunction with subsequent events noted below are
sufficient to meet the Company's immediate cash flow needs for operations and
for the acquisition of leases in the normal course of business. The Company
is currently in negotiations, although there can be no assurance, to obtain
additional capital through both private and public financing to provide for
the Company's planned growth over the next several years.

SUBSEQUENT EVENTS

In April 1998, the Company entered into an agreement with PLMC, LLC, which
is owned by two directors and other unrelated parties, to borrow $400,000 in
the form of subordinated debt. The note was to be repaid no later than June
30, 1998 and bears interest at the rate of 9%. This note was repaid in full
on May 13, 1998.

In May 1998, the Company announced that certain preferred shareholders
accepted the Company's offer to redeem their shares of Series 1, Series 2 and
Series 3 Preferred at face value. Originally, the 2,823 shares of Series 1, 2
and 3 Preferred Stock were to be redeemed by December 31, 2000. The Company
redeemed 1,088, 231 and 631 shares for Series 1, 2 and 3, respectively at par
value in the amount of $1,950,000 using the proceeds from the issuance of
subordinated convertible debt in May 1998. As part of the redemption, the
preferred shareholders exercised their warrants to purchase Westar's common
stock. This early redemption will save the Company approximately $260,000 per
year in dividend payments.

Page 9

<PAGE>

In May 1998, the Company entered into an agreement with an officer to
exchange their Series 3 Preferred Stock with a par value of $500,000 for a
note payable in the amount of $500,000. The note bears interest at the rate
of 9.25% and is paid quarterly. The note is to be paid no later than April
1, 1999.

In May 1998, the Company issued $4,000,000 in subordinated convertible
notes to PLMC, LLC, which is owned by two directors and other unrelated
parties. The note is due May 2003 and bears interest at the rate of 10.5% per
annum. The note is convertible into 20% of the Company's common stock.

In July 1998, a lease purchase/repurchase agreement was entered into in the
amount of $1.6 million with T&W Financial Services, a related party. The
agreement bears interest at the rate of 9.5% per annum. The agreement was
dated July 22, 1998 and the assets were repurchased August 12, 1998.

In July 1998, an agreement was reached which set the warehouse line at
$15,000,000 (See note 5).

In August 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its third securitization of $27.5 million of
automobile lease-backed securities in a private-placement offering. The
Company's proceeds were reduced by a reserve in the amount of $273,000, which
is anticipated to be received out of future cash flows from the pool of
contracts sold. The Company continues to service the leases securitized.

In November 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its fourth securitization of $14.4 million of
automobile lease-backed securities in a private-placement offering. The
Company's proceeds were reduced by a reserve in the amount of $94,000, which
will be received in 60 monthly payments in the amount of $1,571.98. The
Company continues to service the leases securitized.

In December 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its fifth and sixth securitization of $5.2 and
$5.9 million, respectively of automobile lease-backed securities in
private-placement offerings. The Company's proceeds were reduced by a
reserve in the amount of $34,000 and $39,400, respectively, which will be
received in 60 monthly payments in the amount of $563.28 and $655.98,
respectively. The Company continues to service the leases securitized.

RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information", each of relate to
additional reporting and disclosure requirements which are effective for
financial statement periods beginning after December 15, 1997. It is not
expected that the adoption of these accounting pronouncements will have a
material effect on the Company's operating results or financial condition.

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
provides consistent standards for distinguishing transfers of assets that are
sales from transfers that are secured borrowings. This Standard is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is applied on a
prospective basis only. As of March 31, 1998, the Company has not completed
any transaction subject to this Standard and is evaluating the potential
impact of this standard on future transactions. The Company believes the
August 1998 transaction was recorded properly as a sale under FASB 125.

Statement of Position No. 98-5 "Reporting on the Costs of Start-Up
Activities", effective for Westar, April 1, 1999, requires costs of start-up
activities and organization costs to be expensed as incurred. It is not
expected that the adoption of this statement will have a material effect on
the Company's operating results or financial condition.

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It is not
expected that the adoption of these accounting pronouncements will have a
material effect on the Company's operating results or financial condition.

Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to

Page 10

<PAGE>

managing risk. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Initial application of this statement
should be as of the beginning of an entity's fiscal quarter; on that date,
hedging relationships must be designated anew and documented pursuant to the
provisions of this statement. Earlier application of all of the provisions of
the statement is encouraged, but it is permitted only as of the beginning of
any fiscal quarter that begins after issuance of this statement. This
statement may not be applied retroactively to financial statements of prior
periods. It is not expected that the adoption of this statement will have a
material effect on the Company's operating results or financial condition.

Page 11

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

- ------------------------------------------------------------------------------

Board of Directors and Shareholders
Westar Financial Services Incorporated

We have audited the accompanying consolidated balance sheet of Westar
Financial Services Incorporated and subsidiaries as of March 31, 1998 and the
related consolidated statements of operations, shareholders' equity
(deficiency), 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 financial statement based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 financial position of Westar
Financial Services Incorporated and subsidiaries as of March 31, 1998 and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

KPMG LLP
Seattle, Washington
February 17, 1999

Board of Directors and Shareholders
Westar Financial Services Incorporated

We have audited the accompanying consolidated balance sheet of Westar
Financial Services Incorporated and its subsidiaries as of March 31, 1997 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended March 31, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Westar
Financial Services Incorporated and its subsidiaries as of March 31, 1997 and
the consolidated results of their operations and their cash flows for the
years ended March 31, 1997 and 1996, in conformity with generally accepted
accounting principles.

BDO Seidman, LLP
Seattle, Washington
September 9, 1997

Page 12

<PAGE>

WESTAR FINANCIAL SERVICES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 475,275 $ 191,380
Accounts and other receivables, net of allowance
for credit losses of $21,000 for both years (Note 9) 147,092 333,497
Credit enhancement receivable, net of allowance
for credit losses of $90,894 for both years 855,848 1,066,015
(Notes 3 & 4)
Net investment in direct financing leases (Notes 4 & 5) 18,533,096 7,962,805
Deferred tax asset (Note 6) 2,936,206 2,263,075
Less: valuation allowance (Note 6) (2,936,206)
Other 484,066 475,144
------------- ------------
$ 20,495,377 $ 12,291,916
------------- ------------
------------- ------------

Accounts payable $ 692,126 $ 560,356
Notes payable to banks (Note 5) 19,057,701 8,287,619
Notes payable to affiliates (Note 5) 2,756,635 1,027,048
Other liabilities 722,401 259,076
------------- ------------
23,228,863 10,134,099
------------- ------------

Redeemable preferred stock (Notes 7 & 8) 4,073,000 4,248,000
------------- ------------

Shareholders' Equity (Deficiency):
Common stock, no par value; 35,000,000
shares authorized; 2,187,300 and 1,712,300 shares 3,239,795 2,874,795
issued and outstanding (Note 8)
Paid in capital - stock warrants (Notes 5 & 8) 371,495

Accumulated deficit (10,417,776) (4,964,978)
------------- ------------

( 6,806,486) (2,090,183)
------------- ------------

$ 20,495,377 $ 12,291,916
------------- ------------
------------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 13

<PAGE>

WESTAR FINANCIAL SERVICES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Revenues from sales and securitizations
(Notes 3 & 9) $ 804,160 $ 19,850,681 $ 1,299,809
Earned income on direct financing leases 1,114,050 505,889 191,746
Administrative income 151,353 259,104
Service fee income 100,114 4,000
Other 75,912 123,213 136,971
------------ ------------ -------------

2,245,589 20,742,887 1,628,526
------------ ------------ -------------

Direct costs:
Costs related to securitizations and sales 766,589 20,850,971 1,247,023
Interest 1,296,261 512,760 159,180
Provision for credit losses 65,000 118,889 5,944
Other 173,009 244,566 25,617
------------ ------------ -------------

2,300,859 21,727,186 1,437,764
------------ ------------ -------------

Gross margin (55,270) (984,299) 190,762

General and administrative expenses (Note 9) 2,372,286 2,082,764 1,751,297

Non-cash interest expense (Note 5) 371,496
------------ ------------ -------------

Loss before federal income tax benefit (2,799,052) (3,067,063) (1,560,535)

Income tax benefit (expense) (Note 6) (2,263,073) 1,168,666 665,263
------------ ------------ -------------

Loss before extraordinary item (5,062,125) (1,898,397) (895,272)

Gain on early extinguishment of debt (net of
income tax of $22,520) (Note 10) 43,715
------------ ------------ -------------

Net loss (5,062,125) (1,898,397) (851,557)

Dividends on redeemable preferred stock (390,673) (392,940) (275,324)
------------ ------------ -------------

Net loss applicable to common stock $ ( 5,452,798) $ ( 2,291,337) $ ( 1,126,881)
------------ ------------ -------------
------------ ------------ -------------

Net loss per basic and diluted common share before
extraordinary item $ (2.99) $ (1.48) $ (.85)
------- -------- -------
------- -------- -------

Net loss per basic and diluted common share $ (2.99) $ (1.48) $ (.82)
------- ------- -------
------- ------- -------

Weighted average number of basic and diluted shares
outstanding 1,825,400 1,548,200 1,374,200
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 14

<PAGE>

WESTAR FINANCIAL SERVICES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
Common Stock
------------- Paid in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>

Balance, March 31, 1995 1,380,500 $ 795,195 $(1,546,760) $ (751,565)

Exercise of common stock warrants 50,000 25,000 25,000

Dividends on redeemable preferred stock (275,324) (275,324)

Net loss (851,557) (851,557)
---------- ----------- ---------- ----------- ------------

Balance, March 31, 1996 1,430,500 $ 820,195 $(2,673,641) $(1,853,446)

Dividends on redeemable preferred stock (392,940) (392,940)

Net loss (1,898,397) (1,898,397)

Common stock issued 281,800 2,054,600 2,054,600
---------- ----------- ---------- ----------- ------------

Balance, March 31, 1997 1,712,300 $2,874,795 $(4,964,978) $(2,090,183)

Dividends on redeemable preferred stock (390,673) (390,673)

Net loss (5,062,125) (5,062,125)

Exercise of common stock warrants 475,000 365,000 365,000

Paid in capital-detachable stock warrants 371,495 371,495
---------- ----------- ---------- ----------- ------------

Balance, March 31, 1998 2,187,300 $ 3,239,795 $ 371,495 $(10,417,776) $(6,806,486)
---------- ----------- ---------- ----------- ------------
---------- ----------- ---------- ----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 15

<PAGE>

WESTAR FINANCIAL SERVICES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,062,125) $(1,898,397) $ (851,557)
Adjustments to reconcile net loss to net cash
used in operating activities:
Early extinguishment of debt, net of tax (43,715)
Deferred tax (benefit) provision 2,263,075 (1,168,666) (665,263)
Depreciation and amortization 480,106 82,373 206,947
Provision for and write-off of credit losses 65,000 118,889 5,944
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 186,405 (176,087) (19,863)
(Increase) decrease in credit enhancement receivable 210,167 (1,156,909)
(Increase) in net investment in direct finance leases (10,603,596) (2,688,836) (3,490,070)
Increase in accounts payable 38,291 343,358 49,060
Increase (decrease) in other liabilities 463,324 154,279 (25,110)
Other (43,764) (68,507) 77,268
----------- ---------- ------------
Net cash used in operating activities (12,003,117) (6,458,503) (4,756,359)
----------- ---------- ------------

Cash flows from investing activities:
Reduction of lease receivables (recovery of principal) 124,233
Other (105,465) (176,477) (89,245)
----------- ---------- ------------

Net cash provided by (used in) investing activities (105,465) (176,477) 34,988
----------- ---------- ------------

Cash flows from financing activities:
Proceeds from (redemption of) redeemable preferred stock (175,000) (2,000) 2,450,000
Proceeds from lease repurchase agreements 115,849
Proceeds from issuance of common stock 365,000 2,054,600 25,000
Additions to notes payable 16,043,943 23,877,554 5,128,878
Payments on notes payable to banks (3,544,274) (18,886,525) (2,585,323)
Dividends paid on redeemable preferred stock (297,192) (385,922) (221,814)
Other (22,188) (55,655)
----------- ---------- ------------

Net cash provided by financing activities 12,392,477 6,635,519 4,856,935
----------- ---------- ------------

Net increase in cash and cash equivalents 283,895 539 135,564

Cash and cash equivalents:
Beginning of year 191,380 190,841 55,277
----------- ---------- ------------

End of year $ 475,275 $ 191,380 $ 190,841
----------- ---------- ------------
----------- ---------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 723,203 $ 413,518 $ 163,817
----------- ---------- ------------
----------- ---------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 16

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION

The consolidated financial statements include the results of operations of
Westar Financial Services Incorporated (successor to Republic Leasing
Incorporated), its 100% owned subsidiary Westar Auto Holding Company, Inc.
(WestAH), their 100% owned subsidiary Westar Auto Finance, LLC (WestAF) and
the Westar Lease Origination Trust (WestLOT), a Massachusetts business
trust registered in the State of Washington, beneficially owned by WestAF.
All intercompany transactions have been eliminated in consolidation.

DESCRIPTION OF BUSINESS

Westar's business activities focus solely on the prime-credit sector of the
consumer automobile leasing market. The Company has established
non-exclusive relationships with over 45% of the manufacturer-franchised
auto dealers in the Northwest Region of the U.S. (Washington, Idaho and
Montana). Westar has designed and developed a number of financing, lease
servicing and risk management innovations, which allow it to compete
against major institutions and manufacturer's captive financing companies.
The Company pools and securitizes its auto lease receivables, servicing
such leases during their term and remarkets used automobiles upon the
expiration of the leases. The Company meets the needs of its dealers
through responsive customer service, extended hours, rapid funding,
consistent buying practices and competitive pricing. The Company currently
offers the Dealer Direct Retail Leasing program ("DDRL") to automobile
dealers in the states of Washington, Oregon and Idaho.

Starting in fiscal year 1997, the Company securitizes leases acquired
through the DDRL program as asset backed securities. The securities sold
were insured by MBIA Insurance Corporation and rated AAA by Standard and
Poor's Corporation and Aaa by Moody's Investors Service (see note 3).

Over the last twelve years the Company has sold, primarily to financial
institutions with servicing retained, approximately $15 million of
commercial leases and $18.6 million of the securitized DDRL leases and the
underlying assets for purposes of providing a source of capital for funding
new lease acquisitions. Services provided by the Company to purchasers of
its leases include, but are not limited to, monthly billing, collecting and
remarketing. At March 31, 1998, leased assets outstanding which are not
held in the Company's portfolio but are serviced by the Company for others
approximated $13 million for the securitized DDRL leases. The company also
services approximately $19 million of DDRL leases awaiting securitization
or sale.

CONCENTRATION OF CREDIT AND FINANCIAL INSTRUMENT RISK

The Company controls its credit risk through credit standards, limits on
exposure, and by monitoring the financial condition of its lessees. The
Company uses a proprietary credit scoring system to evaluate the credit
risk of applicants in the DDRL program. The Company acquires the leased
asset to serve as collateral for the leases. Additionally, the Company
controls its credit exposure to any one client. The Company retains the
servicing of the leases sold.

No dealers accounted for more than 10% of lease volume in 1998, 1997 or
1996.

The Company requires all lessees to provide adequate collateral protection
and liability insurance throughout the term of the lease contracts. The
Company also has contingent collateral and liability insurance which
protects the Company from lapses in the lessee's insurance and it maintains
lease value deficiency ("GAP") insurance on all DDRL contracts which
protects the lessee and the Company from casualty losses associated with
deficiencies between the leased vehicle's value and the balance on the
related lease contract.

A significant portion of the Company's business activity is with customers
located in Washington State. There were no other significant regional,
industrial or group concentrations during the three years ended March 31,
1998.

CASH AND CASH EQUIVALENTS

The Company considers all investments with a maturity of three months or
less, when purchased, to be cash equivalents.

Page 17

<PAGE>

CREDIT ENHANCEMENT RECEIVABLE

The Company is required to maintain spread accounts to protect investors in
securitization transactions and credit enhancers against credit losses. The
initial deposit, if required, and excess cash flows from securitization
transactions are retained for each securitization until the spread account
balance reaches a specified percentage of the underlying leases included in
the securitization. Funds in excess of specified percentages are remitted
to the Company over the remaining life of the securitization. For each
securitization trust, there is no recourse to the Company beyond the
balance in the spread accounts.

LEASES

For contracts determined to be direct financing leases, unearned lease
income (representing total minimum lease payments receivable, including the
residual value of the leased asset, in excess of the cost of the leased
asset) is amortized to income using the interest method over the term of
the lease.

At the end of the lease term or upon premature termination of the lease,
the leased asset is sold. Proceeds from the sales of leased assets are
included in revenues and the carrying costs of the leased assets at time of
sale are included in direct costs.

FURNITURE, FIXTURES AND EQUIPMENT

At March 31, 1998 and 1997, furniture, fixtures and equipment of $148,898
(net of accumulated depreciation of $250,945) and $201,518 (net of
accumulated depreciation of $170,134), respectively are included in other
assets and stated at cost less accumulated depreciation and are depreciated
on a straight-line basis over their estimated useful lives of 2 to 5 years.
Included in this total are assets subject to capital leases in the amount
of $128,799 (net of accumulated amortization of $102,443) and $165,841 (net
of accumulated amortization of $38,508) for the years ended March 31, 1998
and 1997, respectively. These assets are stated at cost less accumulated
amortization and are amortized over the term of the lease.

INTANGIBLE ASSETS

At March 31, 1998 and 1997, intangible assets of $27,948 (net of
accumulated amortization of $124,119) and $61,188 (net of accumulated
amortization of $77,865), respectively are included in other assets, and
consist of unamortized debt origination costs and organization costs. The
debt origination costs (incurred in relation to the revolving credit
agreement with Bank One and a private placement) are amortized on a
straight-line basis over the remaining term of the agreements and
organization costs (associated with the reincorporation of the Company into
the state of Washington) are amortized on a straight-line basis over five
years.

FEDERAL INCOME TAXES

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

STOCK BASED COMPENSATION

During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, effective for years beginning after December
15, 1995. The statement requires expanded disclosure of stock-based
compensation arrangements and encourages (but does not require) application
of the fair value recognition provision in the statement. SFAS No. 123 does
not require alteration of the existing accounting rules for employee
stock-based programs. Companies may continue to follow rules outlined in
APB Opinion No. 25, but are now required to disclose the pro forma amounts
of net income (loss) and earnings (loss) per share that would have been
reported had they elected to follow the fair value recognition provision of
SFAS No. 123. Effective January 1, 1996, the Company adopted the disclosure
requirements of SFAS No. 123, but has determined that it will continue to
measure its employee stock-based compensation arrangements under the
provisions of APB Opinion No. 25. As the Company continues to apply APB
Opinion No. 25 and related interpretations, no compensation cost has been
recognized.

Page 18

<PAGE>

EARNINGS PER SHARE

Effective December 31, 1997, the Company adopted SFAS No. 128, which
establishes standards for computing and presenting earnings (loss) per
share ("EPS") and has the effect of simplifying the standards for computing
earnings (loss) per share and makes them comparable to international EPS
standards. It replaces presentation of primary EPS with a presentation of
basic EPS. Basic EPS excludes dilution for the effect of common stock
equivalents such as options or warrants. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997
(earlier application is not permitted) and requires restatement of all
prior period EPS data presented.

Loss per share is computed using the weighted-average number of common
shares outstanding and has been retroactively adjusted to give effect to
the 2-for-1 stock split declared on May 10, 1996. Net loss used in the
computation of loss per share has been increased to include the required
amount of dividends on the redeemable preferred stock of $390,673, $392,940
and $275,324 for the years ended March 31, 1998, 1997 and 1996,
respectively. Loss per share does not include 242,000, 296,800 and 318,800
for fiscal years 1998, 1997 and 1996, respectively of common stock options
as the effect would be anti-dilutive.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, accounts receivable,
credit enhancement receivable and notes payable, which due to the nature
and duration of these financial instruments, approximates fair value. The
following represents the book value and fair value of the net investment of
direct financing leases at March 31.

1998 1997
---- ----
<S> <C> <C>
Net investment in direct financing leases:
Book Value 18,533,096 7,962,805
Fair Value 18,782,978 8,070,168
</TABLE>

EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Other relevant recently issued accounting standards consist of Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information", each of which relate to
additional reporting and disclosure requirements effective for financial
statement periods beginning after December 15, 1997. It is not expected
that the adoption of these accounting pronouncements will have a material
effect on the Company's operating results or financial condition.

In June 1996, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
provides consistent standards for distinguishing transfers of assets that
are sales from transfers that are secured borrowings. This Standard is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is
applied on a prospective basis only. As of March 31, 1998, the Company has
not completed any transaction subject to this Standard and is evaluating
the potential impact of this Standard on future transactions. The Company
believes the August 1998 transaction was recorded properly as a sale under
FASB 125.

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. It requires that a entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. It is
not expected that the adoption of these accounting pronouncements will have
a material effect on the Company's operating results or financial
condition.

Page 19

<PAGE>

Statement of Position No. 98-5 "Reporting on the Costs of Start-Up
Activities", effective April 1, 1999, requires costs of start-up activities
and organization costs to be expensed as incurred and upon adoption of the
statement for any such unamortized costs which had previously been
capitalized to be charged to expense as the cumulative effect of a change
in accounting principle. It is not expected that the adoption of this
statement will have a material effect on the Company's operating results or
financial condition.

RECLASSIFICATIONS

Certain amounts in the prior period financial statements have been
reclassified to conform to current year classifications.

2. ACCOUNTS RECEIVABLE:

Under terms of its leases, the Company, as lessor, is entitled to recover
from the lessee certain costs incurred upon termination of such leases
prior to expiration of the initial lease term. It is the Company's policy
to aggressively pursue collection under these provisions. Those costs
include past due lease payments, late charges, applicable taxes, losses
realized on disposition of repossessed equipment, and legal and
administrative costs incurred to pursue recovery. Such costs are included
in accounts receivable. If successful recovery of an amount is uncertain, a
provision is made in the allowance for credit losses.

At March 31, 1998 and 1997, accounts receivable includes a remaining
balance of approximately $155,000, associated with a client which is now
operating under Chapter 11 of the Federal Bankruptcy Act. The
court-appointed Trustee in that case managing that company proposed to the
Unsecured Creditors' Committee a plan which provides for full recovery of
the Company's remaining balance plus interest over an extended term. That
plan was approved on October 15, 1993. A trust was formed on behalf of the
Unsecured Creditors' benefiting from the plan (of which the Company is a
participating beneficiary). The Trustee appointed for creditors of the
All Season's Resorts Trust (CASR) is a related party (see note 9). The
Company expects full recovery as a result of the plan.

3. SECURITIZATIONS:

The Company relies upon securitizations to generate cash proceeds for
repayment of its warehouse credit facility and to create the availability
of capital to originate additional leases. Revenues generated by the
Company's securitizations are likely to represent a significant portion of
the Company's revenues.

In March 1995, the Company entered into an agreement with the Industrial
Bank of Japan "IBJ", whereby IBJ agreed to assist the Company in arranging
the placement of up to $100 million in securities backed by auto lease
receivables generated through the DDRL program. The Company agreed to issue
warrants to IBJ for the purchase of 71,000 shares of the Company's common
stock at $.50 per share.

During the fiscal year ended March 1997, the Company completed two asset
backed securitization transactions of approximately $18.6 million of
proceeds in private-placement offerings referred to as 1996 PIC-A and 1996
PIC-B. The Company's proceeds were reduced by a portion of future cash
flows related to the pool of contracts sold. Such unremitted portion of
proceeds represents a credit enhancement to the purchase of trust
certificates, as it provides additional collateral. Recourse to the Company
is limited to the extent of the credit enhancement. The Company anticipates
receiving the unremitted proceeds over the term of the securitizations,
which have a maximum term of 61 months. IBJ served as a structuring agent
and advisor on both transactions. As part of the securitizations
transaction the Company sells the tax benefit to a third party. The Company
continues to service the leases securitized and receives servicing income
from the securitized pools.

4. LEASES:

Components of the net investment in direct financing leases as of March 31,
including guaranteed residual values, are as follows:

1998 1997
---- ----
<S> <C> <C>
Total minimum lease payments receivable $22,226,851 $ 9,767,649
Unearned income (3,607,239) (1,764,844)
Allowance for net credit losses (86,516) (40,000)
------------ -----------
Net investment in direct financing leases $18,533,096 $ 7,962,805
------------ -----------
------------ -----------
</TABLE>

Page 20

<PAGE>

The future annual minimum lease payments related to the 1998 receivables,
including guaranteed residual values, approximated $3.9, $4.8, $5.2, $5,
$2.9 million for the five years ending 2003. The remaining balance of $.4
million is to be received thereafter.

The leases have options to purchase the underlying asset at the end of the
lease term at the stated residual, which is not less than the book value at
termination.

A summary of activity in the Company's allowance for credit losses, which
relates to credit enhancement, direct financing leases and other
receivables for each of the years in the three year period ended March 31,
is as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 151,894 $ 46,800 $ 75,000

Provision charged to expense:
Direct financing leases 65,000 27,995 5,944
Credit enhancement 90,894
---------- ----------- ----------
65,000 118,889 5,944
Charge offs, net of recoveries:
Direct financing leases (18,484) (13,795) (34,144)
---------- ----------- ----------
Balance, end of year $ 198,410 $ 151,894 $ 46,800
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

5. NOTES PAYABLE:

BANKS

The Company entered into an agreement with Bank One, Columbus, NA in July
1995 which was expanded in November 1996 from the initial $12 million limit
to $25 million. This warehouse credit facility allows short term borrowing
of up to 95% of the cost of a lease and is secured only by the pledge of
the Asset Specific Trust Instrument (ASTI) generated upon the origination
of the lease. In October 1997, Bank One allowed the borrowing base to
increase to 97%. The Credit Agreement expires in July 1998. The Credit
Agreement calls for principal reductions on amounts borrowed corresponding
to the payment due dates of the underlying lease contracts. Repayment of
amounts borrowed is required from the proceeds upon securitization of the
underlying lease contracts. The Credit Agreement originally called for
interest, payable quarterly, at four percent (4%) above the 30-day LIBOR
rate. During fiscal 1997, the interest rate declined to three percent (3%)
above the 30-day LIBOR rate. The Credit Agreement requires the Company to
comply with quarterly debt/equity ratios, net worth minimums and prohibits
the payment of dividends on common stock. The Company failed to maintain
the requirement of eligible lease origination and the ratio of consolidated
total indebtedness to consolidated tangible net worth. The lender has
waived this event through March 31, 1999.

At March 31, 1998 and 1997, $18.3 million and $7.5 million was outstanding
under the line, respectively. The highest outstanding balance throughout
the year was $18.3 million in March of 1998. The weighted average rate of
interest paid under the credit agreement was 8.79%, 8.76% and 9.58% during
1998, 1997 and 1996, respectively (calculated using the number of days each
rate was outstanding for the fiscal year). The interest rate at March 31,
1998 and 1997 was 8.68% and 8.44%, respectively. Additionally, the Credit
Agreement requires payment of a quarterly non-utilization fee of .125% on
the unused portion of the line, which at March 31, 1998 was $6.7 million.
In July 1998, a new amended and restated agreement, with terms and
conditions similar to the original agreement, was reached which set the
warehouse line at $15,000,000. The note is due July 31, 1999.

In August 1997, the Company entered into a working capital loan for
$750,000 with Bank One. The loan is collateralized by a perfected first
security position in the Company's interest in 1996 PIC-A & 1996 PIC-B. The
interest rate is three percent (3%) above the 30-day LIBOR rate. The note
was due October 27, 1997 and was extended to April 30, 1999. The balance at
March 31, 1998 was $750,000.

The Company paid cash for interest on notes payable to Banks of $698,801,
$400,013, and $163,817 for the years ended March 31, 1998, 1997 and 1996,
respectively.

Page 21

<PAGE>

AFFILIATES

LINE OF CREDIT: In January 1997, the Company entered into a subordinated
note agreement pursuant to which the Company may borrow up to $750,000 from
Mud Bay Holdings Ltd. a related party. The note is subordinated to the bank
borrowings and is due June 15, 1999. Interest is payable at the rate of 8%.
The balance at March 31, 1998 and 1997 was $527,297 and $744,828,
respectively.

NOTE PAYABLE: At March 31, 1998, the Company had a 120-day 11% subordinated
note payable of $100,000 due to a related party. The note had been extended
until May 31, 1998. The note was paid in full in May 1998. The balance at
March 31, 1998 and 1997 was $100,000.

NOTE PAYABLE: In April 1997, the Company entered into an agreement to
borrow $1,500,000 from a related party. The loan is due to the earlier of
(i) April 1, 1999 or (ii) receipt by the Company of not less than
$5,000,000 in proceeds from one or more closings of its current offerings
of Units, consisting of convertible subordinated notes or any other similar
financing. The note bears interest at the rate of 6%. The borrowings are
subordinated to bank borrowings, guaranteed by one of the Company's
executive officers and are secured by certain Company assets. The agreement
grants the lender warrants exercisable for five years to purchase 3.75% of
the Company's then outstanding common stock for $.01 a share. The
difference between the fair market value of the then outstanding common
stock and the strike price of the warrants was recorded as non-cash
interest and amortized over the original term of the note. The balance at
March 31, 1998 and 1997 was $1,500,000.

NOTE PAYABLE: In January 1998, the Company entered into an agreement to
borrow $500,000 from a related party. The note is due April 1, 1999. The
note bears interest at the rate of 9.5%. The borrowings are subordinated to
bank borrowings. The balance at March 31, 1998 and 1997 was $500,000 and
$0.

OBLIGATIONS UNDER CAPITAL LEASES:

At March 31, 1998 the Company had several sale/leaseback transactions with
T&W Funding Company a related party (see note 9). Payments of principal and
interest are due in 36 monthly installments of $7,364 plus sales tax.
Interest is calculated at the rate of approximately 9.4%. The balance at
March 31, 1998 and 1997 was $129,338 and $167,323, respectively.

At March 31, 1998 the future minimum lease payments are as follows:

<TABLE>
<S> <C>
March 31, 1999 $ 79,621
March 31, 2000 41,634
March 31, 2001 8,083
---------
Total $129,338
---------
---------
</TABLE>

The Company paid cash for interest on notes payable to affiliates and
obligations under capital leases of $24,402 and $13,505 for the years ended
March 31, 1998 and 1997, respectively.

6. FEDERAL INCOME TAXES:

The provision for income tax expense (benefit) consists of the following
for the years ended March 31, 1998 and 1997:
<TABLE>

<S> <C> <C>
Deferred - Federal: $2,263,073 $ (1,168,666)
---------- ------------
---------- ------------
</TABLE>

The components of deferred taxes were as follows for the years ended March
31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
NOL carryforward $ 2,753,523 $ 2,176,543
Bad debt allowance 67,459 51,644
Other 146,990 52,314
----------- ----------
Total gross deferred tax assets 2,967,972 2,280,501
Less: valuation allowance 2,936,206
----------- ----------
31,766 2,280,501
</TABLE>

Page 22

<PAGE>

<TABLE>
<S> <C> <C>
Direct financing leases (16,399)
Accelerated depreciation and other (15,367) (17,426)
----------- ----------
Total gross deferred tax liabilities (31,766) (17,426)
----------- ----------
Net deferred tax assets $ 0 $ 2,263,075
----------- ----------
----------- ----------
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit $ 951,677 $ 1,042,801 $ 508,062
Tax effect of:
Valuation allowance (2,936,206)
Preferred Stock dividends (272,760) 133,403 158,474
Other (5,784) (7,538) (1,273)
----------- ----------- -----------
Federal Income Tax Benefit (expense) $(2,263,073) $ 1,168,666 $ 665,263
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The valuation allowance for deferred tax assets as of March 31, 1997 was
$0. The net change in the total valuation for the years ended March 31,
1998, 1997 and 1996 was an increase of $2,936,206, $0 and $0, respectively.

At March 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $8 million. These are
available to offset future federal taxable income through 2013. The Company
recorded a 100% valuation allowance against the deferred tax asset in
fiscal 1998. Recording the valuation allowance resulted in net income tax
expense in the current year as compared to tax benefits in prior years.

7. REDEEMABLE PREFERRED STOCK:

The Company's authorized capital stock includes 2,000,000 shares of
preferred stock; current designations consist of redeemable preferred
stock. The redeemable preferred stock series has a $1,000 per share face
value and pays a cumulative quarterly dividend of $23.125 per share. As of
March 31, 1998, there are 1,500, 300, 1,200 and 1,250 shares authorized,
issued and 1,400, 231, 1,192 and 1,250 outstanding of the Series 1
Preferred Stock ("Series 1"), the Series 2 Preferred Stock ("Series 2"),
the Series 3 Preferred Stock ("Series 3") and the Series 4 Preferred
Stock ("Series 4"), respectively and collectively the "Redeemable
Preferred Stock." All series of preferred stock may be redeemed at any
time by the Company, but must be redeemed at their face value beginning
in fiscal 1998. In May 1998, the Company redeemed for cash 1,088, 231 and
631 shares of Series 1, Series 2 and Series 3 Preferred Stock at face
value, respectively (see note 11).

The following represents the Company's preferred stock activity for the
years ended March 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>

Series 1 Series 2 Series 3 Series 4 Total
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 $1,500,000 $300,000 $1,800,000
Shares issued at face value 1,200,000 1,250,000 2,450,000
----------- -------- ---------- ---------- ----------
Balance, March 31, 1996 1,500,000 300,000 1,200,000 1,250,000 4,250,000
Shares redeemed at face value (2,000) (2,000)
----------- -------- ---------- ---------- ----------
Balance, March 31, 1997 1,500,000 300,000 1,198,000 1,250,000 4,248,000
Shares redeemed at face value (100,000) (68,750) (6,250) (175,000)
----------- -------- ---------- ---------- ----------
BALANCE, MARCH 31, 1998 $1,400,000 $231,250 $1,191,750 $1,250,000 $4,073,000
----------- -------- ---------- ---------- ----------
----------- -------- ---------- ---------- ----------
</TABLE>

In the event of any liquidation, dissolution or winding up of the Company,
the holders of the outstanding shares of Redeemable Preferred Stock shall
be entitled to be paid an amount equal to the face value per share held
before any sums shall be paid or assets distributed to the holders of the
common stock. If assets are insufficient to fully liquidate the Redeemable
Preferred Stock, then a pro-rata liquidation will be made.

Holders of Redeemable Preferred Stock are not entitled to vote on matters
submitted to the common shareholders unless required by Washington state
law, a proposed amendment to the Company's Articles of Incorporation that
materially alters the Redeemable Preferred Stock shareholders' rights or
authorizes a class of stock senior to the Redeemable Preferred Stock, or
any proposed amendment to the Company's By-Laws

Page 23

<PAGE>

which materially alters the rights and preferences of the Redeemable
Preferred Stock shareholders. As long as 25% of the Series 4 remains
issued and outstanding, the holders of the outstanding Series 4,
voting as a class, are entitled to elect one member to the Company's
Board of Directors.

At the option of the holder, 60 shares of the Series 4 Preferred Stock are
convertible into 10% of the outstanding common stock of the Company. The
shares are convertible at any time and are automatically convertible at
such time that the Company participates in a public offering, as defined.

8. COMMON STOCK, OPTIONS AND WARRANTS:

STOCK SPLIT
On May 10, 1996, the Board of Directors declared a 2-for-1 stock split for
holders of record as of May 31, 1996. Certificates were issued on or about
June 14, 1996. Total shares outstanding as of the record date were 717,650.
Holders of options and warrants are effected by the split through a 50%
reduction in their exercise price and a 2-for-1 increase in the exercisable
shares. The shares issued, outstanding and reserved for issuance presented
in these Financial Statements and Notes hereto have been retroactively
adjusted to give effect to the stock split.

WARRANTS
Warrants for the purchase of 480,000 shares of the Company's common stock
were attached to the Series 1, 2 and 3 Preferred Stock offerings. The
warrants carry an exercise price of $.50 per common share. Warrants to
purchase 390,000 and 36,000 shares of common stock were exercised in March
1998 and 1997, respectively. Any remaining warrants expired at March 31,
1998 (excluding IBJ and & Capital, Inc.).

The Company has agreed to issue warrants for the purchase of 71,000 shares
@ $.50 per share of the Company's common stock by The Industrial Bank of
Japan, Limited (see Note 3).

The Company entered into a note agreement with & Capital, Inc., a related
party (see Note 5 and Note 9) that grants to the lender warrants
exercisable for five years to purchase 3.75% of the Company's then
outstanding common stock for $.01 a share. The Company recorded the
discount for the fair value of the warrants, which is the difference
between the fair value of the common stock and the exercise price. This
difference was amortized over the life of the note and charged to non-cash
interest expense.

STOCK OPTIONS
In April 1994, the Board of Directors approved the adoption of the 1994
Stock Option Plan (the "Plan") for employees, outside directors and certain
independent contractors of the Company. The Plan was amended by the
Shareholders in June 1996 to increase the number of shares of the Company's
common stock reserved for issuance from 360,000 shares to 600,000 shares.
For each grant, exercise prices approximated or exceeded fair market value
on the date of grant.

The following summarizes the activity related to options and warrants
excluding IBJ warrants and the & Capital, Inc. warrants (see Note 3 and
Note 9):

Shares Price Per Share Weighted Average
------ --------------- Exercise Price
--------------
<S> <C> <C> <C>
Outstanding at March 31, 1995 488,000 $1.05
Granted 310,800 $0.50 to $2.00 $0.98
Exercised (50,000) $0.50 $0.50
-------
Outstanding at March 31, 1996 748,800 $1.06
Granted 20,000 $7.25 $7.25
Exercised (56,800) $0.50 to $2.00 $0.52
Expired (21,200) $2.00 $2.00
-------
Outstanding at March 31, 1997 690,800 $0.50 to $7.25 $1.25
-------
Granted 37,000 $5.00 to $11.00 $8.24
Exercised (475,000) $0.50 to $2.00 $0.77
Expired (10,800) $0.50 to $2.00 $1.44
-------
Outstanding at March 31, 1998 242,000 $0.50 to $11.00 $3.26
-------
-------
</TABLE>

Page 24

<PAGE>

Information relating to stock options and warrants at March 31, 1998
summarized by exercise price is as follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Outstanding Exercisable
- --------------------------------------------------------------------------------
Weighted Average
Exercise Shares Life (Year) Exercise Shares Weighted
Price Per ------ ----------- Price ------ Average
Share ----- Exercise Price
----- --------------
<S> <C> <C> <C> <C> <C>
$0.50 20,000 2.00 $0.50 20,000 $0.50
$2.00 165,000 1.41 $2.00 165,000 $2.00
$5.00 7,000 1.38 $5.00 7,000 $5.00
$7.00 10,000 2.38 $7.00
$7.25 20,000 5.83 $7.25 10,000 $7.25
$9.00 10,000 3.38 $9.00
$11.00 10,000 3.38 $11.00

242,000 2.03 $3.26 202,000 $2.08
- --------------------------------------------------------------------------------
</TABLE>

All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant.
In accordance with accounting for such options utilizing the intrinsic
value method there is no related compensation expense recorded in the
Company's financial statements. Effective for fiscal 1996, the Company
adopted the disclosure requirements of SFAS 123 "Accounting for Stock Based
Compensation". SFAS 123 requires that compensation under a fair value
method be determined and disclosed in a pro forma effect on earnings and
earnings per share. The fair value of the options granted during fiscal
years 1998, 1997 and 1996 is estimated using the Black-Scholes option
pricing model. Had compensation cost for stock based compensation been
determined based on the fair value at the grant dates beginning in 1996,
consistent with the method of SFAS 123, the Company's net loss applicable
to common stock and loss per common share for the years ended March 31,
1998, 1997 and 1996, would have been increased to the pro forma amounts
presented below (in thousands, except per share data):

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss applicable to common stock
-----------------------------------
As reported $(5,453) $(2,291) $(1,127)
Pro Forma $(5,543) $(2,385) $(1,137)

Loss per common share, basic
----------------------------
As reported $(2.99) $(1.48) $(0.82)
Pro Forma $(3.03) $(1.54) $(0.83)
</TABLE>

The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1998, 1997 and 1996, respectively: expected life
of the options 4, 5 and 3 years for 1998, 1997 and 1996, respectively,
risk-free interest rate of approximately 6.2%, 6.6% and 5.9%, no dividend
yield, and volatility of 136%, 73% and 1%. The weighted average fair value
at date of grant for options granted during 1998, 1997 and 1996
approximated $4.05, $4.72 and $.22 per option, respectively.

9. OTHER RELATED PARTY TRANSACTIONS:

During the years ended March 31, 1997 and 1996, the Company sold leases to
T & W Funding Company ("T&W"), a Redeemable Preferred Stock shareholder and
director. Revenues from the sales which are included in total revenues were
approximately $552,000 and $892,000 in 1997 and 1996, respectively.

The Company leases office space from a limited partnership in which it has
a 10% interest. The lease expires November 30, 2000. Annual rental expense
was approximately $63,840, $62,000 and $60,000 in 1998, 1997 and 1996.

The Company entered into certain related party transactions related to debt
and other transactions subsequent to year end (See note 5 and 11).

Page 25

<PAGE>

The Company holds a receivable in the amount of approximately $155,000 as
of March 31, 1998 and 1997 from All Season's Resort. An officer/director of
the Company is the bankruptcy court-appointed trustee of the Trust. The
trust was established by the bankruptcy court for the benefit of the
creditors of All Season's Resort.

10. GAIN ON EARLY EXTINGUISHMENT OF DEBT:

At March 31, 1995, the Company had certain non-recourse notes payable to
banks collateralized solely by the lease contracts. The notes carried
interest rates ranging from 7% to 12% per annum. The balance outstanding of
$394,835 was repaid in August of 1995 at a gain of $43,715 (net of deferred
income taxes of $22,520).

11. SUBSEQUENT EVENTS:

In April 1998, the Company entered into an agreement with PLMC, LLC, which
is owned by two directors and other unrelated parties, to borrow $400,000
subordinated debt. The note was to be repaid no later than June 30, 1998
and bears interest at the rate of 9%. This note was repaid in full on May
13, 1998.

In May 1998, the Company announced that certain preferred shareholders
accepted the Company's offer to redeem their shares of Series 1, Series 2
and Series 3 Preferred at face value. Originally, the 2,823 shares of
Series 1, 2 and 3 Preferred Stock were to be redeemed by December 31, 2000.
The Company redeemed 1,088, 231 and 631 shares for Series 1, 2 and 3,
respectively at par value in the amount of $1,950,000. As part of the
redemption, the preferred shareholders exercised their warrants to purchase
Westar's common stock. The exchange offer and early redemption will save
the Company approximately $260,000 per year in dividend payments.

In May 1998, the Company entered into an agreement with an officer to
exchange his Series 3 Preferred Stock with a par value of $500,000 for a
note payable in the amount of $500,000. The note bears interest at the
rate of 9.25% and is paid quarterly. The note is to be paid no later than
April 1, 1999.

In May 1998, the Company issued $4,000,000 in subordinated convertible
notes to PLMC, LLC which is owned by two directors and other unrelated
parties. The note is due May 2003 and bears interest at the rate of
10.5% per annum. The note is convertible into 20% of the Company's common
stock.

In July 1998, an agreement was reached which set the warehouse line at
$15,000,000 (see note 5).

In August 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its third securitization of $27.5 million of
automobile lease-backed securities in a private-placement offering. The
Company's proceeds were reduced by a reserve in the amount of $273,000,
which is anticipated to be received out of future cash flows from the pool
of contracts sold. The Company continues to service the leases securitized.

In November 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its fourth securitization of $14.4 million of
automobile lease-backed securities in a private-placement offering. The
Company's proceeds were reduced by a reserve in the amount of $94,000,
which is to be received in 60 monthly payments in the amount of $1,571.98.
The Company continues to service the leases securitized.

In December 1998, the Company's origination/issuer trust, Westar Lease
Origination Trust, completed its fifth and sixth securitization of $5.2 and
$5.9 million, respectively of automobile lease-backed securities in
private-placement offerings. The Company's proceeds were reduced by a
reserve in the amount of $34,000 and $39,400, respectively, which is to be
received in 60 monthly payments in the amount of $563.28 and $655.98,
respectively. The Company continues to service the leases securitized.

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

Information called for by Part II, Item 9, is included in the Company's Proxy
Statement relating to the Company's annual meeting of Shareholders to be held on
April 26, 1999, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Other Matters." Such Proxy Statement
will be filed

Page 26

<PAGE>

within 120 days of the Company's year end.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information regarding the Company's directors is set forth under "Information
About the Board of Directors and Committees of the Board" in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
April 26, 1999, and is incorporated herein by reference. Such Proxy Statement
will be filed within 120 days of the Company's year end. Information regarding
the Company's executive officers is set forth in Item 1 of Part I herein under
the caption "Executive Officers of the Company."

ITEM 11. EXECUTIVE COMPENSATION

Information called for by Part III, Item 11, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
April 26, 1999, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Executive Compensation." Such Proxy
Statement will be filed within 120 days of the Company's year end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information called for by Part III, Item 12, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
April 26, 1999, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management." Such Proxy Statement will be filed within 120
days of the Company's year end.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See note 9 to the Financial Statements.

Page 27

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K

14 (a) DOCUMENTS FILED AS PART OF THIS REPORT:

(1) FINANCIAL STATEMENTS (PAGES 10 TO 23)

Reports of Independent Certified Public Accountants
Consolidated Balance Sheets as of March 31, 1998 and 1997
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997 and 1996
Consolidated Statement of Shareholder's Equity (Deficiency)
for the years ended March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements

(2) INDEX TO FINANCIAL STATEMENT SCHEDULES

All schedules are omitted since the required information is
not present in amounts sufficient to require submission of
the schedule, or because the information required is included
in the financial statements and notes thereto.

(3) INDEX TO EXHIBITS

2. Plan of acquisition, reorganization, arrangement,
liquidation or succession

2.1 Plan and Agreement of Merger between Westar
Financial Services Incorporated and Republic Leasing
Incorporated incorporated by reference to the
Exhibit to Form 10-K dated June 11, 1996.

3. Articles of Incorporation and Bylaws

3.1 The Articles of Incorporation of Westar Financial
Services Incorporated filed on February 13, 1996
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

3.2 The Bylaws of Westar Financial Services Incorporated
adopted on February 21, 1996 incorporated by
reference to the Exhibit to Form 10-K dated June 11,
1996.

4. Instruments defining the rights of security holders,
including indentures

4.1 Designation of Rights and Preferences of Republic
Leasing Incorporated Series 1 Preferred Stock
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

4.2 Designation of Rights and Preferences of Republic
Leasing Incorporated Series 2 Preferred Stock
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

4.3 Designation of Rights and Preferences of Republic
Leasing Incorporated Series 3 Preferred Stock
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

4.4 Designation of Rights and Preferences of Republic
Leasing Incorporated Series 4 Preferred Stock
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

Page 28

<PAGE>

10. Material Contracts

10.1 Republic Leasing Incorporated 1994 Stock Option Plan
incorporated by reference to the Exhibit to Form
10-K dated June 11, 1996.

10.2 The Letter Agreement between Republic Leasing
Incorporated and The Industrial Bank of Japan,
Limited dated March 3, 1995 incorporated by
reference to the Exhibit to Form 10-K dated June 11,
1996.

10.3 Revolving Credit Agreement among Westar Auto
Finance, LLC. as Borrower, Republic Leasing
Incorporated as Guarantor and Bank One, Columbus,
N.A., as the Lender dated July 12, 1995 incorporated
by reference to the Exhibit to Form 10-K dated June
11, 1996.

10.4 Amendment, dated February 15, 1996, to the Revolving
Credit Agreement with Bank One, Columbus, N.A.,
dated July 12, 1995 incorporated by reference to the
Exhibit to Form 10-K dated June 11, 1996.

10.5 The Promissory Note between Westar Financial
Services Incorporated and Mud Bay Holdings Ltd., as
a lender dated January 15, 1997 incorporated by
reference to the Exhibit to Form 10-K dated
September 19, 1997.

10.6 The Promissory Note between Westar Financial
Services Incorporated and & Capital Inc., as a
lender dated April 15, 1997 incorporated by
reference to the Exhibit to Form 10-K dated
September 22, 1997.

10.7 The Amended and Restated Revolving Credit Loan
Agreement between Westar Financial Services
Incorporated and Bank One, as the lender dated July
22, 1997 incorporated by reference to the Exhibit to
Form 10-K dated November 13, 1997.

10.8 The Amended agreement between Westar Financial
Services Incorporated and & Capital, Inc., as the
lender dated October 20, 1997 incorporated by
reference to the Exhibit to Form 10-K dated November
13, 1997.

10.9 The Amended agreement between Westar Financial
Services Incorporated and & Capital, Inc., as the
lender dated February 9, 1998 incorporated by
reference to the Exhibit to Form 10-Q dated February
17, 1998.

10.10 The Amended agreement between Westar Financial
Services Incorporated and Bank One, as the lender
dated October 27, 1997 incorporated by reference to
the Exhibit to Form 10-Q dated February 17, 1998.

10.11 The Amended agreement between Westar Financial
Services Incorporated and Bank One, as the lender
dated July 13, 1998.

10.12 The Amended agreement between Westar Financial
Services Incorporated and Mud Bay, as the lender
dated August 31, 1998.

10.13 The Amended agreement between Westar Financial
Services Incorporated and Cathy Carlson, as the
lender dated April 30, 1998.

10.14 The Amended agreement between Westar Financial
Services Incorporated and & Capital, Inc., as the
lender dated August 31, 1998.

10.15 The Amended agreement between Westar Financial
Services Incorporated and & Capital, Inc., as the
lender dated August 31, 1998.

10.16 The Amended agreement between Westar Financial
Services Incorporated and Summit Capital Resources
as the lender dated May 1, 1998.

16. Letter regarding change in Certifying Account

Page 29

<PAGE>

16.1 Letter dated May 21, 1998, incorporated by reference
to the Exhibit to the Current Report on Form 8-K
dated May 18, 1998.

21. Subsidiaries of the Registrant

21.1 Schedule of Subsidiaries incorporated by reference
to the Exhibit for Form 10-K dated June 11, 1996.

14 (b) REPORTS ON FORM 8-K

None

Page 30

<PAGE>

SIGNATURES

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

Dated: February 17, 1999 Westar Financial Services Incorporated
(successor to Republic Leasing
Incorporated)

//S// R.W. Christensen, Jr.
---------------------------------------
By: R.W. Christensen, Jr., President

Pursuant to the requirement 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.

Dated: February 17, 1999 //S// R.W. Christensen, Jr.
---------------------------------------
R.W. Christensen, Jr., Director and
Principal Executive Officer

Dated: February 17, 1999 //S// W. Kornfeld
---------------------------------------
Warren Kornfeld, Senior-Vice President
of Finance

Dated: February 17, 1999 //S// Joel I. Davis
---------------------------------------
Joel I. Davis, Director and
Assistant Secretary

Dated: February 17, 1999 //S// Robert L. Lovely
---------------------------------------
Robert L. Lovely, Director

Page 31

<PAGE>

EXHIBIT 10.11

LOAN MODIFICATION AGREEMENT

THIS LOAN MODIFICATION AGREEMENT (the "Agreement") is made and entered
into as of July 13, 1998 by and among WESTAR FINANCIAL SERVICES INCORPORATED, a
Washington corporation ("Westar"), ROBERT W. CHRISTENSEN, JR. ("Christensen")
and BANK ONE, NA, a national banking association formerly named Bank One,
Columbus, NA (the "Lender").

RECITALS

The following recitals are representations with respect to certain
factual matters that form the basis of this Agreement and are an integral part
of this Agreement.

A. The Lender loaned to Westar the sum of $750,000 (the "Loan")
pursuant to the terms and conditions of a certain Loan Agreement dated as of
August 13, 1997 by and between Westar and the Lender (the "Loan Agreement");

B. To evidence the Loan, Westar executed a certain Promissory Note
dated August 13, 1997 (the "Note"), whereby Westar promised to pay the
outstanding principal balance of the Loan, together with interest as set forth
in the Note, on or before October 27, 1997;

C. To secure the Loan Agreement and the Note, the Lender and Westar
entered into a certain Security Agreement dated as of August 13, 1997 (the
"Security Agreement");

D. In consideration of the Lender making the Loan to Westar,
Christensen (the "Indemnitor") severally, agreed by a certain Validity Agreement
dated as of August 13, 1997 to indemnify the Lender as set forth therein (the
"Validity Agreement");

E. In further consideration of the Lender making the Loan to Westar,
the Lender and Westar entered into a certain Agreement with Respect to
Prevention and Resolution of Disputes dated as of August 13, 1997 (the "Dispute
Resolution Agreement");

F. Lender is still the holder and beneficiary of the Loan Agreement,
Note, Security Agreement, Validity Agreement, Dispute Resolution Agreement and

<PAGE>

certain other agreements, documents and instruments related thereto
(collectively, the "Loan Documents"); and

G. Westar, the Lender and the Indemnitor desire to amend the Loan
Documents to extend the maturity date of the Note from October 27, 1997 to April
30, 1999 and to change the interest rate thereunder from and after July 31, 1998
to twenty percent (20%) per annum if delinquent.

AGREEMENT

NOW, THEREFORE, in consideration of the agreement and undertakings of
the parties to amend the Loan Documents, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

1. All terms and conditions of the Loan Documents shall remain in full
force and effect without change, except that, in order to reflect the extension
of the maturity date of the Note to April 30, 1999 and the increase of the
interest rate thereunder from and after July 31, 1998 to twenty percent (20%)
per annum if delinquent, Section 1 of the Note is hereby deleted in its entirety
and replaced with the following:

1. Payments of Principal and Interest.
The total principal sum and interest hereunder shall be due and
payable and shall be paid by Westar to the Lender in one lump sum
payment on or before April 30, 1999.

The unpaid principal balance of this Note shall bear interest as
follows:

(a) from the date of the initial disbursement to and including
October 31, 1997, at a fluctuating rate per annum equal to three
percent (3.0%) above the LIBOR Rate (defined below);

and

(b) from and after July 31, 1998 to and including the maturity
date, at a rate of twenty percent (20%) per annum if delinquent.

As used herein, "LIBOR Rate" shall mean the interest rate at which
deposits in immediately available funds in U.S. dollars are offered
by prime banks in the interbank market for a thirty

<PAGE>

(30) day period as published in the Wall Street Journal. The
initial LIBOR Rate shall be the LIBOR Rate in effect as of the
date of disbursement of the loan proceeds by the Lender and
thereafter shall be the LIBOR Rate in effect as of the first
Business Day of each month (the "Interest Determination Date")
and such LIBOR Rate shall be effective until the next succeeding
Interest Determination Date. Any change in the LIBOR Rate shall
be effective immediately upon and after the related Interest
determination Date

All interest payable in accordance with this Note shall be
calculated on the basis of a 360-day year for the actual number of
days principal is outstanding."

2. Westar covenants that it will (i) pay the balance of the principal,
together with the interest from the dates of disbursement thereof, as specified
in the Loan Documents, as amended hereby, and (ii) perform and observe all
covenants, agreements, stipulations and conditions on its part to be performed
under the Loan Documents.

3. Except as specifically modified herein, the Loan Documents shall
remain in full force and effect in all respects according to their original
terms, covenants and conditions as security for the unpaid balance of the
indebtedness and interest thereon evidenced by the Loan Agreement and the Note,
as if the unpaid balance of the principal, with the interest accrued thereon,
had originally been payable as provided for herein. Except as specifically set
forth herein, nothing in this Agreement shall affect or impair any rights and
powers which the Lender may have thereunder.

4. Each of the parties hereto consents to the provisions of this
Agreement and represents and warrants to the Lender that as of the date hereof
the Loan Documents to which such party remain in full force and effect and are
enforceable in accordance with their respective terms, as amended hereby.

5. This Agreement may be simultaneously executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

6. This Agreement is binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and assigns; provided,
however, that Westar and the Indemnitors may not assign or transfer their
respective rights or duties under this Agreement or the Loan Documents without
the prior written consent of the Lender.

IN WITNESS THEREOF, the parties hereto have executed this

<PAGE>

Agreement as of the date first above written.

BANK ONE, NA WESTAR FINANCIAL SERVICES INCORPORATED,
a Washington corporation

By: By:
-------------------------- ------------------------------------
Robert N. Kent, Jr., Robert W. Christensen,
Vice President President

- -----------------------------
Robert W. Christensen,
Individually

<PAGE>

EXHIBIT 10.12

AGREEMENT

This Agreement is made as of August 31, 1998 between WESTAR FINANCIAL
SERVICES INCORPORATED , a Washington corporation (the "Company") and MUD BAY
HOLDINGS, LTD. (the "Lender").

RECITALS

A. The Company executed and delivered to Lender a promissory note
in the principal amount of $750,000 dated January 15, 1997
(the "Note").

B. The Note matured on March 31, 1998 .

C. The Parties are entering into this Agreement to extend the
maturity date for payment of the Note.

<PAGE>

AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1. MATURITY DATE. The maturity date of the Note is hereby extended to
June 15, 1999.

2. SUBORDINATION. The Bank One Security Interest shall be and remain at all
times a lien or charge on the Residual Interest, prior and superior to the lien
or charge of Lender under the Lender Security Agreement.

3. ACKNOWLEDGMENT OF SUBORDINATION. Lender acknowledges that it hereby
intentionally waives, relinquishes and subordinates the priority and superiority
of the lien or charge of the Lender Security Agreement in favor of the lien or
charge of the Bank One Security Interest upon the Residual Interest, and
understands that in reliance upon and in consideration of this waiver,
relinquishment and subordination, specific loans and advances are being and will
be made and specific monetary and other obligations are being and will be
entered into by third parties which would not be made or entered into but for
such reliance upon this waiver, relinquishment and subordination. Lender agrees
to execute such further documents as either Bank One or the Company may
reasonably request to reflect, implement or confirm such subordination.

4. ENTIRE AGREEMENT. This Agreement contains the whole agreement between the
parties hereto with respect to its subject matter, and supersedes all prior
agreements whether written or oral.

5. BINDING EFFECT. This Agreement shall enure to the benefit of and be binding
upon the legal representatives, heirs, successors and assigns of the parties.

6. CONTINUING EFFECT. Except as specifically modified or amended hereby, the
Note and the Lender Security Agreement shall continue in full force and effect
in accordance with their terms.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.

MUD BAY HOLDINGS, LTD.

<PAGE>

By:
-----------------------------
R.W. Christensen, Jr., President

WESTAR FINANCIAL SERVICES INC.

By:
-----------------------------
Cindy A. Kay, Controller

<PAGE>

EXHIBIT 10.13

AGREEMENT

This Agreement is made as of April 30, 1998 between WESTAR FINANCIAL
SERVICES INCORPORATED , a Washington corporation (the "Company") and CATHY
CARLSON (the "Lender").

RECITALS

<PAGE>

A. The Company executed and delivered to Lender a promissory note
in the principal amount of $100,000 dated January 15, 1997
(the "Note").

B. The Note matured on May 15, 1997.

C. The Parties are entering into this Agreement to extend the
maturity date for payment of the Note.

AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1. MATURITY DATE. The maturity date of the Note is hereby extended to
May 31, 1998.

4. ENTIRE AGREEMENT. This Agreement contains the whole agreement between the
parties hereto with respect to its subject matter, and supersedes all prior
agreements whether written or oral.

5. BINDING EFFECT. This Agreement shall enure to the benefit of and be binding
upon the legal representatives, heirs, successors and assigns of the parties.

6. CONTINUING EFFECT. Except as specifically modified or amended hereby, the
Note and the Lender Security Agreement shall continue in full force and effect
in accordance with their terms.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.

CATHY L. CARLSON

By:
---------------------------
Individual

WESTAR FINANCIAL SERVICES INC.

By:
---------------------------
Thomas M. Foley
Vice-president, Finance

<PAGE>

EXHIBIT 10.14

AGREEMENT

<PAGE>

This Agreement is made as of August 31, 1998 between WESTAR FINANCIAL
SERVICES INCORPORATED, a Washington corporation (the "Company") and & CAPITAL,
INC. (the "Lender").

RECITALS

A. The Company executed and delivered to Lender a promissory note
in the principal amount of $500,000 dated January 26, 1998
(the "Note").

B. The Note matured on March 26, 1998.

C. The Parties are entering into this Agreement to extend the
maturity date for payment of the Note.

AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1. MATURITY DATE. The maturity date of the Note is hereby extended to
April 1, 1999.

4. ENTIRE AGREEMENT. This Agreement contains the whole agreement between the
parties hereto with respect to its subject matter, and supersedes all prior
agreements whether written or oral.

<PAGE>

5. BINDING EFFECT. This Agreement shall enure to the benefit of and be binding
upon the legal representatives, heirs, successors and assigns of the parties.

6. CONTINUING EFFECT. Except as specifically modified or amended hereby, the
Note and the Lender Security Agreement shall continue in full force and effect
in accordance with their terms.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.

WESTAR FINANCIAL SERVICES INC.

By:
---------------------------------
R.W. Christensen, Jr.
Its president

& CAPITAL, INC.

By:
---------------------------------
David C. Soward
Managing General Partner

<PAGE>

EXHIBIT 10.15

AGREEMENT

This Agreement is made as of August 31, 1998 between WESTAR FINANCIAL
SERVICES INCORPORATED , a Washington corporation (the "Company") and & CAPITAL,
INC. (the "Lender").

RECITALS

A. The Company executed and delivered to Lender a promissory note
in the principal amount of $1,500,000 dated April 15, 1997
(the "Note").

B. The Note matured on July 31, 1997 and was extended .

C. To provide security for repayment of the Note, the Company
executed a Security Agreement dated April 15, 1997, granting
to Lender a security interest in certain assets of the Company
(the "Lender Security Agreement").

D. The Parties are entering into this Agreement to again extend
the maturity date for payment of the Note.

AGREEMENT

NOW, THEREFORE, the parties agree as follows:

1. MATURITY DATE. The maturity date of the Note is hereby extended to the
earlier of (i) April 1, 1999 or (ii) receipt by the Company of not less
than $5,000,000 in proceeds from one or more closings of its current
offerings of Units, consisting of convertible subordinated notes or any
other similar financing or financings involving securities.

<PAGE>

4. ENTIRE AGREEMENT. This Agreement contains the whole agreement between the
parties hereto with respect to its subject matter, and supersedes all prior
agreements whether written or oral.

5. BINDING EFFECT. This Agreement shall enure to the benefit of and be binding
upon the legal representatives, heirs, successors and assigns of the parties.

6. CONTINUING EFFECT. Except as specifically modified or amended hereby, the
Note and the Lender Security Agreement shall continue in full force and effect
in accordance with their terms.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.

WESTAR FINANCIAL SERVICES
INCORPORATED

By:
-----------------------------
R.W. Christensen, Jr., President

& CAPITAL, PARTNERS, L.P.

By:
-----------------------------
David C. Soward, Managing General Partner

<PAGE>

EXHIBIT 10.16

PROMISSORY NOTE

Olympia, Washington
$500,000.00 May 1, 1998

FOR VALUE RECEIVED, the undersigned, WESTAR FINANCIAL SERVICES
INCORPORATED, a Washington corporation, with an address of 505 E. Union Avenue,
Suite 300-C, P.O. Box 919, Olympia, Washington 98507-0919 ("Westar"), promises
to pay to the order of SUMMIT CAPITAL RESOURCES, Ltd. (the "Lender"), at its
principal place of business at Olympia, Washington, the principal sum of Five
Hundred Thousand Dollars and 00/100 ($500,000.00), together with interest on the
unpaid principal balance hereof from the date of disbursement by the Lender at
the rates and in the manner hereinafter set forth. The payment of principal and
interest in respect of this note is expressly subordinated to the interests of
Bank One, Columbus N. A. ("Bank One") regarding all debt owed to Bank One by
Westar or any its subsidiaries. In the event of any receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization of Westar
and its subsidiaries whether pursuant to bankruptcy laws, sale of all or
substantially all of the assets, dissolution, liquidation or any other
marshaling of the assets and liabilities of the Company,

<PAGE>

no amount shall be paid by the Company in respect of the principal and
interest on this note unless and until all Bank One indebtedness shall have
been paid in full together will all interest thereon. The principal sum and
the interest shall be due and payable in cash as follows:

PAYMENTS OF PRINCIPAL AND INTEREST

The total principal sum and outstanding interest thereunder shall be
due and payable and shall be paid by Westar to the Lender no later than April 1,
1999.

This Note shall bear interest on the unpaid principal balance at a
fluctuating rate per annum equal to nine and one quarter (9.25%).

All interest payable in accordance with this Note shall be calculated
on the basis of a 365-day year for the actual number of days the principal
balance is outstanding and be paid quarterly.

In case of a lawsuit or action is commenced to collect this note or any
portion thereof Westar promises to pay, in addition to the costs provided by
statute, such sum as the court may adjudge reasonable as attorney's fees
therein, (including any action to enforce the judgment and this provision as to
attorney's fees and costs shall survive the judgment.) Venue in any action to
enforce this Note shall, at holder's option, shall be in Thurston County,
Washington.

Summit Capital Resources, Ltd.

- --------------------------
R.W. Christensen, Jr.,
Its President

Westar Financial Services Incorporated

- ---------------------------
Cindy A. Kay
Controller