FRESHSTART VENTURE CAPITAL CORP, 497, 1996-11-29

FRESHSTART VENTURE CAPITAL CORP
497, 1996-11-29

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Freshstart Venture Capital Corp.

1,000,000 Shares
Common Stock

Freshstart Venture Capital Corp., a New York corporation (the "Company"),
is a closed-end, diversified registered investment company licensed by the
United States Small Business Administration ("SBA") to operate as a Specialized
Small Business Investment Company ("SSBIC"). The Company is hereby offering
1,000,000 shares of its common stock, par value $.01 per share (the "Common
Stock"). The Company's business is to provide loan financing to persons who
qualify under SBA regulations as socially or economically disadvantaged persons
or to entities which are at least 50% owned by such persons. The Company has
made, and intends to continue to make, a portion of its loans for financing the
purchase or continued ownership of taxicab medallions, taxicabs and related
assets. The balance of its loan portfolio includes loans for the acquisition
and/or operation of other small businesses. An investment in an SSBIC may afford
a qualified investor certain favorable tax benefits, including the ability to
defer the recognition of capital gain realized on the sale of a publicly traded
security, subject to certain limitations, if the qualified investor uses the
proceeds from the sale of such publicly traded security within 60 days to
purchase common stock in an SSBIC. In addition, subject to certain conditions,
certain financial institutions may be able to satisfy their requirements under
the Community Reinvestment Act through the purchase of shares of the Company's
Common Stock. See "FEDERAL REGULATION -- Community Reinvestment Act of 1977."
Prior to the offering, there has been no public market for the Common Stock. No
assurance can be given that a public market will develop following the
completion of the offering or that, if any such market does develop, it will be
sustained. The Common Stock has been approved for listing on the Nasdaq SmallCap
Market under the symbol "FSVC."

SEE "RISK FACTORS" STARTING ON PAGE 7 HEREOF.

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

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH
DEGREE OF RISK.

IN ADDITION, CLOSED-END FUNDS FREQUENTLY TRADE IN THE SECONDARY MARKET (TO
THE EXTENT ONE EXISTS) AT A PRICE BELOW NET ASSET VALUE AND/OR THE PUBLIC
OFFERING PRICE. ACCORDINGLY, IF THE SHARES OF COMMON STOCK OFFERED HEREBY TRADE
BELOW SUCH LEVELS, PURCHASERS OF SHARES IN THIS OFFERING WHO WISH TO SELL THEIR
SHARES IMMEDIATELY MAY NOT BE ABLE TO DO SO WITHOUT SUSTAINING A LOSS. SEE "RISK
FACTORS."

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

INVESTORS ARE ADVISED TO READ AND RETAIN A COPY OF THIS PROSPECTUS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
Per Share.............. $5.00 $.50 $4.50
- --------------------------------------------------------------------------------
Total (3).............. $5,000,000 $500,000 $4,500,000
================================================================================
(Footnotes on following page)

The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as and if delivered to and accepted by the Underwriters, and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
offering and to reject any order in whole or in part. It is expected that the
delivery of certificates evidencing shares will be made against payment on or
about December 3, 1996 at the offices of Suppes Securities, Inc., 225 Park
Avenue, New York, New York, 10169. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. For information regarding these matters see
"Underwriting."

SUPPES SECURITIES, INC. NATIONAL SECURITIES
CORPORATION

The date of this Prospectus is November 26, 1996

<PAGE>

(Footnotes from cover page)

- ----------
(1) Does not include additional compensation to the Underwriters, in the form
of a non-accountable expense allowance of $150,000 or $.30 per share
($172,500 if the over-allotment option is exercised in full). The Company
has also agreed to indemnify the Underwriters against certain certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "UNDERWRITING."
(2) Before deducting estimated expenses (including the Underwriters'
non-accountable expense allowance) of $669,000 ($691,500 if the
Underwriters' over-allotment option is exercised in full) payable by the
Company.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
150,000 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $5,750,000, $575,000
and $5,175,000, respectively.

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements, semi-annual reports containing
unaudited financial statements and such other periodic reports as the Company
may determine to be appropriate or as may be required by law.

<PAGE>
- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. All per share data and information
relating to the number of shares of the Company's Common Stock outstanding have
been adjusted to give effect to two for one stock splits effective on January
12, 1996 and October 24, 1996.

THE COMPANY

Freshstart Venture Capital Corp. (the "Company") is a type of Small
Business Investment Company ("SBIC"). Specifically the Company operates as a
Specialized Small Business Investment Company ("SSBIC") under the Small Business
Investment Act of 1958, as amended, (the "1958 Act"), and is regulated and
financed in part by the Small Business Administration ("SBA"). As an SSBIC, the
Company's business is to provide loan financing to persons who qualify under SBA
regulations as socially or economically disadvantaged persons or to entities
which are at least 50% owned by such persons. The Company has in the past and
intends to continue to make in the future a substantial portion of its loans to
finance taxicab medallions, taxicabs and related assets, with the balance of its
loans being made to other small business concerns. Taxi loans, which represented
approximately 76% of the aggregate principal amount of the Company's loan
portfolio as of October 31, 1996, are collateralized by taxicab medallions and
related assets. The Company has had a very low delinquency rate with taxicab
medallion loans and has never suffered a material loss in connection with such
financings. Historically, the majority of the Company's taxicab medallion loans
have been subordinate to loans by senior lenders. The balance of the Company's
loan portfolio includes loans for the acquisition and/or operation of other
small businesses and the Company intends to continue to make such loans. The
Company has not to date made any equity investments in any small business
concerns and has no present intention to do so. The Company may in the future,
however, make such equity investments, if determined by its Board of Directors
at such time to be in the best interests of the Company. See "RISK FACTORS" and
"BUSINESS--Marketing Strategy."

The Company, which is a New York corporation formed on March 4, 1982, is
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and has elected to be taxed as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to be treated as a regulated investment company. As a regulated
investment company, the Company pays out to its shareholders substantially all
of its investment company taxable income as dividends. Since fiscal 1988, the
Company has paid dividends for each fiscal year and it intends to continue to
pay dividends as long as funds are legally available for distribution.

An investment in an SSBIC, such as a purchase of the Company's Common
Stock, may afford certain qualified investors favorable tax benefits, including
the ability to defer the recognition of capital gain realized on the sale of
publicly traded securities, subject to certain limitations, if the qualified
investor uses the proceeds from the sale of such publicly traded security within
60 days to purchase common stock in an SSBIC. See "TAX CONSIDERATIONS." In
addition, subject to certain conditions, certain financial institutions may be
able to satisfy their requirements under the Community Reinvestment Act of 1977
through the purchase of shares of the Company's Common Stock. See "FEDERAL
REGULATION--Community Reinvestment Act."

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

<PAGE>

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

THE OFFERING(1)

Securities offered.......................... 1,000,000 shares of Common Stock
Common Stock outstanding prior to
the offering.............................. 1,096,688 shares
Common Stock to be outstanding after
the offering.............................. 2,096,688 shares
Previous Trading History.................... None
Underwriters................................ Suppes Securities, Inc., National
Securities Corporation
Nasdaq SmallCap MarketSM Symbol............. FSVC

- ------------
(1) Unless otherwise indicated, no effect is given in this Prospectus to
exercise of the Underwriters' fifteen (15%) percent over-allotment option.
See "UNDERWRITING."

RISK FACTORS

The securities offered hereby involve a high degree of risk and should not
be purchased by investors who cannot afford the loss of their entire investment.
Such risk factors include, among others, limitations on taxicab medallion
financings, SBA industry review, SBA financing not assured, possible prepayment
by borrowers, uncertain market, loan foreclosures, concentration of the
Company's loans to borrowers in a single industry and geographic area, reliance
on management, conflicts of interest and lack of correlation between net asset
value, public offering price and market price of the Company's Common Stock.
Purchasers of the securities offered hereby will experience immediate dilution.
See "RISK FACTORS" and "DILUTION."

Common Stock outstanding has been adjusted to give effect to two for one
stock splits effective January 12, 1996 and October 24, 1996.

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

4
<PAGE>

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

SUMMARY FINANCIAL INFORMATION

Fiscal Year Ended May 31,
(audited)
------------------------------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total revenue ................................. $1,094,244 $1,101,091 $1,043,071 $1,005,284 $1,033,944
---------- ---------- ---------- ---------- ----------
Interest expense .............................. 437,831 326,841 315,213 322,806 307,764
Other expense ................................. 341,354 328,789 357,997 339,327 335,388
---------- ---------- ---------- ---------- ----------
Total expense ................................. 779,185 655,630 673,210 662,133 643,152
---------- ---------- ---------- ---------- ----------
Net Investment Income before taxes
and loan loss reserve ...................... 315,059 445,461 369,861 343,151 390,792
Unrealized depreciation in value of
investments (1) ............................. 124,687 86,456 78,161 2,399 35,000
Provision for income taxes
(State and Federal) (2) ..................... 1,079 729 985 1,836 1,567
---------- ---------- ---------- ---------- ----------
Net Income .................................... 189,293 358,276 290,715 338,916 354,225
Dividends on preferred stock to SBA
paid or restricted (3) ...................... 22,800 26,000 26,000 45,092 56,400
---------- ---------- ---------- ---------- ----------
Net income available to
Common Stock ................................ $ 166,493 $ 332,276 $ 264,715 $ 293,824 $ 297,825
========== ========== ========== ========== ==========
Earnings per share of Common Stock
(after payment of preferred
stock dividend) (4) ......................... $ .19 $ .30 $ .24 $ .27 $ .27
========== ========== ========== ========== ==========
Dividends paid per share of
Common Stock (4)(5)(6) ...................... $ .18 $ .30 $ .24 $ .27 $ .27
========== ========== ========== ========== ==========
Dividends paid (6) ............................ $ 151,211 $ 329,005 $ 263,206 $ 296,108 $ 296,106
========== ========== ========== ========== ==========
Weighted average shares of
Common Stock outstanding (4)(7) ............. 857,732 1,096,688 1,096,688 1,096,688 1,096,688
========== ========== ========== ========== ==========

</TABLE>

- ----------
(1) See Statements of Operations for information on annual provisions for loan
loss reserves under the caption "Unrealized Depreciation in Value of
Investments."
(2) The Company, since the fiscal year ended May 31, 1988, has elected and
qualified to be taxed as a regulated investment company, and, therefore,
substantially all taxable income has been distributed to shareholders. The
Company also intends to elect to be treated as a regulated investment
company for the year ending May 31, 1997.
See "TAX CONSIDERATIONS" and Note 2 of Notes to the Financial Statements.
(3) These dividends are calculated on the basis of the number of shares of
preferred stock outstanding at the end of each period presented. Restricted
preferred stock dividends represent amounts which must be paid to the SBA
as dividends on the preferred stock prior to any distribution to the
holders of Common Stock. The Company has paid all required 4% Preferred
Stock dividends through May 31, 1996. The Company issued additional shares
of 4% Preferred Stock in October 1994.
(4) All per share data and information relating to the number of shares of the
Company's Common Stock outstanding have been adjusted to give effect to two
for one stock splits effective January 12, 1996 and October 24, 1996.
(5) The amount of dividends paid per share of Common Stock is based on the
actual amount of dividends paid to holders of Common Stock, in accordance
with Subchapter M of the Code. See "TAX CONSIDERATIONS."
(6) For purposes of calculating the amount required to be distributed pursuant
to Subchapter M of the Code, actual bad debt write-offs are calculated in
accordance with the requirements of the Code, and as a result may vary from
loan loss reserves calculated for financial reporting purposes. However,
the cumulative effect of such differences are nominal and amounted to
$15,950 or 1.1% of the total dividends distributed for the eight years
ended May 31, 1996. See "TAX CONSIDERATIONS."
(7) Calculated on the basis of the weighted average number of shares
outstanding during each period. The average number of shares has been
calculated on a month-end average basis.

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

5
<PAGE>

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

SUMMARY FINANCIAL INFORMATION

Fiscal Year Ended May 31,
(audited)
------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Loans receivable ......................... $ 8,021,747 $ 8,173,430 $ 7,907,157 $ 8,313,042 $ 8,598,015
Less: Unrealized depreciation
on loans receivable .................... (180,000) (180,000) (178,159) (180,558) (180,558)
----------- ----------- ----------- ----------- -----------
Loans at fair value ...................... 7,841,747 7,993,430 7,728,998 8,132,484 8,417,457
----------- ----------- ----------- ----------- -----------
Total Assets ............................. $ 8,770,323 $ 8,994,147 $ 8,494,271 $ 9,202,386 $ 9,238,759
=========== =========== =========== =========== ===========
Loans payable-line of credit ............. $ 1,873,188 $ 334,488 $ 34,488 $ 5,000 $ --
----------- ----------- ----------- ----------- -----------
Debenture payable to SBA ................. 3,040,000 4,340,000 4,340,000 4,340,000 4,380,000
----------- ----------- ----------- ----------- -----------
4% Preferred Stock
(Redeemable) ........................... -- 650,000 650,000 1,410,000 1,410,000
----------- ----------- ----------- ----------- -----------
Total liabilities ........................ 5,029,414 5,824,630 5,323,245 6,033,644 6,068,298
----------- ----------- ----------- ----------- -----------
3% Preferred Stock (1) ................... 1,520,000 -- -- -- --
Retained earnings ........................ 11,164 14,435 15,944 13,660 15,379
Restricted capital (2) ................... -- 954,997 763,998 572,998 381,999
Common Stock and additional
paid-in capital ........................ 2,209,745 2,200,085 2,391,084 2,582,084 2,773,083
----------- ----------- ----------- ----------- -----------
Total stockholders' equity ............... $ 3,740,909 $ 3,169,517 $ 3,171,026 $ 3,168,742 $ 3,170,461
=========== =========== =========== =========== ===========
Shares of Common Stock
Outstanding (3) ........................ 857,732 1,096,688 1,096,688 1,096,688 1,096,688
=========== =========== =========== =========== ===========
Net assets per share of
Common Stock (4) ....................... $ 2.58 $ 2.88 $ 2.88 $ 2.88 $ 2.88
=========== =========== =========== =========== ===========

</TABLE>

- ----------

(1) In May 1993, the Company repurchased, at a discount, all 1,520,000 shares
of the Company's 3% Preferred Stock from the SBA. Such repurchased shares
were subsequently reclassified as 4% Preferred Stock in November 1994. See
"BUSINESS--Specialized Small Business Investment Companies."
(2) Represents the unamortized portion of the gain realized from the
repurchase, at a discount, of all 1,520,000 shares of the Company's 3%
Preferred Stock from the SBA on May 10, 1993. In the event of the
liquidation of the Company, the SBA would have the right to receive the
amount attributed to restricted capital before any distribution to holders
of Common Stock. The balance of $381,999 will be amortized on a straight
line basis and included as additional paid-in capital over a 24 month
period. See "BUSINESS--Specialized Small Business Investment Companies."
(3) All per share data and information relating to the number of shares of the
Company's Common Stock outstanding have been adjusted to give effect to two
for one stock splits effective January 12, 1996 and October 24, 1996.
(4) Computed on the basis of total assets less total liabilities (including the
4% Preferred Stock outstanding). Additionally, the entire gain realized on
the repurchase of the 3% Preferred Stock is included in the computation of
the net assets per share. Such gain is amortized monthly, with the amount
of the amortization transferred to additional paid-in capital. In the event
of the liquidation of the Company, the SBA would have the right to receive
the amount attributed to restricted capital before any distribution to
holders of Common Stock. See "BUSINESS--Specialized Small Business
Investment Companies."

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

6
<PAGE>

RISK FACTORS

The Securities offered hereby involve a high degree of risk, including, but
not necessarily limited to, the several factors described below. Prospective
investors should carefully consider the following risk factors inherent in the
activities of the Company and this offering before making an investment
decision.

Limitations on Taxicab Medallion Financings

As of October 31, 1996, approximately 76% of the aggregate principal amount
of the Company's loans represented loans made to finance the purchase or
continued ownership of New York City taxicab medallions. The Company, however,
is only authorized by its SBA license to allocate up to 50% of its portfolio to
taxicab medallion loans. The SBA is aware that the Company has exceeded such
level of taxicab medallion loans, but has raised no objection to date. In
addition, the Company and the SBA entered into a letter of intent dated December
1, 1992 (the "Letter of Intent"), setting forth the intentions of the SBA and
the Company with respect to a proposed agreement that would allow the Company to
maintain up to 100% of its loan portfolio in New York City taxicab medallion
secured loans. However, there can be no assurance that the Company and the SBA
will execute such proposed agreement, or that its terms would conform to the
Letter of Intent. If the SBA required the Company to liquidate a portion of its
taxicab medallion loans immediately, it is possible that the Company would incur
a loss in such liquidation. The Company intends to commit funds to other small
businesses. No assurances can be given, however, as to the extent or success of
such efforts to diversify the Company's portfolio. See "BUSINESS--SBA Letter of
Intent."

SBA Industry Review

In 1994, the SBA conducted a study of the New York City taxi industry to
review SBIC policy, compliance and financial issues associated with a
significant concentration of SSBIC and SBIC investments in the taxi medallion
industry. The study suggested that, given funding limitations, the SBA should
remain cognizant of its general policy to avoid the concentration of funding in
one industry or geographic location. In addition, the study raised concerns as
to whether certain investor-owned taxicab businesses which are managed by
third-party management companies are passive businesses ineligible for SBA
funding under applicable regulations.

To date, the SBA has not issued new rules specifically related to the taxi
industry. SBA regulations promulgated in January 1996, however, restate the
SBA's general prohibition against financing a `passive business' -- defined in
pertinent part as a concern that is not engaged in a regular and continuous
business operation or where its employees do not carry on the majority of
day-to-day operations. In addition, it is the Company's understanding that in
the review of a licensee's leverage request, the SBA seeks information on the
extent to which non-taxi medallion investments are contemplated.

Although the Company's management believes that it can effectively address
any SBA concern with regard to its operations and investments in the taxi
industry, any change in SBA policies with regard to lending to the taxi
medallion industry potentially could adversely affect the Company's ability to
obtain financing from the SBA and/or make investments in the taxi medallion
industry. In light of these circumstances, the Company intends to commit funds
to small businesses in other industries. See "Business--Specialized Small
Business Investment Companies." No assurance can be given, however, as to the
extent or success of such efforts to diversify.

SBA Financing Not Assured

The Company intends to raise additional funds for investment through the
issuance of securities to the SBA. See "BUSINESS--Specialized Small Business
Investment Companies." The amount of financing the Company is able to obtain
from the SBA is based upon the Company's Common Stock and additional paid-in
capital, net of organizational expenses ("Leverageable Capital"). The sale of
the Common Stock will increase the Company's Leverageable Capital and, in
accordance with the 1958 Act, permit the Company to issue additional
subordinated debentures to, or guaranteed by, the SBA in the approximate
principal amount of $11,493,000. Subject to the successful completion of this
offering, the Company can and intends to apply on one or more occasions for all
or substantially all of the SBA subordinated debenture leverage for which it
would be eligible. No assurances can be given, however, as to the amount and
timing of any additional financing from the SBA. See "BUSINESS--Specialized
Small Business Investment Companies." Although the Company has obtained
substantial SBA financing benefits in the past, there can be no assurance that
the Company will be able to obtain all or any portion of the financing benefits
permitted under the 1958 Act. Further, there can be no assurance as to the
timing of the receipt of SBA financing.

7
<PAGE>

Currently there are two types of financial assistance available to SSBICs
from the SBA, commonly referred to as "leverage". SSBICs may apply for SBA
leverage in one or more of the following forms. The 1958 Act authorizes, in the
SBA's sole discretion: (a) the purchase or guarantee of an SSBIC's debentures,
or (b) the purchase or guarantee of an SSBIC's participating securities (i.e.,
equity-type securities with prioritized payments to the SBA) with repayment
obligations related to the extent of earnings. The purchase or guarantee by the
SBA of a participating security currently requires that an SSBIC have private
capital of at least $5,000,000.

The funds available to SSBICs from the SBA are limited and are subject to
the SBA's receipt of annual appropriations from Congress. Because the amount of
financial assistance which can be provided by SBA is a multiple of the amount
appropriated, the Office of Management and Budget (the "OMB") calculates a
"subsidy rate" for each form of leverage. Congressional funding legislation
which is influenced by the respective subsidy rates, specifies the funding
levels each year. To the Company's knowledge, for Federal Fiscal Year 1996
(October 1, 1995, through September 30, 1996), the SBA received Congressional
appropriations resulting in program levels of (a) $108.5 million to be used, in
SBA's sole discretion, for the purchase or guarantee of SBIC and SSBIC
debentures all of which was committed and utilized, and (b) $267.7 million for
the purchase or guarantee of SBIC or SSBIC participating securities, all of
which was committed and utilized. To the Company's knowledge for Federal fiscal
year 1997 (October 1, 1996 through September 30, 1997), the SBA has received
Congressional appropriations resulting in program levels of (a) $225 million for
the purchase or guarantee of SBIC and SSBIC debentures and (b) $400 million for
the purchase or guarantee of SBIC or SSBIC participating securities. Legislation
approving Federal fiscal year 1997 SBA appropriations for the SBIC program also
contained certain user fees (charged to SBICs and SSBICs in connection with
financings) which effectively increase interest rates for unsubsidized
debentures and the cost to an issuer of participating security leverage, and
which thereby reduces the amount of direct Federal appropriations required to
fund the program.

Although the Company plans to apply for SBA funding at the earliest
practicable date, there can be no assurance that the Company will be able to
obtain more funds or funding at the same level as it has been able to obtain in
the past. In addition, there can be no assurance that the SBA will extend or
roll over existing financing benefits extended to the Company when such
obligations mature. An adverse change in the level and/or timing of SBA
financing to the Company could materially adversely affect the profitability of
the Company. While the Company awaits, after the consummation of this offering,
the SBA's response to applications by the Company for additional financing based
upon the net increase in capital resulting from this offering, it will
experience a lower rate of return than it would otherwise experience if such
financing were obtainable by the Company immediately upon closing of this
offering. See "RISK FACTORS--Leverage." In addition, the Company may, depending
upon market conditions, experience some delay between the receipt of any
financing from the SBA and the actual investment of such funds. See
"CAPITALIZATION" and "BUSINESS--Specialized Small Business Investment
Companies."

Leverage

Subordinated debentures issued to raise funds for investment have a fixed
dollar claim on the Company's assets and income prior to that of the Common
Stock. Any income earned by the Company by investing the proceeds from the sale
of such senior securities which is in excess of the interest payable with
respect to such senior securities will cause the net asset value of the
Company's Common Stock and the income per share of Common Stock to increase.
Conversely, if income earned by the Company is less than the interest payable
with respect to such senior securities, the net asset value of the Common Stock
and the income per share of Common Stock will decline, possibly more sharply
than would be the case if there were not fixed senior claims (and the income
"deficiency" were borne by the holders of the senior securities as well as the
holders of Common Stock). The obtaining of funds through the issuance of
subordinated debentures thus enhances profit opportunities, but also increases
the risk of losses. This effect is often referred to herein as "leverage." The
Company may also obtain leverage in the form of loans from banks and other
institutional lenders. See "BUSINESS--Borrowings."

Possible Prepayment By Borrowers

Loans made by the Company typically allow borrowers to prepay loans,
subject to prepayment penalties. A borrower is likely to exercise prepayment
rights at a time when its interest rate is greater than prevailing interest
rates. If borrowers elect to prepay loans, there can be no assurance that the
Company would be able to reinvest such funds at rates equal to those previously
obtained. Assuming the Company's costs remain the same, any reduction in
interest rates would result in less profits to the Company. See
"Business--General."

8
<PAGE>

Uncertain Market; Issuance of Additional Medallions

There can be no assurance that the Company will be able to place loans
successfully to the taxi industry upon the terms on which it currently lends.
The ability of the Company to place additional loans in the taxi industry (which
represented approximately 76% of the Company's loan portfolio at October 31,
1996) may be adversely affected by factors over which the Company may have no
control and which may impair the security for the Company's already outstanding
loans. These factors may include, among others, economic conditions, including
economic conditions affecting the taxicab industry in particular, the market
rates of interest in effect from time to time, and availability of financing
from competitors of the Company. A bill permitting the City of New York to issue
up to 400 additional taxi medallions was signed by the Governor of the State of
New York on August 8, 1995 and the New York City Council subsequently approved
the sale of up to such number of medallions over a three year period. The Taxi
and Limousine Commission ("TLC") conducted the sale of 133 medallions in May
1996. The TLC conducted a second auction of 133 medallions in October 1996. In
light of these circumstances, the Company intends to pursue loan opportunities
for non-taxi small businesses. No assurances can be given, however, that these
efforts will be successful. See "BUSINESS--The New York City Taxi Medallion
Industry and Market; Marketing Strategy."

Loan Foreclosures

As of May 31, 1996, the Company's provision for loan losses was $180,558,
which provision related solely to non-taxi related loans. Based upon current
market conditions and current loan to value ratios, the Company believes that
the collateral securing its loans and the Company's provision for loan losses
are adequate. There can be no assurance, however, that, in the event of a
foreclosure, the Company will be able to recoup all or a portion of a loan.
Further, costs associated with foreclosure proceedings may also reduce the
Company's recovery. See "BUSINESS--Loan Portfolio; Valuation."

Management has Broad Discretion to Allocate the Use of Proceeds

The Board of Directors of the Company has broad discretion to allocate all
of the proceeds of this offering consistent with the application of such
proceeds, as described in this Prospectus and subject to the limitations imposed
by the 1958 Act and SBA regulations thereunder, the 1940 Act and the Company's
Articles of Incorporation. Accordingly, the Board of Directors will use such
discretion in the best interest of the Company. See "USE OF PROCEEDS,"
"INVESTMENT POLICIES" and "FEDERAL REGULATIONS."

Industry and Geographical Concentration; Loans to Other Industry Groups

The Company has made, and intends to continue to make loans in connection
with the financing of the purchase or continued ownership of taxicab medallions,
taxicabs and related assets. In addition, almost all of the Company's loans have
been made to individuals or entities in the Northeast. There can be no assurance
that there will not be a significant economic downturn in the taxi-related
industry group or in the Northeast or both. Any such significant economic
downturn could have a material adverse effect on the profitability of the
Company. The Company intends to pursue loan opportunities for other small
businesses. See "BUSINESS."

Competition

Banks, credit unions, finance companies and Small Business Investment
Companies, and other SSBICs compete with the Company in financing small
businesses. Many of the Company's competitors have greater resources than those
available to the Company. In addition, some of the Company's competitors are
subject to different and in some cases less stringent regulation than the
Company. As a result, there can be no assurance that the Company can compete
successfully in the future. See "BUSINESS--Competition."

Valuation of Loans and Investments; Lack of Ready Market to Value Investment
Portfolio

9
<PAGE>

Reliance on Management

The success of the Company will be largely dependent upon the continued
efforts of Zindel Zelmanovitch, President of the Company, and Neil Greenbaum,
Secretary of the Company. Messrs. Zelmanovitch and Greenbaum have each made a
substantial investment in the Common Stock of the Company. See "PRINCIPAL
SHAREHOLDERS." The death or incapacity of either of Mr. Zelmanovitch or Mr.
Greenbaum could have a material adverse effect on the Company and there can be
no assurance that qualified replacements could be found. The Company has
obtained "key man" life insurance policies on the lives of Messrs. Zelmanovitch
and Greenbaum in the amount of $1,000,000 each. Both Mr. Zelmanovitch and Mr.
Greenbaum will enter into employment agreements with the Company immediately
prior to the closing of the offering. See "MANAGEMENT."

Conflicts of Interest

Mr. Zelmanovitch is also an officer and director of East Coast Venture
Capital, Inc. ("East Coast"), an SSBIC, and a principal shareholder of the
parent company of East Coast. East Coast is also in the business of financing
small businesses, including but not limited to, providing loans for the purchase
or continued ownership of taxicab medallions. In addition, Mr. Zelmanovitch
manages a pension plan which makes limited investments to finance taxi
medallions. Any conflicts of interest that arise with respect to the foregoing
will be resolved in accordance with the Company's Code of Ethics. Conflicts also
may arise as to the allocation of Mr. Zelmanovitch's time. The Company's Board
of Directors believes Mr. Zelmanovitch has and will continue to be able to
allocate such time as is reasonably necessary for the Company's operations.

Mr. Greenbaum is also an officer of Pearland Transfer Corp., a licensed
medallion broker, Pearland Brokerage Inc., an insurance brokerage company, and
Hereford Insurance Company. Mr. Greenbaum is also President of one taxi
management company. Conflicts may arise as to the allocation of Mr. Greenbaum's
time. The Company's Board of Directors believes Mr. Greenbaum has and will
continue to be able to allocate such time as is reasonably necessary for the
Company's operations. See also "CERTAIN TRANSACTIONS." In addition, Mr.
Greenbaum manages two pension plans which make limited investments to finance
taxi medallions. Any conflicts of interest that arise with respect to such
investments will be resolved in accordance with the Company's Code of Ethics.

Shares Eligible for Future Sale

Sales of substantial amounts of the Common Stock following this offering
could adversely affect the market price of the Common Stock. Of the 1,096,688
shares that currently are issued and outstanding, 822,344 shares are owned by
officers, directors and persons owning at least five percent of the outstanding
shares after giving effect to the sale of shares offered hereby. Such shares are
subject to lock-up agreements with Suppes Securities, Inc. as representative of
the Underwriters which prohibit their sale for a period ending 18 months after
the date of this Prospectus. Thereafter, 193,172 of such shares may be sold
without restriction at any time and 628,996 of such shares may be sold subject
to certain volume limitations under Rule 144 promulgated under the Securities
Act. See "DESCRIPTION OF CAPITAL STOCK AND LONG-TERM DEBT--Shares Eligible for
Future Sale."

Lack of Correlation Between Net Asset Value, Public Offering Price and Market
Price

Closed-end funds such as the Company frequently trade in the secondary
market at a price below net asset value and/or the public offering price.
Therefore, it is possible that the market value of the Common Stock (if a public
market ever develops) will bear little or no relation to the market or net asset
value of the Company's underlying portfolio assets or the resulting net asset
value per share. No assurance of the development of any significant market for
the Common Stock can be given, at any price. As a result, it may be possible for
a holder of shares of Common Stock to reap a gain or suffer a loss in the market
value of his shares of Common Stock that bears little or no relation to any
gains or losses in the market or net asset value of the underlying securities in
the Company's portfolio. In addition, the public offering price of the shares
offered hereby was arbitrarily determined in negotiations between the Company
and the Underwriter. There can be no assurance that the public offering price
will correspond to the price at which the Common Stock will trade in the public
market subsequent to the offering. If the shares of Common Stock offered hereby
trade at a price below the net asset value and/or the public offering price,
purchasers of shares in this offering who wish to sell their shares immediately
may not be able to do so without sustaining a loss.

10
<PAGE>

No Present Market for Common Stock

There is no public market for the shares of Common Stock offered hereby and
no assurance can be given that a public market will develop following completion
of this offering, or if one develops, that such public market will be sustained.
Although the Company intends to list the shares of Common Stock offered hereby
on the NASDAQ Small Cap MarketSM no assurances can be given that such listings
will result in a market for the shares.

Dilution

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $1.67 per share or 33.4% (such calculation gives effect
to the Company's restricted capital account) from the public offering price per
share. See "DILUTION."

Limited Experience of one of the Underwriters; Ability to Make a Market

While the principals of Suppes Securities, Inc. ("Suppes"), one of the
Underwriters, have had prior experience in firm commitment underwritings and
underwriting syndicates, this is the first offering in which Suppes which
commenced operations in 1983, will act as one of the underwriters. Suppes' lack
of experience may have an adverse impact on its ability to market the Common
Stock following this offering. Suppes intends to voluntarily make a market in
the Common Stock. However, Suppes may stop making a market in the Common Stock
at anytime and without notice. Suppes' inexperience may result in its inability
to utilize correctly over-allotment, stabilization and market maintenance
strategies that more experienced underwriters employ to assist in maintaining
orderly trading markets. This may adversely affect the price of the Common Stock
and the ability of the purchasers in the offering to resell the Common Stock.
The inability of Suppes to make a market for the Common Stock for any period of
time may adversely affect the prices quoted on the Nasdaq SmallCap Market for
the Common Stock. The officers and directors of the Company do not have a
material relationship with Suppes.

11
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company, after deducting the underwriting discount,
the Underwriter's non-accountable expense allowance and other expenses of this
offering, will be approximately $3,831,000 ($4,483,500 if the Underwriter's
over-allotment option is exercised). The proceeds of this offering will be used
primarily to make additional taxi medallion secured loans and a portion of the
proceeds may be used to make loans to other small business concerns. The Company
also may make equity investments in small business concerns, if determined by
the Board of Directors to be in the Company's best interests. The sale of the
Common Stock also will increase the Company's Leverageable Capital and permit
the Company, under current SBA regulations, based upon approximate net proceeds
of $3,831,000, to issue additional unsubsidized subordinated debentures to, or
guaranteed by, the SBA in the approximate principal amount of $11,493,000. While
the Company believes it will be eligible for such SBA financing following the
completion of this offering, there can be no assurances as to the amount and
timing of the receipt of such financing. In 1994, the SBA conducted a study of
the New York City taxi industry to review SBA policy, compliance and financial
issues associated with a significant concentration of SSBIC and SBIC investments
in the taxi medallion industry. The study suggested that, given funding
limitations, the SBA should remain cognizant of its general policy to avoid
concentration of funding in one industry or geographic location. The Company
understands that the SBA, in its review of a licensee's leverage request, seeks
information on the extent to which non-taxi medallion investments are
contemplated. See "RISK FACTORS--SBA Industry Review" and "--SBA Financing Not
Assured." Any proceeds from the issuance of subordinated debentures will be
invested for the same purposes as the proceeds of this offering.

Pending use of the net proceeds, such proceeds will be invested in direct
obligations of the United States and certificates of deposit and deposit
accounts, to the extent permitted by SBA regulations. The Company will not
invest in interest only or principal only securities. In all cases it is
expected that such investments will have maturities of 120 days or less. The
Company does not presently intend to invest any of its funds in such investments
for a period in excess of 120 days from their receipt by the Company. If
suitable investments cannot be made prior to the expiration of such 120 day
period, the Company will continue to make similar short-term investments until
it finds suitable investments or loan opportunities. The Company expects to
invest substantially all the proceeds of the offering in loans or other suitable
investments within 180 days.

12
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of May
31, 1996 and as adjusted to give effect to the sale of 1,000,000 shares of
Common Stock:

At May 31, 1996
------------------------------
Actual As Adjusted
---------- ----------
<S> <C> <C>
Long Term Debt--SBA Subordinated Debentures (1)(2)(9) ................................... $4,380,000 $4,380,000(3)
---------- ----------
4% Preferred Stock, $1.00 par value; 10,000,000 shares authorized;
1,410,000 issued and outstanding, respectively (2) .................................... $1,410,000 $1,410,000
---------- ----------
Common Stock, $.01 par value; 3,000,000 shares authorized; 1,096,688
and 2,096,688 shares issued and outstanding, respectively (5) ......................... $ 10,967 $ 20,967
Additional paid-in capital (5)(6) ....................................................... $2,762,116 $6,583,116
Restricted capital (7) .................................................................. $ 381,999 $ 381,999
TOTAL CAPITALIZATION (8) ................................................................ $3,155,082 $6,986,082
Net assets per share of Common Stock (5)(8) ............................................. $ 2.88 $ 3.33

</TABLE>

- ----------

(1) The interest rate on SBA subordinated debentures is determined by statute
and depends upon factors existing at the time of issuance.

Principal Amount
Outstanding as of
May 31, 1996 Date of Maturity Interest Rate
------------ ---------------- -------------
$ 120,000*....................... 5/14/96 7.375%
120,000*....................... 5/14/96 7.375%
75,000 ....................... 2/06/97 7.125%
75,000 ....................... 2/06/97 7.125%
75,000 ....................... 9/17/97 8.625%
75,000 ....................... 9/17/97 8.625%
750,000 ....................... 6/09/99 9.000%
750,000 ....................... 9/22/99 8.000%
1,300,000**...................... 12/01/02 4.510%
520,000 ....................... 6/01/05 6.690%
520,000 ....................... 12/01/05 6.540%
-----------
$ 4,380,000
===========

- ----------

* Effective June 26, 1996, the Company refinanced these debentures with a
$250,000 unsubsidized debenture with a fixed interest rate of 7.71%. Such
unsubsidized debenture matures on June 1, 2006.

** Interest rate increases to 7.510% in December 1997.
(2) The table as adjusted does not give effect to the potential sale of
subordinated debentures to the SBA. There can be no assurance, however, as
to the amount, if any, of subordinated debentures which the SBA will
actually purchase. See "RISK FACTORS--SBA Financing Not Assured."
(3) Upon completion of the offering, based upon approximate net proceeds to the
Company of $3,831,000, under current SBA regulations, the Company would be
eligible to issue an additional $11,493,000 of unsubsidized subordinated
debentures. The availability of financing for SSBICs specializing in
medallion financing is under review by the SBA. See "RISK FACTORS--SBA
Industry Review" and "--SBA Financing Not Assured."
(4) Shares of 4% Preferred Stock are required to be redeemed by the Company
after 15 years. Of the shares of 4% Preferred Stock currently outstanding,
650,000 shares must be redeemed in July 2007 and 760,000 shares must be
redeemed in October 2009.
(5) All per share data and information relating to the number of shares of the
Company's Common Stock outstanding have been adjusted to give effect to two
for one stock splits effective January 12, 1996 and October 24, 1996.
(6) Includes the amortized portion of the restricted capital realized from the
gain on the repurchase of the Company's 3% Preferred Stock from the SBA,
$572,998 through May 31, 1996. Such amount was realized in equal increments
as additional paid-in capital over a period from the repurchase date, May
31, 1993. Such gain,

13
<PAGE>

however, may not be used to obtain SBA leverage. See "BUSINESS--Specialized
Small Business Investment Companies."
(7) Represents the unamortized portion of the gain realized from the
repurchase, at a discount, of all 1,520,000 shares of the Company's 3%
Preferred Stock from the SBA on May 10, 1993. In the event of the
liquidation of the Company, the SBA would have the right to receive the
amount attributed to restricted capital before any distribution to holders
of Common Stock. The balance of $381,999 will be amortized on a straight
line basis and included as additional paid-in capital over a 24-month
period. See "BUSINESS--Specialized Small Business Investment Companies."
(8) Computed on the basis of total assets less total liabilities, 4% Preferred
Stock outstanding and excluding retained earnings available for
distributions.

DIVIDEND POLICY

The Company will endeavor to qualify annually for treatment as a regulated
investment company under Subchapter M of the Code. Pursuant to the requirements
of the Code, the Company intends to distribute not less than 90% of its
investment company taxable income to its shareholders so as to maintain its
status as a regulated investment company. The Company has declared and paid
dividends on its Common Stock since fiscal 1988. The Company intends to declare
and pay at least semi-annual dividends in the future to the extent funds are
available for distribution. See "TAX CONSIDERATIONS."

The Company's dividend policy effectively precludes it from expanding its
business through retained earnings. The Company intends to distribute all
undistributed net income through the date immediately preceding the consummation
of the offering to shareholders of record as of such date.

14
<PAGE>

DILUTION

As of May 31, 1996, the net assets of the Company were $3,155,082 or $2.88
per share of Common Stock. Additionally the net assets of the Company remained
at $3,155,082 as of October 31, 1996. The Company's net T 5 0 assets are the
total assets of the Company less all liabilities and the liquidation value of
the outstanding 4% Preferred Stock. Retained earnings of $15,379 as of May 31,
1996 are excluded from the net assets since the Company intends to distribute
such earnings to its current shareholders prior to consummation of this
offering. The entire gain realized on the repurchase of the 3% Preferred Stock
is included in the computation of the net assets. Such gain is amortized
monthly, with the amount of the amortization transferred to additional paid-in
capital. In the event of the liquidation of the Company, the SBA would have the
right to receive the amount attributed to restricted capital before any
distribution to holders of Common Stock. See "BUSINESS--Specialized Small
Business Investment Companies." Net asset value per share of Common Stock is net
assets divided by the number of shares of Common Stock outstanding as of the
relevant date. After effect is given to the sale of 1,000,000 shares of Common
Stock offered hereby, the pro forma net assets and net asset value per share of
the outstanding Common Stock at May 31, 1996 would be $6,986,082 or $3.33 per
share. This result would constitute an immediate dilution of $1.67 per share to
new investors from the public offering price. Dilution per share represents the
difference between the public offering price and the pro forma net asset value
per share after this offering.

The following table illustrates the per share dilution to be incurred by
new investors from the public offering price:

Public offering price per share (1).............................. $5.00
Net asset value per share before offering...................... 2.88
Change attributable to sale of shares to new investors......... .45
Pro forma net asset value per share to new investors (2)......... 3.33
Dilution in net asset value per share to new investors (2) ...... 1.67

- --------

(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company, estimated to be $1,169,000.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.

The following table sets forth, as of May 31, 1996, the number of shares of
Common Stock held, the total consideration paid (without giving effect to
commissions and offering expenses) and the average price per share paid by
existing shareholders and the new investors:

Shares Purchased Cash Consideration Paid
-------------------------- -----------------------------------------
Average
Price
Number Percent Amount Percent Per Share
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............. 1,096,688 52.31% $2,297,276 31.5% $4.19
New Investors..................... 1,000,000 47.69 5,000,000 68.5 $5.00
--------- ------ ---------- ----- -----
2,096,688 100.00% $7,297,276 100.0%
========= ====== ========== =====

</TABLE>

15
<PAGE>

BUSINESS

Freshstart Venture Capital Corp. was organized as a New York corporation on
March 4, 1982 in order to engage primarily in the business of financing taxicab
medallions, taxicabs and related assets as an SSBIC licensed by the SBA. The
Company currently maintains offices at 313 West 53rd Street, New York, New York
10019 (telephone: (212) 265-2249). The Company is a diversified, closed-end
investment company registered under the 1940 Act.

General

The Company's Loans--The Company obtained a license to operate as an SSBIC
from the SBA on February 23, 1983. As an SSBIC, the Company's primary business
has been, and is expected to continue to be, to provide long-term loans at
commercially competitive rates of interest to persons defined by SBA regulations
as socially or economically disadvantaged persons (or entities which are at
least 50% owned by persons so defined), in connection with the financing of
diversified businesses. Under current SBA regulations the maximum rate of
interest which the Company may charge on loans may not exceed the higher of
either the Company's weighted average cost of qualified borrowings, as
determined pursuant to SBA regulations without regard to subsidized interest
rates, or the current debenture rate, plus, in either case, seven percentage
points, rounded off to the next lower eighth of one percent; provided, however,
that if the current debenture rate is 8% per annum or lower, the Company is
permitted to charge up to 15% per annum. The maximum rate of interest per annum
allowed to be charged by the Company to its borrowers for loans originated
during August 1996 was 19% for a loan and 14% for a debt security. The new
regulations now allow an SBIC to use its own weighted average cost of borrowing
as the basis for determining the maximum rate that it may charge for loans or
debt securities. However, the ability of the Company to charge such a rate is
limited by competition. The rates of interest on taxicab medallion loans (in
which 76% of the Company's portfolio is concentrated) ranged from 10.75% to
15.00% at October 31, 1996. For the month of October 1996, the average annual
weighted interest rate per loan outstanding was 12.98%. See "Loan Portfolio;
Valuation."

A substantial portion of the Company's loans have been made in the past to
purchasers or owners of New York City taxicab medallions. Since the Company was
licensed in February 1983, it has made in excess of 528 loans, aggregating
approximately $24,222,250, to New York City taxicab medallion owners. As an
investment company registered under the 1940 Act, the Company is required to
adopt certain fundamental investment policies. Such policies, once adopted, may
only be changed by the shareholders of the Company. See "INVESTMENT POLICIES."
The Company's investment policy with respect to the concentration of investments
previously permitted the Company to invest up to 50% of its loan portfolio for
the purpose of financing the purchase or continued ownership of taxicab
medallions, taxicabs and related assets. After the 50% limitation was
inadvertently exceeded by the Company without shareholder approval, the
Company's shareholders amended such investment policy. Pursuant to the Company's
present investment policy with respect to the concentration of investments (i)
the Company must make at least 25% of its investments for financing the purchase
or continued ownership of taxicab medallions, taxicabs and related assets and
(ii) the Company may not concentrate 25% or more of its total assets in
securities of issuers in any other industry group. As of May 31, 1996,
approximately 74% of the aggregate principal amount of its outstanding loans,
$6,352,777 of an aggregate of $8,598,015, represented loans made to finance the
purchase or continued ownership of New York City taxicab medallions. The
balance, $2,245,238 (26%), consisted of loans to various commercial borrowers.
See "Loan Portfolio; Valuation." As of October 31, 1996, approximately 76% of
the aggregate principal amount of the Company's outstanding loans were made to
finance taxicabs, taxicab medallion loans and related assets. While the Company
is authorized by its license to allocate up to 50% of its portfolio to taxicab
medallion loans, the SBA has to date permitted the Company to operate in excess
of this limitation. No assurance can be given that the SBA will continue to
allow the Company to allocate in excess of 50% of its loan portfolio to taxicab
medallion loans. See "RISK FACTORS--Limitations on Taxicab Medallion
Financings."

In 1994, the SBA conducted a study of the New York City taxi industry to
review SBIC policy, compliance and financial issues associated with a
significant concentration of SBIC and SSBIC investments in the taxi medallion
industry. The study suggested that, given funding limitations, the SBA should
remain cognizant of its general policy to avoid the concentration of funding in
one industry or geographic location. See "RISK FACTORS -- Limitations on Taxicab
Medallion Financings."

Although the Company currently anticipates that it will continue to make
loans to purchasers or owners of New York City taxicab medallions, it intends to
allocate an increasing portion of its assets to the making of loans to a variety
of small businesses, subject to any limitations imposed by SBA regulations or
the 1940 Act. See "Marketing Strategy."

16
<PAGE>

Loans made by the Company are subject to certain restrictions imposed by
the SBA as to interest rates (as described above) and term (currently, no more
than 20 years). Generally, such loans have been made to finance taxicab
medallions (or to refinance prior medallion-related loans), are secured by the
medallions, taxicabs, and other related assets and are personally guaranteed by
the owners of the company owning the taxicab. The Company may also, in its
discretion, make loans to radio car owners. The Company will only make loans to
borrowers who meet the standards required to operate these vehicles by the New
York City Taxi and Limousine Commission ("TLC"). In addition, the Company's loan
documentation provides that its liens on the collateral furnished by its
borrowers must be enforceable in the event of a default by such borrowers. The
Company may revise the nature of its loan portfolio at such time as its Board of
Directors determines, in its sole discretion, that such revision is in the best
interest of the Company in light of then existing business and financial
conditions. However, no such revision is currently contemplated by the Board of
Directors. The Company will not lend to, or otherwise invest more than, the
lesser of (i) 10% of its total assets, or (ii) 30% of its paid-in capital
attributable to its Common Stock, in any one small business concern. The Company
has not made, and is prohibited by applicable SBA regulations from making, loans
to officers or directors of the Company or to any person owning or controlling,
directly or indirectly 10% or more of the Company's Common Stock.

Borrowings--The Company is authorized by its certificate of incorporation
to issue shares of preferred stock and subordinate debentures to the SBA
pursuant to the 1958 Act. The Company may also borrow money and issue promissory
notes and other obligations, subject to SBA regulatory limitations. In addition
to the subordinated debentures issued to, or guaranteed by, the SBA, the Company
has, from time to time, borrowed funds from banks.

Scope of Business Activities--The Company has not purchased, and does not
intend to purchase, commodities or commodity contracts and it has not engaged,
nor does it intend to engage, in the business of underwriting the securities of
other issuers. In addition, the Company does not intend to purchase a
controlling interest in any small business except as may be necessary in the
event of a foreclosure on the security for a particular loan. The Company does
not intend to engage in the purchase or sale of real estate or in investments in
the securities of other investment companies.

Although the Company's certificate of incorporation authorizes equity
investment in small business concerns, the Company has not to date made any
equity investments in any taxicab or other small business concern. However, the
Company may make such equity investments if determined by its Board of Directors
to be in the best interests of the Company.

The Company currently has no intention of performing advisory services for
other businesses, although it reserves the right to do so in the future should
the Company's Board of Directors deem it to be in the Company's best interests.

Specialized Small Business Investment Companies

General. As an SSBIC, the Company is eligible to receive certain financing
from the SBA on favorable terms, and the Company and its shareholders are
entitled to certain tax benefits, both described below. The SBA has a certain
amount of discretion in determining the type and amount of financing that will
be made available to an SSBIC. Therefore, there can be no assurance as to the
nature, amount or timing of SBA financing that may actually be obtained by the
Company. See "RISK FACTORS--SBA Financing Not Assured." Furthermore, there are
certain restrictions and requirements to which the Company is subject by virtue
of its being an SSBIC. See "FEDERAL REGULATION--Regulation under the Small
Business Investment Act of 1958."

Background. SBICs and SSBICs are privately owned and managed investment
companies licensed by the SBA. The 1958 Act required each licensee to have a
minimum level of private investor capital and to be operated by experienced
management. Under present law, an SBIC must have at least $2.5 million in
private capital and an SSBIC must have not less than $1.5 million. As noted
below, SBICs and SSBICs are mandated by the 1958 Act to make investments in
small businesses and, in return, are eligible to apply for favorable financing
from the SBA called `leverage'. Small Business Investment Companies were created
under the 1958 Act as a vehicle for providing equity capital, long-term loan
funds and management assistance to small businesses. In general, the SBA
considers a business to be "small," and therefore eligible to receive loans from
an SBIC, only if (i) its net worth does not exceed $18,000,000 and if the
average of its net annual income after taxes for the preceding two years was not
more than $6,000,000 or (ii) it meets the size standard for the industry in
which it is primarily engaged, pursuant to SBA regulations. In addition, SBICs
are required to allocate a portion of their portfolio to the financing of any
concern

17
<PAGE>

that (i) together with its affiliate does not have net worth in excess of $6
million and does not have an average net income after taxes for the preceding
two years in excess of $2 million or (ii) meets the size standard for the
industry in which it is primarily engaged. SBICs are licensed, regulated and
sometimes financed in part by the SBA. SSBICs are SBICs which specialize in
providing equity funds, long-term loans and management to individuals, or to
small business concerns at least 50% owned and managed by individuals from
groups in the United States that are socially or economically disadvantaged,
including Blacks, Indians, Eskimos, persons of Mexican, Puerto Rican, Cuban,
Filipino or Asian extraction, Vietnam War era veterans, and other groups which
fall within SBA guidelines relating to socially or economically disadvantaged
persons.

Benefits. The principal benefits to the Company as a result of its being
licensed as an SSBIC are as follows:

1. Prior to October 1, 1996 the SBA was authorized to purchase shares of
non-voting preferred stock from an SSBIC for cash up to an amount equal to the
SSBIC's aggregate common stock and additional paid-in capital net of
organizational expenses, excluding any amounts paid by the SBA (the
"Leverageable Capital"). Prior to November 1989, such shares of preferred stock
had a 3% annual cumulative dividend. Subsequent to November 1989, all new
preferred stock issued by an SSBIC was required to have a 4% annual cumulative
dividend and to be redeemed by the SSBIC within 15 years from the date of any
such issuance. The Company issued 650,000 shares of its 4% Preferred Stock to
the SBA, for an aggregate purchase price of $650,000 in July 1992 and an
additional 760,000 shares of 4% Preferred Stock, for an aggregate purchase price
of $760,000 in October 1994. The 4% dividend may be accumulated and need not be
paid to the SBA on an annual or other periodic basis, so long as cumulative
dividends are paid to the SBA before any other payments are made to investors.

The Company and the SBA entered into a repurchase agreement, dated May 10,
1993 (the "Repurchase Agreement"). Pursuant to the Repurchase Agreement, the
Company repurchased all 1,520,000 shares of its 3% Preferred Stock from the SBA
for a purchase price of $.36225679 per share, or an aggregate of $550,630. The
repurchase price was at a substantial discount to the original sale price of the
3% Preferred Stock which was sold to the SBA at par value or $1.00 per share. As
a condition to the repurchase, the Company granted the SBA a liquidating
interest in a newly created restricted capital surplus account (the "Restricted
Surplus Account"). The Restricted Surplus Account is equal to the amount of the
repurchase discount. The initial value of the liquidating interest was $969,370,
the amount of the repurchase discount on the date of repurchase, and is being
amortized over a 60-month period on a straight-line basis. As of May 31, 1996,
the liquidating interest was $381,999. Should the Company be in default under
the Repurchase Agreement, at any time, the liquidating interest will become
fixed at the level immediately preceding the event of default and will not
decline further until such time as the default is cured or waived. The
liquidating interest will expire on the later of (i) 60 months from the date of
the Repurchase Agreement, or (ii) if an event of default has occurred and such
default has been cured or waived, such later date on which the liquidating
interest is fully amortized. Should the Company voluntarily or involuntarily
liquidate prior to the expiration of the liquidating interest, any assets which
are available, after the payment of all debts of the Company, shall be
distributed first to the SBA until the amount of the then remaining liquidating
interest has been distributed to the SBA. Such payment, if any, would be prior
in right to any payments made to the Company's shareholders. For financial
reporting purposes, the Company's balance sheet shows a restricted capital
account equal to the value of the SBA's liquidating interest, less $14,373 of
expenses incurred in connection with the repurchase. As the liquidating interest
declines, the restricted capital account is reduced and additional paid-in
capital is increased. The amount of the gain from the repurchase of the 3%
Preferred Stock may not be used for obtaining SBA leverage.

2. The SBA is authorized to guaranty full repayment of all principal and
interest on debentures issued by an SSBIC which loans funds to, but does not
invest in the equity of, small businesses, to the extent of 300% of such SSBIC's
Leverageable Capital, less the amount of preferred stock issued to the SBA. The
term of such debentures may be up to 15 years, but is typically 10 years. The
SBA will purchase or guarantee such debentures only after an SSBIC has
demonstrated a need for such debentures as evidenced by the SSBIC's investment
activity and its lack of sufficient funds available for investments; provided,
however, that an SSBIC that has invested at least 50% of its Leverageable
Capital and outstanding leverage is presumed to lack sufficient funds available
for investment. Generally, such debentures will bear interest at a fixed rate
which is based on the rate which is set by the underwriters of the pooled
debentures sold through SBIC Funding Corp. Prior to October 1, 1996, the SBA was
authorized during the first five years of the initial term of the debentures, to
subsidize an SSBIC's annual interest rate by paying 300 basis points (3%) of the
interest due on such debentures. After maturity, these debentures may be
refinanced by the SBA as a new unsubsidized debenture with a 10-year term. The
subsidized debentures most recently purchased by the

18
<PAGE>

SBA from the Company (during December 1992) bear interest at the rate of 4.510%
per annum for the first five years of their term and 7.510% per annum for the
remaining five years of their term.

The SBA also makes available to both SBIC's and SSBIC's financing in the
form of unsubsidized debentures. These debentures have terms of up to 15 years,
but typically 10 years. The debentures are sold through the SBIC Funding Corp.
and carry a fixed interest rate based on prevailing market rates. In June 1995,
the Company refinanced a $500,000 subsidized debenture with a $520,000
unsubsidized debenture. Such unsubsidized debenture matures June 1, 2005 and has
a fixed annual interest rate of 6.69%. In December 1995, the Company refinanced
a $500,000 subsidized debenture with a $520,000 unsubsidized debenture. The
unsubsidized debenture issued in 1995 matures December 1, 2005 and has a fixed
interest rate of 6.54%. On June 26, 1996, the Company refinanced two, $120,000
subsidized Debentures with a $250,000 unsubsidized Debenture. The unsubsidized
debenture issued in 1996 matures on June 1, 2006 and has a fixed interest rate
of 7.71%. To the Company's knowledge, the SBA has made available approximately
$108,500,000 for unsubsidized debenture financing for Federal Fiscal year 1996,
all of which was committed and utilized. While the Company believes it will be
eligible for such SBA financing following the completion of this offering, there
can be no assurances as to the amount and timing of the receipt of such
financing.

With respect to debentures guaranteed after July 1, 1991, the SBA's claim
against an SSBIC is subordinated, in the event of such SSBIC's insolvency, only
in favor of present and future indebtedness outstanding to lenders and only to
the extent that the aggregate amount of such indebtedness does not exceed the
lesser of 200% of such SSBIC's paid-in capital and paid-in surplus (as adjusted
pursuant to SBA regulations), or $10,000,000. However, the SBA may agree to a
subordination in favor of one or more loans from certain other lenders, in its
sole discretion. As of the date of this Prospectus, the Company has an aggregate
of $4,390,000 of subordinated debentures outstanding. Such debentures currently
bear interest at rates ranging from 4.510% to 9.00% per annum. As a result of
this offering, assuming approximate net proceeds to the Company of $3,831,000,
the SBA would be permitted under its regulations to purchase, or guarantee, up
to $11,493,000 of unsubsidized subordinated debentures issued by the Company.
Following completion of this offering, the Company will seek to sell
subordinated debentures up to the maximum amount and extent permitted by
applicable SBA regulations, although there can be no assurance as to when and/or
if the Company's applications for the sale of such debentures will be accepted
by the SBA. See "RISK FACTORS--SBA Industry Review" and "--SBA Financing Not
Assured."

3. An SSBIC may qualify for leverage exceeding 300% of Leverageable Capital
by having at least 30% of its total funds available for investment (90% of the
sum of total current assets and loans and investments on a cost basis net of
current maturities) invested in disadvantaged concerns represented by (a) equity
securities with no repurchase requirement for at least five years; (b) any right
to purchase equity securities in conjunction with the purchase of equity or debt
securities which, after consideration of all of the terms, conditions and
documentation of such financing, are determined by an SSBIC's Board of Directors
to have in excess of 50% of the anticipated return on such financing represented
by the potential for equity appreciation; or (c) debt securities or loans which
are subordinated by their terms to all borrowings of the issuer, except
borrowings from officers, directors and owners, or close relatives thereof, of
the small concern, and which are not amortized during the first three years.

In determining the maximum amount of preferred stock and debentures of an
SSBIC which it can purchase or guaranty, the SBA's policy is to treat earnings
of an SSBIC which have been capitalized as additional paid-in capital. As a
result, the maximum amount of funds which may be obtained by the Company through
the sale to or guaranty by the SBA of preferred stock and guaranty of
subordinated debentures would be increased by the capitalization of the
Company's earnings. As a result of the Company's registration under the 1940 Act
and its election to be treated as a "regulated investment company" under the
Code, the Company is required to distribute to its shareholders at least 90% of
its taxable income, thereby substantially eliminating its ability to obtain
additional leverage on its future earnings.

4. The tax benefits to a company licensed as an SSBIC and to its
shareholders are discussed below under the heading "TAX CONSIDERATIONS."

5. Legislation was enacted on October 1, 1996 which eliminates most
distinctions between SBICs and SSBICs and eliminates the authority to issue new
SSBIC licenses. In the future, under a consolidated program, all new applicants
will be licensed as SBICs. The legislation raises the minimum capital
requirements for new applicants and increases certain user fees charged to
licensees in connection with the receipt of leverage. The legislation exempts
from the increased capital requirements all SSBICs and certain SBICs existing at
the date of the legislation's enactment. The user fees are fees that are charged
to licensees in connection with the purchase or guaranty by the

19
<PAGE>

SBA of debentures or participating securities. The legislation specifies that
the user fee will equal 3% of the principal amount purchased or guaranteed by
the SBA plus 1% of the interest rate charged on the debentures or participating
securities. The legislation also limits the securities that can be purchased or
guaranteed by the SBA to debentures without a federal interest rate subsidy and
to participating equity securities.

Loan Portfolio; Valuation

From the time it was licensed in February 1983 through May 31, 1996, the
Company has made loans to small business concerns in the aggregate principal
amount of approximately $34,036,338 of which $8,598,015 was outstanding on May
31, 1996. The following table sets forth a classification of the Company's
outstanding loans as of May 31, 1996.

<TABLE>
<CAPTION>
Number Maturity
Type of Loan of Date
Outstanding Loans Interest Rate Within Balance
- ------------ ----- ------------ ------ -------

<S> <C> <C> <C> <C>
NYC Taxi Medallions........................... 142 10.75%-15.00% 1-7 yrs. $6,352,777
Services...................................... 1 14.50%-15.00% 1-7 yrs. 94,717
Auto Repair Service........................... 8 10.00%-15.00% 1-4 yrs. 687,565
Auto Dealership............................... 1 12.00% 1 yr. 69,830
Renovation and Construction................... 1 10.50% 5 yrs. 134,852
Retail Establishments......................... 3 11.25%-12.50% 1-4 yrs. 306,557
Restaurants................................... 3 9.00%-15.00% 1-9 yrs. 214,669
Gasoline Service Stations..................... 3 9.375%-10.00% 1 yr. 286,616
Manufacturing................................. 1 15.00% 1 yr. 151,572
Laundromats and Dry Cleaners.................. 5 12.00%-15.00% 1-4 yrs. 158,630
Medical Offices............................... 2 11.63%-15.00% 1-3 yrs. 118,052
Video Rentals................................. 1 14.00% 6 yrs. 22,178
--- ----------
TOTAL LOANS................................... 171 $8,598,015
=== ==========

</TABLE>

The average loan made to finance the purchase or continued ownership of
taxi medallions, taxicabs and related assets, and start-up costs varies from
between 75% to 80% of the market value of the taxi medallions, taxicabs and
related assets at the time of such loan. Such loans are typically secured by the
medallions, taxicabs and related assets and range in size from $15,000 to
$150,000. Loans made by the Company to finance the acquisition and/or operation
of retail or manufacturing businesses are typically secured by real estate, taxi
medallions and other assets and range in size from $15,000 to $250,000. In the
case of loans to corporate owners, the loans are also personally guaranteed by
the shareholders of the borrower. Historically, the majority of the Company's
taxicab medallion loans have been subordinate to loans from senior lenders. The
Company has experienced a very low delinquency rate with respect to subordinated
taxicab medallion loans and has never suffered a loss exceeding $12,000. The
Company currently intends to increase its portfolio of unsubordinated taxicab
medallion loans in the future because there are more opportunities for such
loans. With the remaining balance of its loan portfolio, the Company intends to
continue to finance the acquisition and/or operation of other small businesses.
The Company has not committed more than 10% of its assets to any one business
concern in the Company's portfolio. The interest rates charged by the Company on
its currently outstanding loans range from 9% to 15.5% per annum. For the month
of May 1996, the average annual weighted interest rate per loan outstanding
originated was 12.98% and the average term of the Company's outstanding loans
was approximately 60 months.

Valuation-- As an SSBIC, the Company is required by applicable SBA
regulations to submit to the SBA semi-annual valuations of its investment
portfolio, as determined by its Board of Directors, which considers numerous
factors including but not limited to the financial strength of its borrowers and
the value of the underlying collateral securing the loans. See Note 2 of Notes
to the Financial Statements for a discussion of the Company's method of
valuation of its current portfolio of loans. In the event the Company invests in
the future in securities for which price quotations are readily available, the
Company will value such investments at their fair market value, based on such
quoted prices. With respect to securities for which price quotations are not
readily available, such securities will be valued at fair value as determined by
the Board of Directors.

20
<PAGE>

Loan Considerations-- In evaluating each applicant for a loan, the Company
considers the following factors: (1) the applicant (or 50% in interest of the
concern's principal owners) must be classified as an economically or socially
disadvantaged person under SBA regulations, (2) the applicant's ability to repay
the loan, and (3) the value and type of collateral proposed by the prospective
borrower to collateralize the business loans.

Collection Experience-- As of May 31, 1996, the Company had 15 loans
totaling $1,122,768 with accrued interest of $500,649 which were delinquent,
compared to 13 loans totalling $986,388 with accrued interest of $398,343 as of
May 31, 1995. As of May 31, 1995, only one of such loans, in the aggregate
principal amount of $12,000, was a taxi medallion loan which was subsequently
written off. The Company considers a loan to be delinquent if the borrower fails
to make payments for 90 days or more. However, the Company may agree with a
borrower that cannot make payments in accordance with the original loan
agreement to modify the payment terms of the loan. The Company's current
provision for loan losses, $180,558, is deemed by the Company to be sufficient.
Based upon present appraisals, the Company anticipates that a substantial
portion of the principal amount of its delinquent loans would be collected upon
foreclosure of such loans, if necessary. There can be no assurance, however,
that the collateral securing such loans will be adequate in the event of a
foreclosure by the Company.

The New York City Taxi Medallion Industry and Market

As presently provided by law, the number of medallions for New York City
taxicabs that may be issued by New York City is limited to 12,187. There are two
basic types of medallions: (a) corporate and (b) individual owner-driver. Of the
total current supply of 11,920 medallions, 6,998 are corporate medallions and
5,022 are for individually owned cabs. A corporate medallion is issued with
respect to a cab owned by a corporation with a minimum of two cabs and two
corporate medallions (i.e. one corporate medallion per cab). An individual
owner-driver may not own more than one cab and one medallion. Corporate
medallions are used by large fleet concerns with many taxicabs and many drivers
or by small corporations owning two medallions and two taxicabs driven by two
owner-drivers (the so-called "minifleet").

Until August 1995, only 11,787 medallions were permitted to be issued. On
August 8, 1995, a bill permitting the City of New York to issue up to 400
additional taxi medallions was signed by the Governor of the State of New York
and approved by the New York City Council which permitted the sale of up to such
number of medallions over a three-year period. The TLC conducted the sale of 133
medallions in May 1996, and will sell an additional 133 medallions in October
1996. The TLC has not indicated when the remaining authorized medallions will be
sold. See "RISK FACTORS--Uncertain Market; Possible Issuance of Additional
Medallions."

At the present time, most medallion sales are handled through brokers. As a
result, an active marketplace has developed for the purchase and resale of
medallions. The price of a medallion varies with supply and demand. The
Company's most recent experience has been that individually owned medallions
currently sell for approximately $185,000 and corporate medallions sell for
approximately $215,000 each. In addition, a 5% New York City transfer tax and
various brokerage commissions are additional expenses incurred in the
acquisition and sale of a medallion.

Based upon statistics obtained from the TLC, from 1989 through 1995 the
number of corporate medallions sold each year varied from approximately 245 to
440, which suggests that there were between 122 and 220 minifleet corporations
in need of financing each year (taking into consideration the fact that each
taxicab minifleet needs at least two medallions), while the number of individual
owner medallions sold each year varied from 200 to 415. In addition, minifleet
concerns or individuals who have already purchased medallions are frequently
seeking to refinance their existing indebtedness. Assuming that a typical
minifleet financing for purchases of medallions might involve a sum of
approximately $360,000, the dollar volume of New York City minifleet financings
might range (assuming the existence of between 122 and 220 minifleet
corporations in need of medallion financing for purchases of medallions) from
$40.9 million up to $73.7 million a year. Assuming that a typical individual
medallion financing for a purchase of a medallion involves a sum of
approximately $170,000, the dollar volume of New York City individual medallion
financing might range (assuming the existence of between 200 to 415 individuals
in need of medallion financing for purchases of medallions) from $37.5 million
up to $62.3 million a year. The Company believes, based on its own experience
with, and knowledge of, the New York City taxi industry, that a substantial
majority of the purchasers of New York City taxi medallions each year qualify as
socially or economically disadvantaged persons eligible for receipt of funding
from an SSBIC.

In addition to purchases and sales of medallions, a substantial market
exists for refinancing medallions held by existing owners. Management estimates
this market to exceed that of the market for financing transfers.

21
<PAGE>

A prospective medallion owner must meet the requirements of the TLC which
approves all sales and transfers. In general, the requirements are that the
prospective owner have no criminal record, that the purchase funds be derived
from legitimate sources, and that the taxi vehicle and meter meet specifications
set by the TLC. Also required is a clearance from prior insurers of the seller
in the form of letters stating that there are no outstanding claims for personal
injuries in excess of insurance coverage.

Marketing Strategy

Medallion transfers are usually handled through medallion brokers who have
frequent contact with taxicab owners and drivers. Medallion brokers locate
buyers for sellers of medallions and sellers for buyers of medallions, and then
typically employ a financing broker to arrange for the financing of the
medallion purchases. Presently, to the knowledge of the Company, there are
approximately 35 medallion and financing brokers in New York City. Medallion
brokers customarily receive a brokerage fee of approximately $3,000 to $5,000
per medallion transfer the cost of which fee is typically split between the
buyer and seller.

A substantial portion of the Company's taxicab medallion financings are
referred to the Company by Pearland Transfer Corp. ("Pearland"), a medallion
brokerage company of which Neil Greenbaum and Pearl Greenbaum, officers and
directors of the Company, Barbara Joy Hamill, a director of the Company, and
Andrew Greenbaum, a principal shareholder of the Company are principals. The
Company also receives referrals from other medallion brokers, its current
borrowers and other SSBICs.

Competition

SBICs, SSBICs, banks, credit unions and private lenders have traditionally
financed the acquisition and/or operation of small retail and manufacturing
businesses. The Company expects to continue to encounter competition from such
lenders, many of which are well established and have resources which exceed
those available to the Company.

Letter of Intent

The Company and the SBA entered into a Letter of Intent (the "Letter of
Intent") dated December 1, 1992, setting forth the intentions of the parties
with respect to a proposed agreement (the "Agreement"). Pursuant to the Letter
of Intent, the Company and the SBA would agree among other things as follows:

(i) the Company would agree to limit the aggregate of its senior
indebtedness, consisting of bank debt and SBA debentures, to certain
specified levels;

(ii) the SBA would agree to remove the existing requirement that the
Company maintain in its portfolio a certain threshhold amount of
non-taxicab secured loans;

(iii) the SBA would acknowledge that the Company is a registered
investment company, registered under the 1940 Act, and that the SBA will
not require the Company to take any action or refrain from taking any
action necessary in the opinion of the Company's counsel to comply with the
1940 Act; provided, however, the Company will not take any action in
violation of any SBA regulation in complying with the 1940 Act;

(iv) the Company would agree to give the SBA a secured second position
to the senior secured position of its banks. The parties would further
agree that banks or other lenders now or hereafter may loan on a senior
secured basis, an amount which, when aggregated with the Company's SBA
debentures, would not exceed the maximum indebtedness provided for in (i)
above. Such grant of a subordinated security interest to the SBA would
require the consent of the Company's banks;

(v) in order to allow the SBA to perfect a subordinated lien on the
Company's assets, the Company would agree that all notes, mortgages and
security agreements relating to loans made by the Company would be held by
a third party custodian (e.g. a commercial bank);

(vi) subject to (i) above, so long as the Company maintains private
capital of $2.2 million, the Company would agree not to incur senior debt,
including the aggregate amount of its credit lines, in excess of $3
million; and

(vii) the Company would agree to provide reports periodically to the
SBA containing certain specified financial information.

22
<PAGE>

The Letter of Intent is subject to the negotiation and execution of a definitive
agreement between the Company and the SBA. To date, the Company and the SBA have
not engaged in negotiations of a definitive agreement. See "RISK
FACTORS--Limitations on Taxicab Medallion Financings."

SBA Regulation

The Company, as the holder of a license from the SBA to operate as an
SSBIC, is subject to broad regulations by the SBA with respect to various
aspects of its ownership and operation, as discussed under the heading "FEDERAL
REGULATION--Regulation Under The Small Business Investment Act of 1958."

23
<PAGE>

MANAGEMENT

Officers and Directors

The following table sets forth the names, addresses and positions with the
Company as of the date of this Prospectus of all of the officers and directors
of the Company. Also set forth below is information as to the principal
occupation and background for each person in the table.

Name and Address Age Position and Office with the Company
- ----------------- --- ------------------------------------
Zindel Zelmanovitch (1)............. 49 President and Director
1934 East 18th Street
Brooklyn, NY 11229
Neil Greenbaum (1)(2)............... 40 Secretary and Director
29 Flamingo Road North
East Hills, NY 11576
Pearl Greenbaum (1)(2).............. 72 Vice President and Director
300 Winston Drive
Cliffside Park, NJ 07010
Barbara Joy Hamill (1)(2)........... 45 Director
8 Saxon Woods
Avon, CT 06001
Michael L. Moskowitz (3)............ 38 Director
45 East 25th Street
New York, NY 10010
Eugene Haber........................ 49 Director
22 Eagle Lane
East Hills, NY 11576
Alan Work........................... 40 Director
54 Random Farms Drive
Chappaqua, NY 10514

- ------------
(1) Directors who are "interested persons" with respect to the Company, as such
term is defined in the 1940 Act.
(2) Pearl Greenbaum is the mother of Neil Greenbaum and Barbara Joy Hamill.
(3) Michael Moskowitz is the brother-in-law of Zindel Zelmanovitch.

Zindel Zelmanovitch has been President and a director of the Company since
1982. Mr. Zelmanovitch is also President, director and a principal shareholder
of East Coast, which company has been a licensed SSBIC since 1986. He has also
served as Secretary and a director of the National Association of Investment
Companies (NAIC) since 1991 and a Secretary and a director of the National
Association of Investment Companies Management Group, Inc. since 1993. From 1976
to 1991 Mr. Zelmanovitch was the President and sole shareholder of Z. Zindel
Funding Corp., which company was licensed by the New York State Banking
Department as a Licensed Mortgage Banker. He has also been licensed as a real
estate broker by the New York Department of State since 1976. Mr. Zelmanovitch
is also the President of Z. Zindel Corp., which is an investment adviser
registered under the Investment Advisers Act of 1940, as amended. Mr.
Zelmanovitch received an M.B.A. from Long Island University in June 1977.

Neil Greenbaum has been the Secretary and a director of the Company since
1982. Mr. Greenbaum has acted as Vice President and Secretary of Pearland
Transfer Corp., a licensed medallion broker, and Pearland Brokerage Inc., an
insurance brokerage company, for more than five years. Mr. Greenbaum has been
President of Hereford Insurance Company since April 1994. He has been the
President of United Brokers Association, a taxicab brokerage organization, since
October 1988. Mr. Greenbaum is also President of All Taxi Management Inc. since
1995.

Pearl Greenbaum has been the Vice President and a director of the Company
since 1982. Mrs. Greenbaum has been President of Pearland Transfer Corp. and
Pearland Brokerage Inc. for more than five years. She has been Treasurer of
Hereford Insurance Company since April 1994.

Barbara Joy Hamill has been a director of the Company since December 1992.
She was also a director of the Company from 1988 to December 1991. Ms. Hamill
has been a Vice President of Pearland Transfer Corp. and Pearland Brokerage Inc.
for more than five years. She has been a director of Hereford Insurance Company
since April 1994.

24
<PAGE>

Michael L. Moskowitz has been a director of the Company since 1984. From
1984 to 1992, Mr. Moskowitz was Treasurer of the Company. Mr. Moskowitz has been
President of M.L. Moskowitz and Co., Inc., a residential mortgage banking firm,
since August 1986.

Alan Work has been a director of the Company since 1988. Since 1989, he has
been Executive Vice President for Quantex Associates Inc., an executive search
firm. From 1982 to 1989, Mr. Work was an account executive for E.D.P. World.

Eugene Haber has been a director of the Company since September 1996. He
has been a practicing attorney since 1973 and since 1975 a partner in the firm
of Cobert, Haber & Haber, a general practice law firm specializing in litigation
and commercial transactions with a heavy emphasis on the New York City Taxi
industry.

Pursuant to the Underwriting Agreement, the Underwriters have the right,
subject to SBA approval, to designate one member of the Company's Board of
Directors for a period of two years after the closing of this offering.

Board Committee

The Board of Directors has appointed a Credit Committee comprised of Mr.
Zelmanovitch, Mr. Greenbaum, Mr. Haber, and Ms. Hamill. The Credit Committee
reviews loan activities and delinquencies and provides recommendations to the
Board of Directors.

Compensation of Officers and Directors

The following table sets forth all remuneration for services rendered to
the Company during the year ended May 31, 1996, paid to or accrued for the
account of (i) each of the executive officers and (ii) all executive officers
and directors as a group.

<TABLE>
<CAPTION>
Name of Individual or
Number of Persons in Group Capacities in Which Served Salaries (1)
- ------------------------- -------------------------- ------------
<S> <C> <C>

Zindel Zelmanovitch............................... President and Director $ 85,320
Neil Greenbaum.................................... Secretary and Director 36,300
Pearl Greenbaum................................... Vice President and Director 20,496
--------
All directors and executive officers as a
group (seven persons)........................... $145,146
========

</TABLE>

- ----------

(1) Officers' salaries constitute the major portion of the Company's total
"Management fee compensation" which must be approved by the SBA. The SBA
has approved management fee compensation of $225,000 for the Company. This
amount includes officers' salaries, other salaries and employee benefits.

Upon the closing of this offering, the Company will enter into five year
employment agreements with Messrs. Zelmanovitch and Greenbaum. The agreements
provide for annual compensation of $85,320 to Mr. Zelmanovitch and $36,300 to
Mr. Greenbaum. The salaries are to be reviewed annually by the Board of
Directors and are subject to SBA approval.

The Company pays its directors who are not employees of the Company fees of
$100 for each meeting attended, not to exceed a total of $1,000 in any single
year for any individual director.

1996 Stock Option Plan

The 1996 Plan was adopted by the Board of Directors, including a majority
of the non-interested directors, in 1996. The 1996 Plan authorizes the grant of
incentive stock options within the meaning of Section 422 of the Code and
non-qualified stock options for the purchase of an aggregate of 75,000 shares of
Common Stock (after giving effect to the stock split effective October 24, 1996)
to employees of the Company. As of May 31, 1996, no non-qualified options to
purchase shares of Common Stock and no incentive stock options had been granted
under the 1996 Plan.

The Board of Directors has appointed the Compensation Committee of the
Borad of Directors to administer the 1996 Plan. Awards of options under the 1996
Plan are granted at the discretion of the Compensation Committee, which
determines the eligible persons to whom, and the times at which, awards shall be
granted, the type of award

25
<PAGE>

to be granted, and all other related terms, conditions and provisions of each
award granted. In addition, all questions of interpretation of the 1996 Plan are
determined by the Compensation Committee. In accordance with the provisions of
the 1940 Act, the grant of options under the 1996 Plan will not occur until
after the date of the approval of the plan by the Securities and Exchange
Commission (the "Approval Date"). Any expenses incurred in connection with
obtaining approval of the Securities and Exchange Commission will be borne by
the Company.

To date no request for exemptive relief has been filed with the Securities
and Exchange Commission. However, it is anticipated such request will be filed
within approximately thirty (30) days after the completion of this offering. No
assurances can be given that the relief requested by the Securities and Exchange
Commission will be granted or that the options will ever be issued.

No option may be exercised more than five years after the date on which it
is granted. The number of shares available for options, the number of shares
subject to outstanding options and their exercise prices will be adjusted for
changes in outstanding shares such as stock splits and combinations of shares.
Shares purchased upon exercise of options, in whole or in part, must be paid for
in cash or by means of unrestricted shares of Common Stock or any combination
thereof.

The 1996 Plan may be terminated at any time by the Board of Directors, and
will terminate ten years after the effective date of the 1996 Plan. The Board of
Directors may not materially increase the number of shares authorized under the
plan or materially increase the benefits accruing to participants under the plan
without the approval of the stockholders of the Company.

The Company initiated a defined contribution plan in fiscal 1989. The
eligibility requirements for participation in the plan are a minimum age of 21
years old and twenty-four months of continuous employment with the Company.
Contributions are currently limited to ten percent of each participant's
compensation. All employees and officers were covered and fully vested in the
plan as of May 31, 1996.

Accrued Benefits Contributed
for the Twelve Months Ended Balance Vested as
Name of Individual May 31, 1996 of May 31, 1996
- ----------------- --------------------------- ----------------
Neil Greenbaum................ $ 3,630 $ 92,968
Pearl Greenbaum............... 2,050 69,205
Zindel Zelmanovitch........... 8,532 213,060
All Other Employees........... 1,968 39,425
-------- ---------
$ 16,180 $ 414,658
======== =========

CONFLICT OF INTERESTS

The Board of Directors of the Company has adopted policies governing
potential conflicts of interest between the Company and its directors and
officers. Together, these policies comprise the Company's "Code of Ethics" as
required under the 1940 Act.

These policies generally provide that no officer, director or employee of
the Company will make any loan which might be deemed to be appropriate for the
Company, unless such transaction is approved by a majority of the directors of
the Company who are not "interested persons" of the Company within the meaning
of the 1940 Act and who have no financial or other material interest in the
transaction. In reviewing any such transaction, the directors will examine,
among other factors, whether the transaction would deprive the Company of an
opportunity or whether it would otherwise conflict with the best interests of
the Company and its shareholders.

Zindel Zelmanovitch, President and a director of the Company, is also
President and a director of East Coast, an SSBIC. East Coast is in the business
of financing small businesses, including, but not limited to, the operation and
ownership of taxicabs. In addition, Mr. Zelmanovitch manages a pension plan
which makes limited investments to finance taxi medallions. Any conflicts of
interest that arise with respect to the foregoing will be resolved in accordance
with the Company's Code of Ethics. Conflicts may also arise as to the allocation
of Mr. Zelmanovitch's time. The Company's Board of Directors believes Mr.
Zelmanovitch has and will continue to be able to allocate such time as is
necessary to the Company's operations.

Mr. Greenbaum is also an officer of Pearland Transfer Corp., ("Pearland") a
licensed medallion broker, Pearland Brokerage Inc., an insurance brokerage
company, and Hereford Insurance Company. Mr. Greenbaum is also President of two
taxi management companies. Conflicts may arise as to the allocation of Mr.
Greenbaum's time. The Company's Board of Directors believes Mr. Greenbaum has
and will continue to be able to allocate such time as is necessary to the
Company's operations. In addition, Mr. Greenbaum manages two pension plans which
make limited investments to finance taxi medallions. Any conflicts of interest
that arise with respect to such investments will be resolved in accordance with
the Company's Code of Ethics. See also "CERTAIN TRANSACTIONS."

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<PAGE>

CERTAIN TRANSACTIONS

Neil Greenbaum and Pearl Greenbaum, officers and directors of the Company,
Barbara Joy Hamill, a director of the Company, and Andrew Greenbaum, a principal
shareholder of the Company, are principals in Pearland which is licensed to
broker taxi medallions. Frequently, Pearland refers an individual purchasing a
medallion to sources of financing, including the Company and other SSBICs. A
substantial portion of the Company's taxicab medallion financings are referred
to the Company by Pearland. Pearland receives no compensation from the Company
for these referrals. Pearland, however, receives a brokerage fee of
approximately $3,000 to $5,000 per medallion transfer, the cost of which fee is
typically split between the purchaser and seller of the medallion.

Mr. Zelmanovitch, President and a director of the Company, is also
President and a director of East Coast, another SSBIC. The Company and East
Coast have made four loans to the same borrowers. The Company's and East Coast's
loans to these borrowers aggregate approximately $400,000 and $115,050,
respectively. Because such coinvesting may be prohibited under the 1940 Act, the
Company has agreed not to make any additional coinvestments unless it is
determined such transaction is consistent with the provisions of the 1940 Act.

The Company currently leases office space from 313 West 53rd Street Assoc.,
a partnership whose partners consist of certain officers and directors of the
Company, for $1,500 per month plus a prorated portion of any increases in the
landlord's operating costs above those in effect at the time the lease was
entered into and the prorated share of any repair expenses incurred by the
landlord. The lease expires in November 1997.

All future transactions between the Company and officers, directors and 5%
shareholders will be on terms no less favorable than could be obtained from
independent third parties and will be approved by a majority of the independent,
disinterested directors of the Company.

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<PAGE>

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth, as of the date of this Prospectus, the
beneficial ownership of the shares of Common Stock of the Company of (i) each
person who beneficially owns more than five percent of the Common Stock, (ii)
each officer and director of the Company and (iii) all officers and directors of
the Company as a group:

<TABLE>
<CAPTION>
Percentage of Common Stock
--------------------------
Type of Beneficial Amount of Before After
Name and Address Ownership Shares Owned Offering Offering
- ---------------- --------- ------------ ------- -------
<S> <C> <C> <C> <C>
Andrew Greenbaum .......................... Of record 93,284(2) 8.5% 4.5%
300 Winston Drive
Cliffside Park, NJ 07010 (1)
Neil Greenbaum ............................ Both beneficially and 105,868(3) 9.7% 5.1%
29 Flamingo Road North of record
East Hills, NY 11576 (1)
Zindel Zelmanovitch ....................... Both beneficially and 174,148(4) 15.9% 8.3%
1934 East 18th Street of record
Brooklyn, NY 11229
Pearl Greenbaum ........................... Both beneficially and 195,052(5) 17.8% 9.3%
300 Winston Drive of record
Cliffside Park, NJ 07010 (1)
Barbara Joy Hamill ........................ Both beneficially and 92,912(6) 8.5% 4.4%
8 Saxon Woods of record
Avon, CT 06001 (1)
American Transit Insurance Co. ............ Of record 99,932 9.1% 4.8%
275 Seventh Avenue
New York, NY 10001
Michael L. Moskowitz ...................... Both beneficially and 32,088(7) 2.9% 1.5%
45 East 25th Street of record
New York, NY 10010
Alan Work ................................. Both beneficially and 2,220(8) * *
54 Random Farms Drive of record
Chappaqua, NY 10514
Eugene Haber............................... Both beneficially and 176(9) * *
22 Eagle Lane of record
East Hill, NY 11576
All officers and directors as a............ Both beneficially and 602,464 54.9% 28.7%
group (7 persons) of record
</TABLE>

- ----------
* Represents less than 1% of the Common Stock.
(1) Andrew Greenbaum and Pearl Greenbaum are husband and wife and the parents
of Neil Greenbaum and Barbara Joy Hamill.
(2) Excludes 195,052 shares held, directly and indirectly, by his wife, Pearl
Greenbaum.
(3) Includes 2,400 shares held by Mr. Greenbaum's children. Excludes 30,200
shares held by his wife and 20,440 shares held by his mother and children
as joint tenants.
(4) Includes 50,348 shares held with his wife as joint tenants and 1600 shares
held directly by his wife. Also includes 33,564 shares held as custodian
for his children. Includes 4,072 shares held by his children. Also includes
39,900 shares held in pension plans of which Mr. Zelmanovitch is the
beneficiary. Includes 44,664 shares held by a corporation of which Mr.
Zelmanovitch is a majority shareholder.
(5) Includes 39,100 shares held in joint tenancy with Mrs. Greenbaum's
grandchildren. Also includes 33,760 shares held in joint tenancy with her
daughter, Karen Franklin. Excludes 93,240 shares held by her husband,
Andrew Greenbaum, as to which shares Mrs. Greenbaum disclaims beneficial
ownership.
(6) Includes 10,200 shares held by her 3 children. Excludes 18,660 shares held
by her mother, Pearl Greenbaum, and her children as joint tenants. Excludes
17,760 shares held by her husband, as to which shares Mrs. Hamill disclaims
beneficial ownership.
(7) Includes 9,000 shares held by M.L. Moskowitz & Co., Inc. of which Mr.
Moskowitz is a principal shareholder.
(8) These shares are held by Mr. Work and his wife as joint tenants.
(9) Includes 132 shares held by his wife and two children.

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<PAGE>

Except as otherwise indicated above, the persons listed in the above table
have voting and investment power with respect to their respective shares.

All of the persons listed above, for as long as they continue to hold 5% or
more of the Company's outstanding common stock, will each be deemed an
"affiliated person" of the Company, as such term is defined in the 1940 Act.

All of the Company's outstanding shares of preferred stock is non-voting
and is held by the SBA.

INVESTMENT POLICIES

The investment policies set forth herein constitute fundamental policies of
the Company pursuant to the 1940 Act which may be changed only by the vote of
the lesser of (i) a majority of its outstanding Common Stock, or (ii) 67% of the
number of shares of Common Stock present in person or by proxy at a duly held
shareholder meeting at which at least 50% of the outstanding shares of Common
Stock are so present.

(a) Issuance of Senior Securities. The Company may issue preferred stock
and subordinated debentures to the SBA in the maximum amounts permissible under
the 1958 Act and the applicable regulations.

(b) Borrowing of Money. The Company has the power to borrow funds from
banks, trust companies, other financial institutions, the SBA or any successor
agency and/or other private or governmental sources, if determined by the
Company's Board of Directors to be in the best interests of the Company.

(c) Underwriting. The Company has not engaged, and does not intend to
engage, in the business of underwriting the securities of other issuers.

(d) Concentration of Investments. The Company may not concentrate 25% or
more of its total assets in securities of issuers in any industry group except
the taxicab industry. The Company will make at least 25% of its investments for
financing the purchase or continued ownership of taxicab medallions, taxicabs
and related assets. The balance of its investments includes, and the Company
intends to continue to finance, the acquisition and/or operation of other small
businesses. All of the Company's loans are made to those persons defined by SBA
regulations as socially or economically disadvantaged persons or entities and
which are at least 50% owned by persons so defined as socially or economically
disadvantaged.

(e) Real Estate. The Company has not engaged, and does not intend to
engage, in the purchase and sale of real estate. However, the Company may elect
to purchase and sell real estate in order to protect any of its prior
investments which it considers at risk.

(f) Commodities Contracts. The Company has not engaged, and does not intend
to engage, in the purchase and sale of commodities or commodities contracts.

(g) Loans. The Company has made, and will continue to make, loans to small
business concerns in accordance with the provisions of the 1958 Act and the
regulations issued by the SBA thereunder.

(h) Writing Options. The Company has not engaged, and does not intend to
engage, in the writing of options.

(i) Short Sales. The Company has not engaged, and does not intend to
engage, in short sales of securities.

(j) Purchasing Securities on Margin. The Company has not engaged, and does
not intend to engage, in the purchase of securities on margin.

(k) Futures Contracts. The Company has not engaged, and does not intend to
engage, in the purchase or sale of futures contracts.

(l) Restricted Securities. The Company may invest up to 100% of its assets
in restricted securities.

(m) Types of Investments. Although the Company was organized primarily to
provide long term loan funds to small business concerns, the Company's
certificate of incorporation provides the Company with the authority to invest
in the equity capital of small business concerns. Accordingly, the Company may
make equity investments in small business concerns if determined by its Board of
Directors to be in the best interests of the Company. Further, except as
otherwise provided by applicable regulations, there shall be no limitation on
the amount of equity investments the Company may make.

29
<PAGE>

(n) Maximum Investment. The Company will not lend or otherwise invest more
than the lesser of (i) 10% of its total assets or (ii) 30% of its paid-in
capital attributable to its Common Stock with respect to any one small business
concern.

(o) Percentage of Voting Securities. The percentage of voting securities of
any one small business concern which the Company may acquire may not exceed 49%
of the outstanding voting equities of such small business concern, except as set
forth in paragraph (p).

(p) Management Control. The Company does not intend to invest in any
company for the purpose of exercising control of management. However, the
Company may elect to acquire control in order to protect any of its prior
investments which it considers at risk.

(q) Investment Companies. The Company has not invested, and does not intend
to invest, in the securities of other investment companies.

(r) Portfolio Turnover. The Company intends to make changes in its
portfolio when, in the judgment of its Board of Directors, such changes will be
in the best interest of the Company's stockholders in light of the then existing
business and financial conditions. The Company does not anticipate that its loan
portfolio will realize an annual turnover in excess of 50%, although there can
be no assurance with respect thereto.

FEDERAL REGULATION

Regulation Under the Small Business Investment Act of 1958

As the holder of a license from the SBA to operate as an SSBIC, the Company
qualifies for certain financing from the SBA on favorable terms as described
above under the heading "BUSINESS--Specialized Small Business Investment
Companies," but is subject to certain restrictions and requirements under the
1958 Act and SBA regulations thereunder. On January 31, 1996, the SBA
promulgated a final rule revising the SBA regulations governing the small
business investment company program. These restrictions and requirements
include, but are not limited to, the following:

(i) The interest rate charged by an SSBIC on loans to a small business
is subject to a "cost of money" ceiling based on either the current
debenture rate or its own "cost of capital," as determined by SBA
regulations. At a minimum, an SSBIC may charge up to nineteen (19%) percent
per annum for a loan. In certain instances, based on the SSBIC's cost of
capital (i.e., the weighted averaged interest rate paid by the licensee on
its borrowings), an SSBIC may charge a higher interest rate.

(ii) Without prior SBA approval, the aggregate commitments by an SSBIC
to any single small business enterprise may not exceed 30% of the private
capital of the SSBIC.

(iii) Management and advisory services must be performed by an SSBIC
in accordance with a written contract and certain record-keeping
requirements must be satisfied.

(iv) The minimum term of an SSBIC loan to a small business is four
years and the maximum term may not exceed 20 years.

(v) Prior written consent of the SBA is required in the event of any
proposed transfer of control of an SSBIC and any proposed transfer of 10%
or more of any class of an SSBIC's stock ownership by any person or group
of persons acting in concert owning 10% or more of any class of an SSBIC's
stock.

(vi) Limitations are imposed on the ability of the officers,
directors, managers or 10% stockholders of an SSBIC to become an officer,
director, manager or 10% stockholder of another SSBIC.

(vii) Prior written consent of the SBA is required in the event of a
merger, consolidation or reorganization of an SSBIC.

(viii) The funds of an SSBIC with outstanding leverage or which has
applied for leverage, or not invested in small businesses, must be
maintained in direct obligations of the U.S. (with maturities of 15 months
or less) or deposited in or invested in time deposits of federally insured
financial institutions.

(ix) Corporate SSBICs issuing debentures after April 25, 1994 are
required to amend their articles of incorporation to indicate that they
have consented, in advance, to the SBA's right to require the removal of

30
<PAGE>

officers or directors and to the appointment of the SBA or its designee as
receiver of the SSBIC for the purpose of continuing to operate the company
upon the occurrence of certain events of default. The regulations divide
the events of default into three categories.

The first category consists of three events that automatically
accelerate all outstanding debentures without notice or demand to the
SSBIC, and allow the SBA to apply for receivership of the SSBIC without the
SSBIC's objection. The events are insolvency, a voluntary assignment for
the benefit of creditors, and the filing of a voluntary or involuntary
petition for relief under the Bankruptcy Code.

Under the second category, upon written notice, the SBA may demand
immediate repayment or redemption of all outstanding debentures or take any
other action permitted under the 1958 Act, specifically including
institution of proceedings for the appointment of the SBA or its designees
as a receiver of the SSBIC. Nine violations are included in this category,
and no opportunities to cure the default are afforded the SSBIC. This
category of violations includes: fraud; fraudulent transfers; willful
conflicts of interest; willful non-compliance with one or more of the
substantive provisions of the 1958 Act or of a substantive regulation;
repeated events of default; transfer of control; non-cooperation with
remedial steps that the SBA may prescribe; non-notification of events of
default; and non-notification of events of default to others. For the first
six violations listed above the SSBIC will have consented to the SBA's
right to require the SSBIC to replace officers or directors, with persons
approved by the SBA, and to the SBA's appointment as receiver for the
purpose of continuing operations.

Under the third category, which includes nine violations, the SBA
affords the SSBIC the opportunity to cure its violations. If the SSBIC
fails to cure to the SBA's satisfaction, the SBA may declare the SSBIC's
entire indebtedness evidenced by the debentures to be immediately due and
payable. The violations in this category include: excessive compensation;
improper distributions; failure to make a timely payment of an SBA
obligation; failure to maintain minimum regulatory capital; capital
impairment; failure to pay any amount when due on any obligation greater
than $100,000; nonperformance or violation of the terms and conditions of
any note, debenture, or other obligation of the SSBIC issued to, held or
guaranteed by the SBA, or of any agreement with, or conditions imposed by,
the SBA; failure to comply with one or more of the substantive provisions
of the 1958 Act or regulations thereunder; and failure to maintain certain
investment ratios for leverage in excess of 300% of Leverageable Capital.
For the first three violations listed above, if an SSBIC fails to cure such
violations, the SBA can require the removal of officers and directors
and/or the appointment of its designee as receiver of the SSBIC.

In addition, if an SSBIC repeatedly fails to comply with one or more
"non-substantive" provisions of the 1958 Act or the regulations thereunder,
the SBA, after written notification and until such condition is cured, may
deny additional leverage to such SSBIC and/or require such SSBIC to take
such actions as the SBA may determine to be appropriate under the
circumstances. If the SBA requires the licensee to bring itself into full
compliance and it fails to do so, the SBA may accelerate its leverage and
take other remedies, including a receivership.

(x) As with debentures, corporate SSBICs issuing preferred stock after
April 25, 1994 are required to amend their articles of incorporation to
indicate that they have consented, in advance, to the SBA's right to
require the removal of officers or directors and to the appointment of the
SBA or its designees as receiver of the SSBIC for the purpose of continuing
to operate the Company upon the occurrence of certain events of default.
The regulations divide the events of default into four categories.

The first category consists of six events, the occurrence of any of
which will permit the SBA, upon notice to the SSBIC, to require the SSBIC
to replace, with individuals approved by the SBA, one or more of its
officers and/or directors. In addition the SBA can apply for the
institution of an operating receivership, with the SBA or its designee as
receiver. The events are: equitable or legal insolvency, or a capital
impairment percentage of 100% or more which capital impairment is not cured
within the time limits set by the SBA in writing; a voluntary assignment
for the benefit of creditors; the filing of a voluntary or involuntary
petition for relief under the bankruptcy code; transfer of control; fraud;
and fraudulent transfers.

The second category consists of willful conflicts of interest; willful
or repeated non-compliance with one or more of the substantive provisions
of the 1958 Act or any substantive regulation promulgated thereunder; and
failure to comply with a restriction imposed on the SSBIC pursuant to the
third category. Upon the occurrence of any such event, and only if the
SSBIC fails to remove the person(s) the SBA identifies as responsible for
such occurrence and/or cure such occurrence to the SBA's satisfaction
within a time period

31
<PAGE>

determined by the SBA, upon written notice, the SBA may replace one or more
of the SSBIC's officers and/or directors or obtain the appointment of the
SBA or its designee as receiver of the SSBIC.

The third category lists eleven events, the occurrence of any of which
will allow the SBA, on written notice to the SSBIC, to prohibit the SSBIC
from making any additional investments except for investments pursuant to
legally binding commitments entered into by the SSBIC prior to such notice
and, subject to the SBA's prior written approval, investments that are
necessary to protect the SSBIC's investment; to prohibit distributions by
the SSBIC to any party other than the SBA, its agent or trustee, until all
leverage is redeemed and amounts due are paid; to require all commitments
to the SSBIC to be funded at the earliest time(s) permitted in accordance
with the SSBIC's articles; and to review and redetermine the SSBIC's
approved management compensation. This category of events includes the
occurrence of any event listed in the first two categories; the SSBIC's
failure to maintain its minimum regulatory capital; capital or liquidity
impairment and failure to cure the impairment within time limits set by the
SBA in writing; improper distributions; excessive compensation; failure to
pay any amounts due under preferred securities, unless otherwise permitted
by the SBA; noncompliance with one or more of the substantive provisions of
the 1958 Act, or any substantive regulation promulgated thereunder; failure
to maintain diversity between management and ownership, if applicable to
such SSBIC; failure to maintain investment ratios for leverage in excess of
300% of Leverageable Capital or preferred securities in excess of 100% of
Leverageable Capital, if applicable to such SSBIC, as of the end of each
fiscal year; nonperformance of one or more of the terms and conditions of
any preferred security or of any agreement with or conditions imposed by
SBA in its administration of the 1958 Act and the regulations promulgated
thereunder; and failure to take appropriate steps to accomplish such
actions as the SBA may have required for repeated non-substantive
violations of the 1958 Act or the regulations promulgated thereunder.

Under the fourth category if an SSBIC repeatedly fails to comply with
any one or more of the non-substantive provisions of the 1958 Act or any
non-substantive regulation promulgated thereunder, the SBA, after written
notification to the SSBIC and until such condition is cured to the SBA's
satisfaction, can deny additional leverage to such SSBIC and/or require
such SSBIC to take such actions as the SBA may determine to be appropriate
under the circumstances.

(xi) An SSBIC is active if during the 18 months preceding its most
recent fiscal year end, it made financings totalling not less than twenty
(20%) percent of its private capital or its idle funds did not exceed
twenty (20%) percent of its total assets at the end of its most recent
fiscal year. The SBA by regulation made certain limited exceptions to this
activity test.

(xii) As part of the regulatory framework, SSBICs are subject to
examinations by SBA agents at least bi-annually and are required to pay
examination fees and maintain certain records, files, internal control
programs and reports. Moreover, the SBA is authorized to suspend an SSBIC's
license, issue cease and desist orders, remove officers and directors of an
SSBIC, subpoena witnesses and records, apply for injunctions to the
appropriate district court, and apply for further acts of enforcement to
the appropriate U.S. Circuit Court of Appeals.

(xiii) An SSBIC may not provide funds to a small business concern if
that concern is not engaged in a regular and continuous business operation.

The foregoing summary of certain requirements under the 1958 Act and
regulations thereunder does not purport to be complete and investors are urged
to consult the 1958 Act and regulations thereunder for more detailed
information. See below under the heading "TAX CONSIDERATIONS" for a discussion
of the taxation of SSBICs.

Registration Under the Investment Company Act of 1940

The Company registered as an investment company under the 1940 Act for the
year commencing July 1, 1988. Prior to such date, the Company was exempt from
regulation under the 1940 Act. The 1940 Act imposes various substantive
requirements upon registered investment companies, and compliance with these
requirements can in many cases be time consuming, burdensome and expensive.
These requirements include, but are not limited to, the following:

(i) The Board of Directors of the Company must be composed of at least
40% of persons who are not "interested persons" as that term is defined in
the 1940 Act (e.g. persons who are not affiliates, counsel, accountants,
investment advisors of or to the Company).

32
<PAGE>

(ii) Any arrangement which provides for joint participation by the
Company and any affiliate (as that term is defined in the 1940 Act) of the
Company in any transaction, and the Company loans to, purchases from, or
sells to, any such affiliate must be approved in advance by the Commission.

(iii) Any management advisory contract between the Company and an
investment adviser must be (a) in writing, (b) initially approved by
shareholders holding a "majority of the outstanding voting stock" (as
defined in the 1940 Act) of the Company and annually thereafter by either
the Company's Board of Directors or a majority of its outstanding voting
stock, (c) non-assignable by the adviser, and (d) terminable by the
directors or a majority of the voting shareholders upon 60 days' notice.

(iv) The Company is required to prepare and file various annual and
periodic reports and proxy materials with the Commission.

(v) The Company's fundamental investment policies may not be changed
without the approval of a "majority of the outstanding voting stock" (as
defined in the 1940 Act). See "BUSINESS--Investment Policies."

(vi) The Company is required to comply with special journal and ledger
accounting rules and record-keeping requirements relating to all business
transactions, and will be subject to inspections by representatives of the
Commission without warning.

(vii) The Company may not (i) issue more than one class of stock
senior to the Common Stock (the Company's preferred stock constitutes such
a senior class), or (ii) issue warrants or rights unless they expire in 120
days or less and are issued ratably to all members of a class of voting
securities.

(viii) The Company must adopt a Code of Ethics which is designed to
prevent insiders from competing with the Company for investments. The Code
of Ethics must require that the Company maintain records of all security
transactions of directors, officers and employees with information relating
to the Company's investments. See "CONFLICTS OF INTEREST."

(ix) Holders of 10% or more of any class of the Company's voting
securities and its directors and officers are subject to short-swing profit
liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended, for purchases and sales of securities of the Company within a
six-month period of each other.

(x) The Company may not issue any of its securities for services or
property other than cash (except as a dividend or distribution to its
shareholders or in connection with a reorganization).

(xi) The Company may not sell any of its Common Stock for less than
the current net asset value of such stock except, (a) with the consent of a
majority of the holders of its Common Stock, (b) in connection with an
offering to all holders of the Common Stock, (c) upon the exercise of an
outstanding warrant or (d) upon the conversion of a convertible security in
accordance with its terms.

The foregoing summary of certain requirements of the 1940 Act does not
purport to be complete and investors are urged to consult the 1940 Act for more
detailed information.

Community Reinvestment Act

The Community Reinvestment Act of 1977 ("CRA") requires the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve
Board and the Office of Thrift Supervision to use their authority when examining
financial institutions to encourage such institutions to help meet the credit
needs of the local community in which they are chartered. Specifically, this Act
requires each of these federal regulators to assess the institution's record of
meeting the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
the institution, and to take such record into account in its evaluation of an
application for a merger, acquisition, or deposit facility by such institution.
Financial institutions covered by the CRA include banks, thrifts and savings and
loans.

In assessing CRA, agencies review an institution's performance to produce
an overall composite rating based upon three major elements, lending, investing,
and service. The lending test evaluates a bank's performance in helping to meet
the credit needs of its service area(s) through its lending activities. In
evaluating a bank's overall lending performance, the agency considers small
business and small farm lending, as well as the geographic distribution of the
bank's lending, particularly with respect to the number and amount of loans to
low-, moderate-, middle-, and upper-income geographies in the bank's service
area.

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<PAGE>

The investment test evaluates the degree to which a bank is helping to meet
the credit needs of its service area(s) through qualified investments. Qualified
investments include, but are not limited to, organizations promoting small
businesses, including SBICs and SSBICs. An agency will evaluate the investment
performance of an institution based upon several factors: the dollar amount of
qualified investments that directly address credit needs; the use of innovative
or complex qualified investments to support community development initiatives;
and the degree of responsiveness to credit and community economic development
needs.

The service test evaluates a bank's record of helping to meet the credit
needs of the bank's service area(s) by analyzing both the availability and
responsiveness of a bank's systems for delivering retail banking services and
the extent and innovativeness of its community development services.

Agencies assign a rating for an institution under the lending, investment,
and service tests which then are combined to produce an overall rating under
CRA. The overall rating of a bank, thrift or savings and loan may be positively
affected as a consequence of equity investments in an SSBIC.

TAX CONSIDERATIONS

General

The following discussion is based on the currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and the currently
existing regulations thereunder. No assurance can be given that future
legislation or administrative changes or court decisions will not significantly
modify the statements expressed herein. The following discussion is only a
general summary of some of the federal tax principles applicable to the Company
and to an investment in the Company's Common Stock, and does not purport to be a
complete description of the tax considerations applicable to such investment.
Prospective investors should consult their own tax advisers with respect to the
tax considerations which pertain to their purchase and ownership of the
Company's Common Stock.

Taxation of a Regulated Investment Company
Under Section 851 of the Code, a corporation which qualifies may elect to
be taxed as a regulated investment company. A regulated investment company is
generally not subject to federal income taxation at the corporate level to the
extent its income is distributed to its shareholders, since it can deduct most
dividends paid. The Company intends to continue to qualify as a regulated
investment company. In order for the Company to qualify for the tax status of a
regulated investment company for a given fiscal year, it must meet each of the
following conditions for that fiscal year:

(a) The Company must be a domestic corporation registered as a
management company under the 1940 Act during the entire year.

(b) At least 90% of the Company's gross income for the year, including
its tax exempt interest income, but excluding losses from the sale or other
disposition of stock or securities, must be derived from interest, gains on
the sale or other disposition of stock or other securities, dividends, and
payments with respect to securities loans.

(c) Less than 30% of the Company's gross income including tax exempt
interest income, but excluding losses from the sale or other disposition of
stock or securities, must be derived from the sale or other disposition of
securities held for less than three months.

(d) At the close of each quarter, at least 50% of the value of the
Company's total assets must be represented by cash, cash items (including
receivables), government securities, securities of other regulated
investment companies and other securities, subject to limitations on the
extent to which the Company's holdings may be concentrated in the
securities of a single issuer.

(e) The Company must distribute as dividends at least 90% of its
investment company taxable income (as defined in Code Section 852) as well
as 90% of the excess of its tax-exempt income over certain disallowed
tax-exempt interest deductions (the "Distribution Requirement").

If the Distribution Requirement is satisfied, a regulated investment
company may not be taxed on distributed income, provided all the other
requirements are satisfied. Only undistributed income and undistributed net
capital gain will be taxed at the ordinary income tax rates of Code Section 11
and the capital gains rates of Code Section 1201.

34
<PAGE>

The tax on undistributed ordinary income is really a tax on investment company
taxable income calculated with the dividends paid deduction for ordinary
dividends, while the capital gains tax is imposed against the excess of net
capital gain over the dividends paid deduction determined with reference to
capital gain dividends.

A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year). The Company intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income prior to the end of each calendar year to avoid liability for
the excise tax. However, investors should note that the Company may in certain
circumstances be required to liquidate portfolio investments to make sufficient
distributions to avoid excise tax liability.

If the Company fails to qualify as a regulated investment company, the
Company's earnings will generally be subject to corporate income taxation, and
distributions by the Company in the form of dividends will generally be taxed as
ordinary income to its shareholders to the extent of the Company's current and
accumulated earnings and profits.

Taxation of Shareholders of Regulated Investment Companies

Regulated investment company shareholders also are taxed differently from
shareholders in ordinary corporations. Usually, dividends are included in a
shareholder's income as ordinary income, unless they are return of capital
distributions, which normally are nontaxable since they are a return of a
shareholder's investment. For regulated investment company shareholders,
dividends are classified as ordinary, capital gain or exempt interest, depending
on the type of earnings of the regulated investment company from which they are
paid.

The portion of the dividend that represents a capital gains distribution is
reportable as long-term capital gain by the shareholder, regardless of how long
the shareholder may have owned the stock. Long-term capital gain distributions
do not qualify for the corporate dividends received deduction. For individuals,
the capital gain dividends are taxed at the maximum rate of 28%, while ordinary
income is taxed at the maximum rate of 39.6%.

The portion of dividends that does not represent a capital gains
distribution received by a corporate shareholder qualifies for the dividends
received deduction to the extent the regulated investment company designates the
amount distributed as an ordinary dividend, and the aggregate amount received
does not exceed the aggregate amount of dividends received by the regulated
investment company. In general, where aggregate dividends received by a
regulated investment company are less than its gross income for such taxable
year, part of the ordinary income dividends paid by a regulated investment
company will qualify for the dividend received deductions available to corporate
shareholders, in the same ratio that the regulated investment company's dividend
income from domestic corporations for a taxable year bears to its gross income
for such year (excluding from the regulated investment company's gross income
gain from the sale or other disposition of stock or other securities). Based on
the plans of the Company to enter into transactions that will result in interest
income, it is unlikely that any part of the ordinary dividends payable by the
Company will qualify for the exclusion for the dividends received deduction.

Dividends declared and payable by a regulated investment company in
October, November or December are treated as paid on December 31 even though
they are actually paid in January. In addition, dividends that are declared
prior to the time that a regulated investment company is required to file its
tax return for a taxable year and that are distributed within 12 months
following the close of a taxable year (but not later than the date of the first
regular dividend payment made after the declaration) may be treated for purposes
of the dividend paid deduction, at the election of the regulated investment
company, as having been paid in that prior taxable year (such dividends are
treated as having been received by shareholders in the year of distribution).

The Company will advise the shareholders annually as to the federal income
tax consequences of distributions made (or deemed made) during the year. The
Company will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Company that it is not subject to backup withholding or that it is a corporation
or other "exempt recipient."

35
<PAGE>

Special Provisions of the Code Applicable to SSBICs and Shareholders of SSBICs

The Company and its shareholders should qualify for the following tax
benefits which are ordinarily not available to corporations not licensed as
SSBICs and their shareholders:

1. Under Section 1243 of the Code, the Company would be entitled to
ordinary rather than capital loss treatment for losses sustained with
respect to stock derived from convertible debentures of small business
corporations. Because the Company does not presently intend to purchase
convertible debentures, however, this potential benefit is not likely to be
of practical significance to investors.

2. Under Section 582 of the Code, the Company would be entitled to
ordinary rather than capital loss treatment for losses sustained with
respect to debt instruments.

3. Under Section 1242 of the Code, except for a short sale of stock,
the Company's shareholders would be entitled to take an ordinary rather
than a capital loss deduction on losses resulting from the worthlessness or
the sale or exchange of the Company's Common Stock.

Other Potentially Applicable Code Provisions

(a) Pass-Through of Itemized Deductions

Pursuant to Code Section 67(a), the miscellaneous itemized deductions of an
individual taxpayer will only be allowed as a deduction to the extent that such
miscellaneous itemized deductions exceed two (2%) percent of the taxpayer's
adjusted gross income (generally, gross income less trade or business expenses).
Section 67(c) of the Code provides that, pursuant to Treasury regulations, the
limit on such itemized deductions will, to a certain extent, apply to a
shareholder of regulated investment companies as if the shareholder had earned
his share of the Company's income and incurred his share of the expenses of the
Company directly. The 2% floor on itemized deductions does not apply to a
"publicly-offered regulated investment company". A "publicly offered regulated
investment company" means a regulated investment company the shares of which are
continuously offered pursuant to a public offering, regularly traded on an
established securities market or held by no fewer than 500 persons at all times
during the taxable year. If the Company does not qualify as a publicly offered
investment company, the 2% floor on itemized deductions will apply to
shareholders of the Company with respect to Company expenses. As a result, each
shareholder would be treated, pursuant to applicable Treasury Regulations, as
including both an amount of income and an expense, that must be claimed subject
to the above described limitations, equal to a portion of the Company's
expenses. The impact of this provision upon a shareholder of the Company, if it
were to apply, depends not only upon his share of the Company's income and
expenses but also depends upon the shareholder's income and expenses from other
sources. Each shareholder should consult his tax advisor regarding the potential
application of Code Section 67 and other provisions of the Code that limit the
deduction of itemized deductions by individuals.

(b) Deferral of Capital Gains

Under Code Section 1044, Subchapter C corporations and individuals (not
estates, trusts, partnerships or S corporations) may elect to defer recognition
of capital gain realized on the sale of publicly traded securities if the
taxpayers use the sales proceeds within 60 days to purchase common stock or a
partnership interest in an SSBIC. The amount of gain an individual may elect to
roll over for a tax year is limited to the lesser of (1) $50,000, or (2)
$500,000 reduced by any gain previously excluded under this provision for all
preceding taxable years ($25,000 and $250,000, respectively, for married
individuals filing separately). For C corporations, the annual and cumulative
limits are increased to $250,000 and $1 million, respectively. To the extent
that sales proceeds exceed the cost of the SSBIC common stock or partnership
interest, gain must be currently recognized. Recognition of ordinary gain may
not be deferred. This election is made by a shareholder on Schedule D on his
Form 1040 Federal income tax return for the year in which the securities are
sold.

For purposes of Section 1044 of the Code, the term "publicly traded
securities" means securities which are traded on an established securities
market. The taxpayer's basis in the SSBIC stock or partnership interest is
reduced, by the amount of any unrecognized gain on the sale of the securities.

Each investor before making an investment should consult with his
accountant or tax advisor as to the potential application of the tax benefits
available under Code Section 1044. Each shareholder should note that his holding
period in the Company's Common Stock begins upon the purchase of the Common
Stock with no inclusion in such holding period for the time he held the
publicly-traded securities. If a shareholder sells the Common Stock and

36
<PAGE>

realizes a gain or loss upon such sale, such gain or loss will be a long-term
capital gain or loss, if the shareholder held such Common Stock for more than
one year.

Code Section 1202, as a manner of encouraging investment in new ventures
and specialized small business investment companies, grants relief to investors
who risk their funds in these businesses. Non-corporate investors may exclude up
to fifty (50%) percent of the gain they realize on the disposition of qualified
small business stock issued after August 10, 1993, and held for more than five
(5) years. The amount of gain eligible for the fifty (50%) percent exclusion is
subject to per issuer limits. The exclusion is available to taxpayers who own
eligible stock for five (5) years in a qualified corporation that actively
conducts a qualified trade or business and that meets a maximum gross assets
test.

However, if an individual utilizes Code Section 1044 to defer recognition
of capital gain on the sale of publicly traded securities and then invests those
funds in qualified small business stock, the deferred gain would not be eligible
for the fifty (50%) percent exclusion, although the appreciation occurring after
the purchase of the qualified small business stock would be eligible for such
fifty (50%) percent exclusion.

State and Local Taxes

The foregoing discussion relates only to federal income tax matters. The
Company and its shareholders will also be subject to state and local taxation.
Investors should consult their own tax advisers with respect to the state and
local tax consequences to them of the above-described transactions.

DESCRIPTION OF CAPITAL STOCK AND LONG-TERM DEBT

The Company has 13,000,000 shares, of which 10,000,000 shares are four (4%)
percent preferred stock having a par value of $1.00 each ("4% Preferred Stock")
and 3,000,000 shares are common stock having a par value of $.01 each (the
"Common Stock").

Common Stock

Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of shareholders. The Common Stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares of
Common Stock may elect all of the directors of the Company. The Common Stock
does not have any pre-emptive rights.

All shares of the Common Stock outstanding upon the completion of this
offering and upon payment therefor will be fully paid and nonassessable. Upon
liquidation, dissolution or winding up of the affairs of the Company, its assets
remaining after provision for payment of creditors and holders of preferred
stock, would be distributed pro rata among holders of the Common Stock.

Dividends may be paid in cash or stock to the holders of the Common Stock
when and if declared by the Board of Directors out of funds legally available
therefor, but only after the Company has paid all cumulative dividends then in
arrears on its preferred stock. In order to qualify as a "regulated investment
company" for federal income tax purposes, the Company is required to distribute
annually as dividends at least 90% of its taxable income, to the extent earned.
As of September 1996, the Company had issued and outstanding 1,096,688 shares of
Common Stock with 156 holders of record.

Preferred Stock

Shares of 4% Preferred Stock may be issued only to the SBA. The shares are
nonvoting and four (4%) percent dividends thereon are preferred and cumulative.
Such shares have a mandatory 15 year redemption requirement.

Since the Company, in order to continue to qualify as a "regulated
investment company," under the Code, will be required to make dividend
distributions to its shareholders, the Company will be required to pay the
cumulative dividend on its preferred stock on a current basis, to the extent
funds are available for such purpose. Prior to any liquidation or redemption or
repurchase of Common Stock, the SBA, as the holder of the preferred stock, will
be entitled to the payment of the par value of such shares, and to the payment
of all cumulative dividends then in

37
<PAGE>

arrears. Pursuant to SBA regulations, in order to continue to qualify for the
issuance of preferred stock to the SBA, the Company amended its certificate of
incorporation to consent in advance to the SBA's right to require the removal of
officers and directors and to the appointment of the SBA or its prior designee
as receiver of the Company upon the occurrence of certain events of default. See
"FEDERAL REGULATION--Regulation Under the Small Business Investment Act of
1958." As of the date hereof, the Company had issued and outstanding 1,410,000
shares of 4% Preferred Stock.

The Company previously had 1,520,000 shares of 3% Preferred Stock
outstanding and held by the SBA. Such shares were repurchased by the Company in
1993 at a substantial discount. See "BUSINESS--Specialized Small Business
Investment Companies." The Company subsequently amended its certificate of
incorporation reclassifying such shares as 4% Preferred Stock.

Long-Term Debt

The Company's only long-term debt is its subordinated debentures, issued
to, or guaranteed by the SBA, of which $4,390,000 were outstanding on the date
hereof. The subordinated debentures bear interest ranging from 4.51% to 9.00%
per annum and have varying maturities from February 1997 to May 2006. The
weighted average interest cost as of May 31, 1996 was 7.06%. No principal
payments are required until maturity. The subordinated debentures are not
convertible and have no sinking fund provisions. The subordinated debentures are
unsecured and subordinated to all other debt of the Company, but have a priority
over the Common Stock of the Company upon any dissolution, winding-up,
liquidation or reorganization. As a result of the issuance of subordinated
debentures, the Company was required to amend its certificate of incorporation
granting the SBA certain rights including, but not limited to, the right to
accelerate payment of the subordinated debentures, appoint the SBA or its
designee as receiver of the Company, and the right to remove officers and
directors of the Company upon the occurrence of certain events of default. See
"FEDERAL REGULATION--Regulation Under the Small Business Investment Act of
1958."

Shares Eligible for Future Sale

The Company will have 2,096,688 shares of Common Stock outstanding if the
offering is consummated. Of the 1,096,688 issued and outstanding shares prior to
this offering, 822,168 shares are owned by officers, directors and persons
owning at least five percent of the outstanding shares after giving effect to
the sale of shares offered hereby. Such shares are subject to lock-up agreements
which prohibit their sale for a period ending 18 months after the date of this
Prospectus. Thereafter, 193,172 of such shares may be sold without restriction
at any time and 628,996 of such shares may be sold subject to certain volume
limitations under Rule 144 promulgated under the Securities Act. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities for at least two
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of one percent of the then outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner-of-sale provisions, notice requirements and the availability
of current public information about the Company. A person, however, who is not
deemed to be an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned restricted securities last
acquired from the Company or an affiliate of the Company over three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to volume limitations or other restrictions.

Transfer Agent

The transfer agent for the Common Stock will be Continental Stock Transfer
and Trust Company, 2 Broadway, New York, New York 10004.

38
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement between
the Company and the Underwriter, the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
the Company the respective number of shares of Common Stock as set forth
opposite its name below:

Underwriter Number of Shares
----------- ----------------
Suppes Securities, Inc............................. 300,000
National Securities Corporation.................... 400,000
Nutmeg Securities, Ltd............................. 200,000
First Colonial Securities Group, Inc............... 100,000
==========
1,000,000

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to the approval of certain legal matters by counsel and
various other conditions. Under the terms of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken;

The Underwriters have advised the Company that they propose to offer the
shares of Common Stock offered hereby to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less concessions of not in excess of $.30 per share, of which amount a sum not
in excess of $.08per share may in turn be allowed by such dealers to other
dealers. After the public offering, the public offering price and other selling
terms may be changed by the Underwriters. The Underwriters do not expect sales
to discretionary accounts will exceed five percent of the total number of shares
of Common Stock offered hereby.

The Company has granted to the Underwriters an option exercisable during
the 45-day period after the date of this Prospectus, to purchase from the
Company at the offering price less underwriting discount and the Underwriters'
non-accountable expense allowance, up to an aggregate of 150,000 additional
shares of Common Stock for the sole purpose of covering over-allotments, if any.
The Company has agreed to pay the Underwriters a non-accountable expense
allowance equal to three (3%) percent of the gross proceeds of the shares of
Common Stock underwritten. The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payment that the Underwriters may be required to make.

The Company has agreed to issue to Suppes Securities, Inc. (the
"Underwriters") warrants for the purchase of up to ten (10%) percent of the
number of shares of Common Stock sold in the public offering (the "Underwriters'
Warrants"). The Underwriters' Warrants shall be for a term of five years and
shall be non-transferable except to certain permitted persons for one year after
the effective date. The Underwriters' Warrants are exercisable for four years at
one hundred forty (140%) percent of the initial public offering price of the
Common Stock. Any expenses incurred in connection with obtaining any such
approvals of the Securities and Exchange Commission will be borne by the
Underwriters. In addition, the Company has agreed to enter into a two year
non-exclusive financial consulting agreement with the Underwriters pursuant to
which the Underwriters would receive fees of $25,000 per year. The grant of the
Underwriters' Warrants is subject to the prior approval of the Securities and
Exchange Commission.

To date no request for exemptive relief has been filed with the Securities
and Exchange Commission. It is anticipated that such request will be filed
within approximately thirty (30) days after the completion of this offering. No
assurance can be given that the relief requested will be granted or that the
Underwriters' Warrants will ever be granted.

The Company, its officers and directors and holders in excess of 5% of the
shares of Common Stock to be outstanding after this offering have agreed that
they will not, without the prior written consent of the Underwriters, sell, or
dispose of any shares of Common Stock owned by such person on the date of this
Prospectus for a period of 18 months after the date of this Prospectus.

The Underwriters have the right, subject to SBA approval, to designate one
member to the Company's Board of Directors or, at the option of the
Underwriters, to designate a person to attend Board of Directors meetings for
a period of two years after the date of this Prospectus.

39
<PAGE>

The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to a copy of
the Underwriting Agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.

On or about October 31, 1995, the Securities and Exchange Commission
instituted an action, entitled Securities and Exchange Commission v. Sarivola,
et al., 95 Civ. 9270, in United States District Court, Southern District of New
York against Suppes and numerous other defendants, including Michelle P. Suppes,
a principal executive officer of Suppes relating to transactions in 1991 and
1992. The Securities and Exchange Commission alleges that two brokers employed
by Suppes improperly promoted and disseminated false financial information to
the public concerning the securities of Leona Enterprises, Inc. ("Leona") in
exchange for undisclosed compensation, and executed illegal sales of
unregistered securities of Leona through Suppes. The complaint seeks, inter
alia, a judgment enjoining the defendants from engaging in violations of various
securities laws, an order requiring the disgorgement by the defendants of
benefits obtained as a result of the sale of Leona securities and unspecified
civil penalties pursuant to the securities laws. An answer to the complaint
denying the allegations was served by Suppes on or about November 30, 1995. The
case is currently in litigation.

LEGAL MATTERS

Certain legal matters in connection with the offering will be passed upon
for the Company by Stursberg & Veith, New York, New York. C. Walter Stursberg,
Jr., a member of such firm, owns 444 shares of Common Stock. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Reid & Priest LLP, New York, New York.

EXPERTS

The financial statements of Freshstart Venture Capital Corp. as of May 31,
1994, 1995 and 1996 and for each of the three years then ended included in the
Prospectus, have been audited by Michael C. Finkelstein & Co., independent
accountants, as stated in their report dated July 23, 1996 and are included
herein in reliance upon such report given upon their authority as experts in
accounting and auditing.

CUSTODIAN

The Company currently acts as a self-custodian of its portfolio securities
in compliance with applicable regulations promulgated under the 1940 Act,
although the Company reserves the right to appoint a third party custodian in
the future.

ADDITIONAL INFORMATION

The Company has filed with the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement on Form N-5 with respect to the securities
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and the exhibits thereto which may be inspected, without
charge, at the SEC, or copies of which may be obtained from the SEC in
Washington, D.C., upon payment of the requisite fees. Statements contained in
this Prospectus as to the content of any contract or other document referred to
are not necessarily complete, and where such contract or other document is an
exhibit to the Registration Statement, each such statement is deemed to be
qualified in all respects by reference to the provisions of the exhibit.

40
<PAGE>

TABLE OF CONTENTS
---------------------

Page
----

Independent Auditors' Report ........................................... F-2

Statements of Financial Position of Freshstart Venture Capital Corp.
as of May 31, 1995 and 1996 .......................................... F-3

Statements of Operations for the Years Ended
May 31, 1994, 1995 and 1996 .......................................... F-4

Statements of Stockholders' Equity for the Years Ended
May 31, 1994, 1995 and 1996 .......................................... F-5

Statements of Cash Flows for the Years Ended
May 31, 1994, 1995 and 1996 .......................................... F-6

Notes to the Financial Statements ...................................... F-7

Supplemental Schedules ................................................. F-13

Selected Per Share Data and Ratios ..................................... F-14

F-1
<PAGE>

Board of Directors
Freshstart Venture Capital Corp.

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying Statements of financial position of Freshstart
Venture Capital Corp. (the "Company") as of May 31, 1996 and 1995 and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended May 31, 1996 and selected per share data
and ratios for each of the five years in the period ended May 31, 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 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 audits provide a reasonable basis for our opinion.

As described in Note 2, these financial statements were prepared in conformity
with the accounting practices prescribed by the Small Business Administration,
which provide for specific allocations of certain types of income to specific
capital accounts. As explained in Note 2, the financial statements include
securities valued at $8,417,457 and $8,132,484 on May 31, 1996 and 1995 (266%
and 257% respectively of net assets), whose values have been estimated by the
Board of Directors in absence of readily ascertainable market values.

We have reviewed the procedures used by the Board of Directors in arriving at
its estimate of such securities and have inspected underlying documentation,
and, in the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent uncertainty of
valuation, those estimated values differ significantly from the values that
would have been used had a ready market for the securities existed, and the
differences could be material.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of May 31, 1996
and 1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

New York, New York
July 23, 1996

Michael C. Finkelstein
Certified Public Accountant

F-2
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF FINANCIAL POSITION

ASSETS
May 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Loans Receivable:
Long Term Portion (Notes 2 and 3) ............................. $ 8,313,042 $ 8,598,015
Less: Unrealized Depreciation on Loans Receivable (Note 3) ... (180,558) (180,558)
----------- -----------
8,132,484 8,417,457
Less: Current Maturities-- Loans Receivable .................. (1,140,416) (1,178,444)
----------- -----------
Total Loans Receivable-- Net of Current Maturities .. 6,992,068 7,239,013
----------- -----------
Assets Acquired in Liquidation of Portfolio Securities (Note 4) 13,344 --
----------- -----------
CURRENT ASSETS
Cash (Note 15) ................................................ 745,359 415,102
Accrued Interest (Notes 2 and 3) .............................. 71,497 92,946
Current Maturities - Loans Receivable ......................... 1,140,416 1,178,444
Prepaid Expenses and Other Assets ............................. 236,088 287,351
----------- -----------
Total Current Assets ................................ 2,193,360 1,973,843
----------- -----------
Fixed Assets - Net of Accumulated Depreciation
of $16,369 and $10,852 respectively (Note 2) ................ 3,614 25,903
----------- -----------
Total Assets ........................................ $ 9,202,386 $ 9,238,759
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
LONG TERM DEBT:
Debentures Payable to SBA (Note 6) ............................ $ 4,340,000 $ 4,380,000
4% Cumulative, 15 Year Redeemable Preferred Stock (Note 7) .... 1,410,000 1,410,000
----------- -----------
Total Long Term Debt .................................. 5,750,000 5,790,000
----------- -----------
CURRENT LIABILITIES:
Loans Payable - Line of Credit (Note 5) ....................... 5,000 --
Accrued Interest .............................................. 128,330 121,603
Other Current Liabilities ..................................... 37,512 34,493
Dividends Payable (Note 9) .................................... 112,802 122,202
----------- -----------
Total Current Liabilities ............................. 283,644 278,298
----------- -----------
Total Liabilities ..................................... 6,033,644 6,068,298
----------- -----------
Commitments and Contingencies (Notes 14 and 16) ............... -- --

STOCKHOLDERS' EQUITY:
4%Cumulative, 15 Year Redeemable Preferred Stock-- $1 Par
Value; 10,000,000 Shares Authorized, 650,000 and 1,410,000
Shares Issued and Outstanding, respectively (See Long
Term Debt ) (Note 7) ........................................ -- --
3% Cumulative Preferred Stock - $1 Par Value: No Shares Issued
and Outstanding (Notes 7 and 12) ............................ -- --
Common Stock - $.01 Par Value: 3,000,000 Shares Authorized,
1,096,688 Shares Issued and Outstanding (Note 12) ........... 10,967 10,967
Additional Paid in Capital (Note 8) ........................... 2,571,117 2,762,116
Retained Earnings ............................................. 13,660 15,379
Restricted Capital-- Realized Gain on Redemption (Note 8) ..... 572,998 381,999
----------- -----------
Total Stockholders' Equity ............................ 3,168,742 3,170,461
----------- -----------
Total Liabilities and Stockholders' Equity ............ $ 9,202,386 $ 9,238,759
=========== ===========
Net Assets Per Share .......................................... $ 2.88 $ 2.88
=========== ===========
</TABLE>

See Notes to the Financial Statements

F-3
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF OPERATIONS

Years Ended May 31,
------------------------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Interest Earned on Outstanding Receivables ....................... $1,033,638 $ 996,534 $1,027,815
Interest Income - Idle Funds ..................................... 9,433 8,750 6,129
---------- ---------- ----------
Total Revenue (Note 2) ................................... 1,043,071 1,005,284 1,033,944
---------- ---------- ----------
EXPENSES:
Interest (Note 6) ................................................ 315,213 322,806 307,764
Professional Fees ................................................ 62,629 45,415 50,776
Officers' Salaries (Notes 11 and 13) ............................. 145,146 145,146 145,146
Other Salaries (Note 11) ......................................... 35,586 35,472 23,126
Other Operating Expenses ......................................... 90,958 89,353 90,450
Pension Expense (Notes 10 and 11) ................................ 18,073 17,942 16,180
Depreciation and Amortization (Note 2) ........................... 5,605 5,999 9,710
---------- ---------- ----------
Total Expenses ........................................... 673,210 662,133 643,152
---------- ---------- ----------
Net Investment Income ............................................ 369,861 343,151 390,792
Unrealized Depreciation in Value of
Investments (Notes 2 and 3) .................................... 78,161 2,399 35,000
---------- ---------- ----------
291,700 340,752 355,792
PROVISION FOR TAXES:
Current Income Taxes (Note 2) .................................... 985 1,836 1,567
---------- ---------- ----------
Net Income ..................................................... $ 290,715 $ 338,916 $ 354,225
========== ========== ==========

Earnings Per Share of Common Stock (Note 2) ...................... $ .24 $ .27 $ .27
========== ========== ==========
Dividends Paid Per Share of Common Stock ......................... $ .24 $ .27 $ .27
========== ========== ==========
Weighted Average Shares of Common
Stock Outstanding .............................................. 1,096,688 1,096,688 1,096,688
========== ========== ==========
</TABLE>

See Notes to the Financial Statements

F-4
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended May 31,
-------------------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
4% Cumulative, 15 Year Redeemable
Preferred Stock - $1 Par Value:
10,000,000 Shares Authorized, 650,000
and 1,410,000 Shares Issued and
Outstanding (See Long Term Debt)
(Note 7) ....................................................... $ -- $ -- $ --
----------- ----------- -----------

Common Stock - $.01 Par Value: 3,000,000
Shares Authorized, 1,096,688 Shares Issued
and Outstanding ................................................ 10,967 10,967 10,967
----------- ----------- -----------
Additional Paid in Capital --
Beginning of Period .......................................... 2,189,118 2,380,117 2,571,117
Amortization of Restricted Capital (Note 8) ...................... 190,999 191,000 190,999
----------- ----------- -----------
Additional Paid in Capital --
End of Period ................................................ 2,380,117 2,571,117 2,762,116
----------- ----------- -----------

Retained Earnings
Balance, Beginning of Period ..................................... 14,435 15,944 13,660
Net Income ....................................................... 290,715 338,916 354,225
Dividends Paid and Accrued ....................................... (289,206) (341,200) (352,506)
----------- ----------- -----------
Balance, End of Period ....................................... 15,944 13,660 15,379
----------- ----------- -----------
Restricted Capital
Gain on Redemption of 3% Preferred
Stock (See Note 8) ............................................. 954,997 763,998 572,998
Amortization of Gain ............................................. (190,999) (191,000) (190,999)
----------- ----------- -----------
Balance, End of Period (Note 8) .............................. 763,998 572,998 381,999
----------- ----------- -----------
Total Stockholders' Equity ................................... $ 3,171,026 $ 3,168,742 $ 3,170,461
=========== =========== ===========
</TABLE>

See Notes to the Financial Statements

F-5
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF CASH FLOWS

Years Ended May 31,
-----------------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES:
Net Income .......................................................... $ 290,715 $ 338,916 $ 354,225
Depreciation and Amortization Expense ............................... 5,605 5,999 9,710
Provision for Losses on Loans Receivable ............................ 78,161 2,399 35,000
Decrease (Increase) in Accrued Interest ............................. 31,540 15,015 (21,449)
Decrease (Increase) in Other Assets ................................. (8,346) (195,878) (57,326)
Increase (Decrease) in Accrued Liabilities .......................... (201,386) (20,113) (346)
Dividends Paid and Accrued .......................................... (289,206) (341,200) (352,506)
----------- ----------- -----------
Net Cash Provided (Used) By Operating Activities .................... (92,917) (194,862) (32,692)
----------- ----------- -----------
CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES:
Increase in Loans Receivable ........................................ (3,179,900) (3,626,250) (4,594,750)
Repayment of Loans Receivable ....................................... 3,497,946 3,259,799 2,115,540
Increase in Loan Participations ..................................... 66,000 125,000 2,227,000
Repayment of Loan Participations .................................... (180,689) (164,434) (67,763)
Increase in Fixed Assets ............................................ (1,475) (2,578) (25,936)
Decrease (Increase) in Assets Acquired in Liquidation ............... (167,510) 148,287 13,344
----------- ----------- -----------
Net Cash Provided (Used) By Investing Activities .................... 34,372 (260,176) (332,565)
----------- ----------- -----------
CASH FLOWS (USED) PROVIDED BY
FINANCING ACTIVITIES:
(Decrease) in Line of Credit ........................................ (300,000) (29,488) (5,000)
(Decrease) in Restricted Capital .................................... (190,999) (191,000) (190,999)
Increase in Debenture Payable to SBA (Net) .......................... -- -- 40,000
Sale of 4% Preferred Stock .......................................... -- 760,000 --
Increase in Additional Paid in Capital .............................. 190,999 191,000 (190,999)
----------- ----------- -----------
Net Cash (Used) Provided by Financing Activities .................... (300,000) 730,512 35,000
----------- ----------- -----------
Net (Decrease) Increase in Cash ..................................... (358,545) 275,474 (330,257)
Cash Balance - Beginning of Period .................................. 828,430 469,885 745,359
----------- ----------- -----------
Cash Balance - End of Period ........................................ $ 469,885 $ 745,359 $ 415,102
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest ........................................................ $ 308,488 $ 312,142 $ 314,491
----------- ----------- -----------
Taxes ........................................................... $ 985 $ 1,836 $ 1,567
----------- ----------- -----------

</TABLE>

See Notes to the Financial Statements

F-6
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

NOTE 1 ORGANIZATION

Freshstart Venture Capital Corp., a New York Corporation (the
"Company"), was formed on March 4, 1982 for the purpose of
operating as a specialized small business investment company
("SSBIC"), licensed under the Small Business Investment Act of
1958 and regulated and financed in part by the U.S. Small Business
Administration ("SBA"). The Company has also registered as an
investment company under the Investment Company Act of 1940. The
Company's business is to provide financing to persons who qualify
under SBA regulations as socially or economically disadvantaged
and to entities which are at least fifty (50%) percent owned by
such individuals.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies
applied by the Company in the preparation of its financial
statements. The Company maintains its accounts and prepares its
financial statements on the accrual basis of accounting in
conformity with generally accepted accounting principles for
investment companies.

Valuation of Loans and Investments

The Board of Directors has valued the investment portfolio based
upon the cost of such investments, less a provision for loan
losses. However, because of the inherent uncertainty of the
valuation, the estimated values might otherwise be significantly
higher or lower than values that would exist in a ready market for
such loans, which market has not in the past and does not now
exist. The provision for loan losses represents a good faith
determination by the Board of Directors maintained at a level
that, in its judgment, is adequate to absorb losses. The balance
in the reserve account is adjusted periodically by the Board of
Directors on the basis of the fair value of the collateral held
and past loss experience. Approximately seventy four (74%) percent
of the Company's loan portfolio consists of loans made for the
financing of taxi cab medallions and related assets. The remaining
portion of the loans are made to various small commercial
enterprises. Substantially all loans are collateralized by either
NYC taxi medallions or real estate and the personal guarantees of
the individual owners.

Depreciation and Amortization

Depreciation and amortization of furniture, fixtures and leasehold
improvements is computed on the straight line method at rates
adequate to allocate the costs of applicable assets over their
expected useful lives.

Recognition of Interest Income

It is the Company's policy to record interest on loans and debt
securities only to the extent that management and the Board of
Directors anticipate such amounts may be collected. Interest on
doubtful accounts and accounts which are 180 days past due is not
recorded until actually received.

Income Taxes

The Company has elected to be taxed as a regulated investment
company under the Internal Revenue Code. A regulated investment
company can generally avoid taxation at the corporate level to the
extent that ninety (90%) percent of its income is distributed to
its stockholders. Therefore, no provision for federal income taxes
has been made. The financial statements include provisions for New
York State and local minimum taxes.

Earnings Per Share

Earnings per share are based on a weighted average number of
shares outstanding during the period, less accrued dividends on
cumulative preferred stock.

F-7
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

Assets Acquired in Liquidation of Portfolio Securities.

Assets acquired in liquidation of portfolio securities are carried
at estimated net realizable value. Expenses incurred at the time
of foreclosure are charged against the assets and adjusted to the
estimated net realizable value. Subsequent reductions in estimated
net realizable value are recorded as losses.

Recently Issued Accounting Standards.

Statement of Financial Accounting Standard No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") was issued in May
1993 and is effective for fiscal years beginning after December
15, 1994. SFAS 114 generally requires all creditors to account for
impaired loans, except those loans that are accounted for at fair
value or at the lower of cost or fair value, at the present value
of expected future cash flows discounted at the loans' effective
interest rate. Creditors may account for impaired loans at the
fair value of the collateral or at the observable market price of
the loan if one exists. Due to the nature of the Company's loan
portfolio, SFAS 114 is not expected to have a material effect on
the Company's financial condition or results of operations.

Other

Certain information from the prior years has been reclassified to
conform its presentation to the current financial statements.

NOTE 3 LOANS RECEIVABLE

The Company's loan portfolio includes participations with other
lenders as presented in the following schedule. The following is a
breakdown of the outstanding loans receivable:

May 31,
------------------------------
1995 1996
--------- ----------
<S> <C> <C>
Outstanding Loans................................ $8,649,412 $11,093,622
Loan Participations.............................. (336,370) (2,495,607)
--------- ----------
Net Loans Outstanding............................ $8,313,042 $ 8,598,015
========= ==========
</TABLE>

Loans on non-accrual status as of May 31, 1995 and 1996 were
approximately $986,388 and $1,122,768, respectively. Additionally,
the total amount of interest income not accrued was $417,018,
$398,343 and $500,649 during the years ended May 31, 1994, 1995
and 1996.

Reconciliation of Loan Loss Reserve

A reconciliation of loan loss reserve is as follows:

Year Ended May 31,
---------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, Beginning.................. $ 180,000 $ 178,159 $ 180,558
Provision for Loan Losses........... 78,161 2,399 35,000
Charge-Offs......................... (80,002) -- (35,000)
-------- -------- --------
Balance, Ending..................... $ 178,159 $ 180,558 $ 180,558
======== ======== ========
</TABLE>

F-8
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

NOTE 4 ASSETS ACQUIRED IN LIQUIDATION OF PORTFOLIO SECURITIES

The Company foreclosed on two loans during the fiscal years ended
May 31, 1993 and 1994. Both loans were collateralized by real
estate. The Company's cost of the loans plus costs to obtain title
to such properties is included in the carrying value of the assets
acquired in liquidation. The Company wrote off the balance
remaining of $13,344 against its earnings for the fiscal year
ended May 31, 1996.

NOTE 5 LOANS PAYABLE -- LINE OF CREDIT

Effective October 23, 1992, the Company established a $1,500,000
line of credit with Extebank. On January 15, 1995, the Company
entered into a new agreement with Extebank providing for a
$1,100,000 discretionary line of credit without any officer
guarantees, expiring December 15, 1995. All advances bear interest
at .5% above the prime rate. Pursuant to the terms of the line of
credit, the Company is required to comply with certain terms,
covenants and conditions. The Company pledged its loans receivable
as collateral for the above line of credit and is required to
maintain a minimum of $100,000 non-interest bearing collected
balance with Extebank during the term of the line of credit. The
balance outstanding as of May 31, 1995 was $5,000. The Company did
not renew the line of credit at its expiration on December 15,
1995.

NOTE 6 LONG TERM DEBT

The long term debt to the SBA consisted of the following
subordinated debentures as of May 31, 1996 with interest payable
semi-annually:

Interest Rate Period
-----------------
Maturity Date First Second Face Amount
---------- ------ ------ ---------
<S> <C> <C> <C>
June 1, 2005............................. 6.690% 6.690% $ 520,000
December 1, 2005......................... 6.540% 6.540% 520,000
May 14, 1996............................. 4.375% 7.375% 120,000
May 14, 1996............................. 4.375% 7.375% 120,000
February 6, 1997......................... 4.125% 7.125% 75,000
February 6, 1997......................... 4.125% 7.125% 75,000
September 17, 1997....................... 5.625% 8.625% 75,000
September 17, 1997....................... 5.625% 8.625% 75,000
September 22, 1999....................... 5.000% 8.000% 750,000
June 9, 1999............................. 6.000% 9.000% 750,000
December 1, 2002......................... 4.510% 7.510% 1,300,000
---------
$4,380,000
=========

</TABLE>

During the fiscal period ended May 31, 1996, the Company paid off
$1,000,000 in subsidized debentures through the sale of two
$520,000 unsubsidized subordinated debentures, due June 1, 2005
and December 1, 2005 with interest at 6.69% and 6.54%,
respectively.

Under the terms of the subordinated debentures, the Company may
not repurchase or retire any of its capital stock or make any
distributions to its stockholders other than dividends out of
retained earnings without the prior written approval of the SBA.

F-9
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

NOTE 7 PREFERRED STOCK

As of May 31, 1992, the Company was authorized to issue 4,000,000
shares of $1 par value, 3% cumulative preferred stock. Dividends
are not required to be paid to the SBA on an annual or other
periodic basis, so long as cumulative dividends are paid to the
SBA before any other distributions are made to investors.
Effective November 21, 1989, Congress passed legislation which
required all preferred stock sold subsequent to the effective date
to pay a four percent cumulative dividend and to provide for a
mandatory fifteen year redemption. Subsequently, the Company
amended its certificate of incorporation creating a Class A
Preferred Stock, $1 par value, which consisted of the 1,520,000
outstanding shares of preferred stock and to change the existing
2,480,000 authorized but unissued shares of preferred stock into a
new Class B Preferred Stock, $1 par value, which will carry a four
percent cumulative dividend rate and a mandatory fifteen year
redemption.

All preferred shares are restricted solely for issuance to the
SBA. Effective November, 1994, the Company amended its certificate
of incorporation authorizing an additional 1,000,000 shares of
four percent preferred stock and reclassifying all 1,520,000
authorized and unissued shares of three percent preferred stock as
4 percent preferred stock. The effect of the amendment authorized
5,000,000 shares of 4 percent cumulative preferred stock.
Effective October 13, 1994, the Company sold 760,000 shares,
respectively, of its $1 par value 4 percent cumulative, 15 year
redeemable preferred stock to the SBA for $760,000.

NOTE 8 RESTRICTED CAPITAL -- UNREALIZED GAIN ON REDEMPTION

Repurchase of 3% Preferred Stock

The Company and the SBA entered into a repurchase agreement dated
May 10, 1993. Pursuant to the agreement, the Company repurchased
all 1,520,000 shares of its $1 par value, 3 percent cumulative
preferred stock from the SBA for a purchase price of $.36225670
per share, or an aggregate of $550,630. The repurchase price was
at a substantial discount to the original sale price of the 3
percent preferred stock which was sold to the SBA at par value or
$1.00 per share.

As a condition precedent to the repurchase, the Company granted
the SBA a liquidating interest in a newly created restricted
capital surplus account. The surplus account is equal to the
amount of the repurchase, less $14,373 of expenses incurred in
connection with the repurchase, and is being amortized over a
sixty (60) month period on a straight-line basis. Should the
Company be in default under the repurchase agreement at any time,
the liquidating interest will become fixed at the level
immediately preceding the event of default and will not decline
further until such time as the default has been cured or waived.
The liquidating interest will expire on the later of (i) sixty
(60) months from the date of the repurchase agreement, or (ii) if
any event of default has occurred and such default has been cured
or waived, such later date on which the liquidating interest is
fully amortized.

Should the Company voluntarily or involuntarily liquidate prior to
the amortization of the liquidating interest, any assets which are
available, after the payment of all debts of the Company, shall be
distributed first to the SBA until the amount of the then
remaining liquidating interest has been distributed to the SBA.
Such payment, if any, would be prior in right to any payments made
to the Company's shareholders.

NOTE 9 DIVIDENDS

Dividends paid to the SBA for each of the fiscal years ended May
31, 1996 and 1995 were $56,400 and $45,092, respectively. Total
dividends paid to common stockholders for the fiscal years ended
May 31, 1996, 1995 and 1994 were $296,106, $296,108 and $263,206
respectively. The Company is contingently liable to the SBA for
$23,500 in preferred dividends due for the five months ended

F-10
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

May 31, 1996. Effective May 31, 1996, and for the five month
period then ended, the Board of Directors declared a three percent
dividend to holders of common stock totaling $98,702. This
dividend will be paid in August, 1996.

NOTE 10 MONEY PURCHASE PLAN

Effective for the fiscal year ending May 31, 1989 the Company
initiated a defined contribution pension plan. The eligibility
requirements for participation in the plan are a minimum age of 21
years old and 24 months of continuous employment with the Company.
Contributions are currently limited to ten percent of each
participant's compensation. Total contributions made for the
fiscal years ended May 31, 1996, 1995 and 1994 were $16,180,
$17,942 and $18,073 respectively. All contributions to the plan
have been funded on a current basis.

NOTE 11 MANAGEMENT FEES

The SBA approved the Company's total compensation of $225,000.
Compensation is inclusive of officers' and staff salaries and
pension contributions.

NOTE 12 STOCKHOLDERS' EQUITY -- PRIVATE PLACEMENT

Effective April 21, 1992, pursuant to a private placement, the
Company sold 56,304 shares of common stock at a price of $12 per
share to accredited investors. Total capital raised was $675,648
less private placement costs of $16,274, including $9,660 paid
during the six months ended November 30, 1992. Substantially all
of the proceeds were used to repurchase the 1,520,000 shares of
its $1 par value, 3% Preferred Stock held by the SBA and to make
additional investments. The net proceeds received also enabled the
Company to obtain additional leverage from the SBA in the form of
preferred stock and debentures.

Pursuant to SBA regulations, all SSBIC's issuing debentures
subsequent to April 25, 1994 were required to amend their
certificates of incorporation to indicate that they have
consented, in advance, to the SBA's right to require the removal
of officers or directors and to the appointment of the SBA or its
designee to take such action in the event of the occurrence of
certain events of default. Effective November, 1994, the Company
amended its certificate of incorporation in accordance with the
relevant provisions of the SBA regulations.

On January 12, 1996, the Company filed an amendment to its
certificate of incorporation which increased the number of
authorized shares to 13,000,000 shares of capital stock consisting
of 10,000,000 shares of $1 par value, 4 percent cumulative, 15
year redeemable preferred stock and 3,000,000 shares of $.01 par
value, common shares. The financial statements are presented after
giving effect to these changes. The amended certificate of
incorporation will also provide for a 2 for 1 stock split with
respect to the Company's shares of common stock, $.01 par value
per share, for two shares of common stock for $.01 par value per
share. The effect of the amendment will be to increase the 274,172
issued and outstanding shares of common stock to 548,344 shares.

The Board of Directors has approved a two for one stock split with
respect to the Company's shares of Common Stock which shall be
effective immediately prior to the effective date of this
registration statement. The effect of the stock split will be to
increase the 548,344 issued and outstanding shares of common stock
to 1,098,688 shares.

F-11
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995

NOTE 12 STOCKHOLDERS' EQUITY -- PRIVATE PLACEMENT (Continued)

The Stockholders' Equity section of the financial statements is
presented after giving effect to an amendment to the certificate
of incorporation which was filed in January, 1996, and the October
1996 two for one stock split.

NOTE 13 RELATED PARTY TRANSACTION

The Company currently leases office space from a real estate
partnership, whose partners consist of certain officers and
directors of the Company, for $1,500 per month plus certain
extraordinary operating expenses. The lease expires in November,
1997 with a minimum annual rental of $18,000. Total rental expense
under this lease was $18,000, $18,000 and $26,700 for the years
ended May 31, 1996, 1995 and 1994 respectively.

Certain officers and directors of the Company are also
shareholders of the Company. Officers' salaries are set by the
Board of Directors and are also subject to maximum compensation
set by the SBA. For each of the fiscal years ended May 31, 1996,
1995 and 1994, $159,661 in officers' salaries, including pension
contributions, were paid.

NOTE 14 SIGNIFICANT CONCENTRATION OF CREDIT RISK

Approximately seventy four (74%) percent of the Company's loan
portfolio consists of loans made for the financing and purchase of
New York City taxicab medallions and related assets.

NOTE 15 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS

The Company maintained approximately $267,468 in one bank in
excess of amounts that would be insured by the Federal Depository
Insurance Corporation.

NOTE 16 SUBSEQUENT EVENTS

The Company intends to file a registration statement with the
Securities and Exchange Commission to sell up to 1,000,000 shares
of common stock , at a public offering price of $5.00 per common
share, for an aggregate offering price of $5,000,000.

Effective June, 1996, the Company foreclosed on one of its loans.
The total value of the loan including past due interest is
$182,864. The loan is collateralized by real estate. The Company
anticipates to recover the entire balance outstanding including
past due interest.

Effective June 26, 1996 the Company refinanced two $120,000
debentures due May 14, 1996 with a $250,000 unsubsidized
debenture, with a fixed rate of 7.71%. Such unsubsidized debenture
matures June 1, 2006.

NOTE 17 COMMITMENTS AND CONTINGENCIES

Minimum future lease obligations on the Company's long term
non-cancelable operating lease will total $27,000 over the
remaining eighteen (18) months of the lease term ending November,
1997.

During the fiscal year ended May 31, 1996, Scott Printing filed a
lawsuit against the Company. Scott Printing is seeking an
approximate amount of $50,000 for printing work performed during
the Company's proposed public offering. The Company is contesting
the amount claimed and intends to vigorously defend the action. As
such, no amounts have been presented in the financial statements.

F-12
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
SUPPLEMENTAL SCHEDULES
MAY 31, 1996

SCHEDULE I -- LOANS RECEIVABLE

Number Balance
of Maturity Outstanding
Type of Loan Loans Interest Rate Date May 31, 1996
- ------------ ------ ------------ -------- -------------

<S> <C> <C> <C> <C>
NYC Taxi Medallions......................... 142 10.75%-15.00% 1-7 yrs. $6,352,777
Services.................................... 1 14.50%-15.00% 1-7 yrs. 94,717
Auto Repair Service......................... 8 10.00%-15.00% 1-4 yrs. 687,565
Auto Dealership............................. 1 12.00% 1 yr. 69,830
Renovation and Construction................. 1 10.50% 5 yrs. 134,852
Retail Establishments....................... 3 11.25%-12.50% 1-4 yrs. 306,557
Restaurants................................. 3 9.00%-15.00% 1-9 yrs. 214,669
Gasoline Service Stations................... 3 9.375%-10.00% 1 yr. 286,616
Manufacturing............................... 1 15.00 1 yr. 151,572
Laundromats and Dry Cleaners................ 5 12.00%-15.00% 1-4 yrs. 158,630
Medical Offices............................. 2 11.63%-15.00% 1-3 yrs. 118,052
Video Rentals............................... 1 14.00% 6 yrs. 22,178
--- ---------
TOTAL LOANS................................. 171 $8,598,015
=== =========

</TABLE>

Substantially all of the above loans are collateralized by either New York
City taxi medallions or real estate holdings.

SCHEDULE VII -- SHORT TERM BORROWINGS

Short term borrowing activities for the periods presented were as follows:
<TABLE>
<CAPTION>

Weighted
Balance Average Maximum Amount Average Amount
Category of End of Interest Outstanding Outstanding
Borrowing Period Rate During Period During Period (1)
----------- ------- -------- -------------- --------------
<S> <C> <C> <C> <C>
May 31, 1994............................. $34,488 7.63% $634,489 $280,322
May 31, 1995............................. $ 5,000 9.45% $ 34,489 $ 17,361
May 31, 1996............................. $-- 9.29% $ 5,000 $ 2,500
</TABLE>

- ----------
(1) Computed based on weighted average of amount outstanding during the period.
(2) The Company did not renew its Line of Credit.

F-13
<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
FOR THE FIVE YEARS ENDED
MAY 31, 1992, 1993, 1994, 1995, AND 1996

For the Years Ended May 31,
-----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>

Per Share Data
Investment Income .................. $ 1.28 $ 1.00 $ .95 $ .92 $ .94
Investment Expenses ................ (.91) (.60) (.62) (.61) (.58)
----------- ------------- ------------- ------------- -------------
Net Investment Income .............. .37 .40 .33 .31 (.36)
Net Realized and Unrealized
Gains and Losses on
Securities ....................... (.15) (.08) (.07) -- (.03)
Private Placement Costs ............ -- (.01) -- -- --
Gain on Preferred Stock
Buy Back ......................... -- .30 -- -- --
Dividends-- Common Stock ........... (.17) (.30) (.24) (.27) (.27)
Dividends-- Preferred Stock ........ (.03) (.02) (.02) (.04) (.06)
Sale of Common Stock ............... .62 -- -- -- --
----------- ------------- ------------- ------------- -------------
Net Increase/Decrease
in Net Asset Value ............... .64 .29 -- -- --
Net Asset Value-- Beginning
of Period ........................ 1.95 2.59 2.88 2.88 $ 2.88
----------- ------------- ------------- ------------- -------------
Net Asset Value -- End of
Year ............................. $ 2.59(1) $ 2.88(1) $ 2.88(1) $ 2.88 $ 2.88(1)
=========== ============= ============= ============= =============
Net Asset Value -- End of
Year Excluding Retained
Earnings (2) ..................... $ 2.58(1) $ 2.88(1) $ 2.88(1) $ 2.88 $ 2.88(1)
=========== ============= ============= ============= =============
Ratios
Ratio of Expenses to
Average Net Assets ............... 24.2% 23.4% 23.7% 21.0% 21.4%
=========== ============= ============= ============= =============
Ratio of Net Income to
Average Net Assets ............... 5.1% 11.3% 9.2% 10.7% 11.2%
=========== ============= ============= ============= =============
Weighted Average of Common
Shares Outstanding ............... 857,732 1,096,688 1,096,688 1,096,688 1,096,688
=========== ============= ============= ============= =============
</TABLE>

- ----------

(1) The net asset value includes the unamortized portion of the realized gain
from the repurchase of three (3%) percent stock and the undistributed
retained earnings at the end of the period. The unamortized balance
remaining in the preferred restricted capital account is $381,999.

(2) Excluded undistributed retained earnings at the end of the period.

F-14
<PAGE>

================================================================================

No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company at
any time subsequent to the date hereof. However, if any material change occurs
while this Prospectus is required by law to be delivered, this Prospectus will
be amended or supplemented accordingly. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy by anyone in any jurisdiction
in which such offer to sell or a solicitation is not authorized, or in which the
person making such offer or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation.

----------
TABLE OF CONTENTS
Page
---
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use of Proceeds ............................ 12
Capitalization ............................. 13
Dividend Policy ............................ 14
Dilution ................................... 15
Business ................................... 16
Management ................................. 24
Conflict of Interests ...................... 26
Certain Transactions ....................... 27
Security Ownership of Principal Stockholders
and Management ........................... 28
Investment Policies ........................ 29
Federal Regulation ......................... 30
Tax Considerations ......................... 34
Description of Capital Stock and
Long-Term Debt ........................... 37
Underwriting ............................... 39
Legal Matters .............................. 40
Experts .................................... 40
Custodian .................................. 40
Additional Information ..................... 40
Table of Contents .......................... F-1

Until 25 days after the date of this Prospectus, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

================================================================================

Freshstart
Venture Capital Corp.

1,000,000 Shares
Common Stock

________________

PROSPECTUS

________________

Suppes Securities, Inc.

National Securities
Corporation

November 26, 1996

================================================================================