U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)

þ		ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

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

For the transition period from                      to                     

Crown NorthCorp, Inc.

(Name of small business issuer in its charter)

Delaware		22-3172740
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
P.O. Box 613, Cheyenne, Wyoming		82001
(Address of principal executive offices)		(Zip Code)

(614) 488-1169
(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act:
NONE

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

          Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. þ

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Issuer’s revenues for the fiscal year ended December 31, 2006 were $24,222,991.

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant cannot be determined at this time as the company’s common equity has not been quoted within the past sixty days on the OTC Bulletin Board pursuant to Rule 6530 of the National Association of Securities Dealers.

     As of April 16, 2007 the issuer had 29,957,348 shares of its common stock outstanding.

     Transitional Small Business Disclosure Format. Yes o No þ

 

 

TABLE OF CONTENTS

				Page
PART I.					1
Item 1.		Description of Business			1
Item 2.		Description of Property			3
Item 3.		Legal Proceedings			3
Item 4.		Submission of Matters to a Vote of Security Holders			4
PART II.					4
Item 5.		Market for Common Equity and Related Stockholder Matters			4
Item 6.		Management’s Discussion and Analysis			5
Item 7.		Financial Statements		F-1 through F-42
Item 8.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			13
Item 8A.		Controls and Procedures			13
Item 8B.		Other Information			13
PART III.					14
Item 9.		Directors and Executive Officers Promoters, Control Persons and Corporate Governance; Compliance with Section 16(e) of the Exchange Act			14
Item 10.		Executive Compensation			17
Item 11.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			18
Item 12.		Certain Relationships and Related Transactions			20
Item 13.		Exhibits			21
Item 14.		Principal Accountant Fees and Services			22

Item 1. — Description of Business

Business Overview

Crown NorthCorp, Inc. (“Crown” or the “company”) provides comprehensive financial services to holders of real estate and asset backed interests in Europe and the United States. Principal business activities include third-party asset management and loan servicing. The company, formed in 1994, is a Delaware corporation presently operating through seven offices in Europe and two in the United States. As of December 31, 2006, Crown and its operating subsidiaries employed 210 people.

With the acquisition of Westfalenbank AG, effective October 26, 2006 (see Item 6 for a more complete description), a bank chartered under the laws of Germany, the company will utilize the bank’s expertise and experience to capitalize on emerging opportunities in the German and European mortgage markets. The Westfalenbank acquisition provides Crown a platform to support and expand all of the company’s management, servicing and loan origination businesses. The Westfalenbank transaction is discussed in greater detail in a certain Form 8-K filed by the company on January 12, 2007 and a Form 8-K/A filed by the company on March 16, 2007 and is hereby incorporated by reference herein.

Crown receives revenues from: third-party asset management agreements through which the company administers commercial, multifamily and residential real estate and loan assets for the accounts of others; contracts to service on an active or standby basis individual loans, loan portfolios and assets in securitized transactions; mortgage banking activity; asset evaluations; transaction support; risk management and financial advisory services; and the administration of the interests of various corporations, partnerships, trusts and special-purpose entities. Compensation arrangements are wide-ranging and may include recurring management, loan origination or servicing fees; disposition fees associated with transactions; and incentive fees or profit-participations based on the overall performance of particular portfolios.

Third-Party Asset Management. The company offers comprehensive management services to holders of real estate and financial assets. These services include fund or portfolio management, advice on asset acquisition or disposition, due diligence reviews and development of portfolio strategies. Clients receiving these services include partnerships, investment consortiums and funds, financial institutions and governmental entities. Management contracts are generally for indefinite terms and typically provide for recurring revenues. Additionally, Crown or one of its affiliates may have a residual equity interest in an entity formed by Crown’s client to hold the assets under management. If the managed assets are resolved within certain agreed parameters, Crown may receive returns on such equity interests. The company focuses on asset management opportunities in emerging or niche market sectors that offer opportunities for growth as well as recurring loan servicing revenues.

Crown’s management activities in Europe encompass portfolios of commercial and residential real estate assets. Assets under management are presently concentrated in Belgium, Germany, Finland and the United Kingdom.

Although asset management activities in the United States had diminished significantly in recent years as successful dispositions have occurred, the Company has recently seen an increase in clients and renewed activity in the distressed real estate sector. In 2006 the company was named as special servicer on two rated securitizations. The number of loans in both securitizations total 939 loans with a total unpaid principal balance of approximately $1.01 billion. Managed assets in the U.S. currently include multifamily and commercial projects as well as multifamily housing projects impacted by U.S. government subsidies.

Loan Servicing and Mortgage Management. Crown offers its clients comprehensive loan servicing and mortgage management. The company’s services include primary servicing of loans performing according to their contractual terms; special servicing of distressed or delinquent loans and standby servicing relationships calling for Crown to step in if a primary servicer fails. In the Benelux region of Europe, Crown jointly owns and operates, with a European bank, a Belgian company offering master servicing capability comprising transaction reporting and servicer oversight, for mainly securitized asset pools; currently with in excess of $22 billion under management.

In Europe, Crown services portfolios of residential, commercial and consumer loans. Customers include investment banks, institutional lenders, investors in securitized transactions and portfolio managers and advisors. U.S. servicing operations are concentrated on commercial loans.

Over the course of several years, Crown has developed servicing systems and procedures that are regularly reviewed by internationally recognized ratings agencies. In Europe, Crown’s UK based commercial and residential servicing operations were the first to receive ratings from multiple ratings agencies. Crown’s commercial servicing operations in the U.S. have also received ratings. Crown intends to obtain similar accreditation for its newly acquired German loan servicing operations and its jointly owned Belgium Company.

Loan Origination. Crown owns a minority interest in an entity that originates sub-prime residential loans in the United Kingdom. These loans are immediately sold into conduit or correspondent programs that accumulate loans for sale and/or securitization. Crown’s UK operating subsidiary has been contracted as servicer by the loan originator and has retained servicing for the majority of the loans after securitization. Crown intends to establish a similar platform in Germany.

Asset Management. Crown, together with investors, actively pursues the acquisition of real estate portfolios in which it acts as portfolio asset manager. The company’s most recent assignments have been in the Nordic Region of Europe.

Competitive Environment

Crown operates as an independent provider of asset management, mortgage management and mortgage banking services and has numerous competitors in each of these business lines in both Europe and the United States. The great majority of these competitors operate as significant units of companies that are much larger and better capitalized than Crown. This competitor advantage has to a significant extent been mitigated by the acquisition of Westfalenbank, which has provided Crown with more liquidity, better capitalization and a German banking license

which will be used to generate new revenue lines in Germany, as well as creating the foundation for a pan-European loan servicing business, for which management believes Crown has a first mover advantage.

Management also believes that Crown’s smaller size, independent status and comprehensive servicer ratings provide certain competitive advantages when pursuing opportunities in emerging or niche markets that could benefit from highly tailored financial services.

Item 2. — Description of Property

Offices

In Europe, Crown operates through three offices in the United Kingdom (at Crown House, Crown Street, Ipswich; Woolmead House, Farnham; and Devonshire Street, London), two in Germany (at 23-25 Huestrasse, Bochum; An der Welle 4, Frankfurt), one in Sweden (Linnegatan 18, Stockholm) and one in Belgium (Montagne du Parc 3, Brussels). In the U.S., the company maintains offices in Columbus, Ohio (1251 Dublin Road) and Austin, Texas (13706 Research Blvd). See “Note 11 – Leases – to the Consolidated Financial Statements.” Management considers its leased physical properties to be in good operating condition and suitable for the purposes for which they are being used. All the properties leased by the company are, in management’s opinion, adequately insured.

Investment Policies

As a part of Crown’s strategy for obtaining new recurring revenue streams in both its real estate asset management business and its loan servicing business, Crown, from time to time, takes minority investment (usually equity or subordinated debt) positions in entities engaged in real estate or loan origination activities. In doing so, Crown has been successful in securing new asset management contracts (often including incentive based fees) and loan servicing contracts, while aligning its interests with those of its investor clients and ensuring that Crown participates in the financial success of the investing entity via, either success based asset disposition fees or a liquidation or sale of the investing entity itself. This strategy has been successful in both Crown’s Nordic real estate asset management business and its UK loan servicing business and management intends to continue this investment strategy, where appropriate, in the future. Crown’s investment strategies have not been adopted by a vote of the security holders, and as such, may be modified by management from time to time without the vote of security holders. There are no limitations on the percentage of assets which may be invested in any one investment, or type of investment.

Item 3. — Legal Proceedings

There is no pending litigation of a material nature to which the company or any of its affiliates is a party or of which any of their property is the subject. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or affiliate of the company is a party or has a material interest, which is adverse to the company. There is no litigation in which the company is involved, that is expected to have a material adverse impact on the financial position or results of operations of the company.

Item 4. – Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the security holders in the fourth quarter of 2006.

PART II

Item 5. – Market for Common Equity and Related Stockholder Matters

Common Stock

Records maintained by the National Quotation Bureau show that, for the quarter ended March 31, 2001, the high and low bid prices for the company’s common stock were $.02 and $.005 respectively (based on pre-split authorized and issued stock amounts). These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. In periods subsequent to March 31, 2001, there has generally been no active public trading market for the common stock.

As of April 16, 2007, there were approximately 2,600 holders of record of shares of the common stock.

During its 2006, 2005 and 2004 fiscal years, the company neither declared nor paid cash dividends or returns of capital on common shares. The company may consider paying dividends in the future.

As of April 16, 2007, Crown had 30,000,000 authorized shares of common stock and 1,000,000 authorized shares of preferred stock.

As part of a series of transactions to effect the merger of Royal Investments LLC (“Royal”) into the company, Crown intended in 2006 to perform a 1:100 reverse and 10:1 forward stock split to reduce the number of shareholders with extremely small holdings of the company’s stock (the “Stock Splits”) and also to allot a sufficient number of available shares of authorized common stock to permit the issuance of common stock required under the terms of the merger and to accommodate the conversion of the company’s preferred stock into common stock. The board of director’s authorized the Stock Splits to occur on December 31, 2003. Although intended to take effect on December 31, 2003, these transactions require the consent of the Securities and Exchange Commission (the “SEC”). Crown is still awaiting approval from the SEC to effectuate the Stock Splits, as such the Stock Splits did not occur in 2006. On September 6, 2005, the company filed a Preliminary Information Statement on Schedule 14C with respect to, among other things, the stockholder consents required to effect the Stock Splits and the merger transaction pursuant to Delaware law.

As of December 31, 2006, the company had 29,957,348 common shares outstanding. After the intended Stock Splits and the conversion of all remaining outstanding preferred stock to common stock, (but before giving effect to the merger transaction) Crown will have approximately 3,395,735 shares of common stock outstanding. In exchange for all of the issued and outstanding stock of Royal, Mr. Roark, Crown’s Vice-Chairman and Chief Executive Officer,

will receive 12,000,000 shares of Crown common stock. The common stock of Crown held by Royal will become treasury stock of Crown. The company intends to proceed with the Stock Splits in 2007. Considering that the board of directors has already approved the Stock Splits, and based on the number of shares held by members of the board, management anticipates that a vote of the security holders of the company will approve the Stock Splits and intends to hold a shareholders meeting in 2007 to take such vote.

Reconciliation of Shares Following Stock Splits

Description		Reconciliation				Total
Total shares outstanding as of December 31, 2003. (1)							28,614,848	(2)
Effect of Stock Splits							2,861,485
Issuance of 12 million shares as merger consideration			12,000,000				14,861,485
Conversion of Preferred Stock Series II			400,000	(3)			15,261,485
Treasury Stock (4)			(1,214,202	)			14,047,283
Issuance of shares as director compensation since 12/31/03.			134,250				14,181,533
		Total:					14,181,533

Item 6. – Management’s Discussion and Analysis

The Company’s Businesses

Crown NorthCorp offers comprehensive financial services to the holders of real estate interests in Europe and the United States. In Europe, principal business activities presently encompass third-party asset management, loan servicing and an interest in a company that originates sub-prime residential real estate loans. In the U.S., Crown services commercial and multifamily loans and provides third-party asset management. The company’s principal revenues derive from agreements to manage commercial, multifamily and residential real estate and loan assets for the account of others; loan servicing and mortgage management on an active or standby basis of individual loans, loan portfolios and assets in securitized transactions; income associated with

loan origination and the securitization of those loans; asset evaluations; transaction support; risk management, financial advisory and due diligence services; and administration of the interests of various corporations, partnerships, investments consortiums and special-purpose entities.

Effective October 26, 2006, Crown NorthCorp Inc. (“Crown”), through a newly incorporated special-purpose subsidiary, acquired from HypoVereinsbank AG (“HVB”) all of the issued and registered share capital of Westfalenbank AG, a banking and credit institution licensed and operating under the laws of Germany.

Crown acquired the share capital of Westfalenbank AG from HVB pursuant to a definitive Stock Purchase and Transfer Agreement dated July 31, 2006 (“SPA”), whereby Crown became the economic owner of Westfalenbank AG effective July 3, 2006. The SPA called for a purchase price of Euro 25,000,000 (approximately $33,003,000), which price was derived from arm’s-length negotiations and represents the net equity of Westfalenbank AG as set forth on its July 3, 2006 financial statements plus certain premiums and adjustments. Additionally Crown incurred transaction costs of approximately Euro 2,601,000 (approximately $3,434,000).

The transaction closed on October 26, 2006 upon the approval of regulatory authorities in Germany and the satisfaction of certain other closing conditions. This transaction is discussed in greater detail in a certain Form 8-K filed by the company on January 12, 2007 and a Form 8-K/A filed by the company on March 16, 2007 and is hereby incorporated by reference herein.

In conjunction with the execution of the SPA, Crown and certain of its subsidiaries entered into a Euro 25,000,000 Facility Agreement (the “Facility Agreement”) with a financial institution (the “Lender”). Crown utilized the Facility Agreement and cash on hand to effect the acquisition of Westfalenbank AG.

Pursuant to the Facility Agreement and related documentation, Crown and certain of its subsidiaries have provided cross-guarantees in favor of the Lender and have granted the Lender security over certain of their assets (including security over specific shareholdings). Additionally, throughout the term of the Facility Agreement, Crown must also adhere to a comprehensive set of financial covenants and operating restrictions. Crown has initially pledged Euro 2,000,000 to ensure payment of interest and fees that may become due under the Facility Agreement. The Lender has also been issued warrants to subscribe, under certain terms and conditions, to up to 19% of the share capital of the single-purpose entity Crown utilized to acquire Westfalenbank AG at that entity’s book value as at the date of Westfalenbank AG’s acquisition.

The company’s net income during 2006 was derived primarily from substantial management, disposition and incentive fees arising from the disposition of a portfolio of assets in Sweden managed under contract as well as new asset management and servicing business, primarily in Europe. Many components of operating expenses are increasing and the company has incurred start-up expenses in new locations to support its new business and transaction costs associated with the Westfalenbank acquisition. Crown is now working intensively to integrate the operations of Westfalenbank to maximize the value of the acquired franchise and attempt to maintain the company’s operating profitability and expand its net income.

Forward Looking Statements

The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Exchange Act, including statements regarding the company’s expectations, hopes, intentions or strategies regarding the future. Forward-looking statements include terminology such as “anticipate,” “believe,” “has the opportunity,” “seeking to,” “attempting,” “appear,” “would,” “contemplated,” “believes,” “in the future” or comparable language. All forward-looking statements included in this document are based on information available to the company on the date hereof, and the company assumes no obligation to update any such forward-looking statements. It is important to note that the company’s actual results could differ materially from those in such forward-looking statements. The factors listed below are among those that could cause actual result to differ materially from those in forward-looking statements. Additional risk factors are listed from time to time in the company’s reports on Forms 10-QSB, 8-K and 10-KSB.

Among the risk factors that could materially and adversely affect the future operating results of the company are:

o		The company has completed the majority of the reorganization of a substantial portion of its operations as a result of the Westfalenbank AG acquisition. The intent of this reorganization is for Crown to operate is loan servicing, mortgage management and loan origination activities through the bank. Completion of these reorganization activities has been ongoing and it is anticipated that completion will occur during the second half of 2007. There can be no assurances at this time as to the timing or the results of this reorganization or its affect on the operating performance of the company.
o		Management believes that the Westfalenbank AG acquisition will be a catalyst to further growth in the asset management and servicing businesses, primarily in Europe and that resultant increases in recurring revenue will help the company achieve operating profitability. However, there can be no assurance of these results.
o		Crown’s liquidity and capital resources remain very limited when compared to virtually all of its competitors. While the company believes that the acquisition of Westfalenbank AG will significantly improve its competitive position and expand its resources available to realize upon new business opportunities, there can be no assurance of any particular results.
o		Crown and certain of its subsidiaries operate as rated servicers. If these entities were to no longer be rated, or if those ratings were lowered, there would be an adverse effect on the company’s operations. Crown’s business volumes and financial condition may affect its servicer ratings.

Outlook

Crown has significantly expanded its business operations through the acquisition of Westfalenbank AG, a banking and credit institution chartered under the laws of Germany. The company is taking steps in 2007 that will result in substantially all of the company’s asset

management, loan servicing and mortgage origination businesses being operated through the bank. Management believes that the combined market knowledge and expertise of Crown and Westfalenbank will not only enhance Crown’s existing business operations but will also facilitate growth in niche mortgage and servicing businesses in Germany and other parts of Europe. An important part of business growth will continue to be the multiple servicer ratings the company holds, which are necessary for participation in many transactions.

The company continues to realize substantial revenues as it continues to expand its asset management and servicing business in Europe. From the sale of a portfolio of assets in Sweden (the “Axfood Disposition”), Crown realized disposition and incentive fees totaling $3,565,804 as of June 30, 2006 and an additional $405,595 as of September 30, 2006.

In addition to consummating the Westfalenbank AG acquisition, Crown, through one of the wholly owned affiliates of the bank services and manages a substantial portfolio of non-performing loans for an investment bank.

In the United Kingdom, Crown is realizing revenues and experiencing growth both through a new servicing contract and existing contracts. The company continues its efforts to develop similar business lines elsewhere in Europe. The company also continues plans to originate commercial mortgage loans in the United Kingdom. Management believes increased loan origination activity should increase the company’s loan servicing and mortgage management businesses.

The company and a third party bank, operating through a joint venture based in Belgium, market master servicing and reporting services for securitized portfolios throughout Europe. Growth in this business line is anticipated as more assets are securitized in Europe.

In the United States, the company continues to devote additional resources to attempt to increase servicing volumes. In 2006, the company became the special servicer for two securitizations of commercial real estate loans. Management anticipates receiving additional, similar assignments. Crown continues to examine means of expanding its servicing portfolio of smaller-balance commercial mortgage loans and of developing other specialized servicing opportunities. Asset management activities in the U.S. continue at presently modest levels during an ongoing process of resolving assets under management.

The acquisition of Westfalenbank AG provides Crown a platform to seek to maximize the value of Crown’s comprehensive financial services, provide recurring revenue and expand the company’s core businesses in European markets as well as the United States. The company believes that the reorganization that is now under way as a result of the bank acquisition will be the most appropriate way to make effective use of Crown’s liquidity and capital resources to further expand Crown’s revenue base and sustain operating profitability.

Results of Operations for the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005.

As set forth in Note 2 to the Condensed Consolidated Financial Statements, the acquisition of Westfalenbank AG effective July 3, 2006 was accounted for using the purchase method of

accounting. The results of operations for the period ending December 31, 2006 reflect the results of operations of the combined entities. Therefore, most of the large variances in operating results between the year ended 2006 and the year ended 2005 are attributable to the aforementioned acquisition.

Total revenues from continuing operations increased $13,006,730 to $24,222,993 in 2006 from $11,216,263 in 2005, with the largest increases being attributable to management fees and loan servicing fees.

Management fees are recorded as services required under a contract are performed and, as defined in the applicable contracts, are derived either from percentages of the aggregate value of assets under management or from original base monthly amounts. Management fees increased $7,475,673 to $10,130,433 in 2006 from $2,654,760 in 2005. Approximately $4.7 million of this increase is attributable to the company’s UK operations where the accrual of special servicing fees relating to the management of sub-performing loans and the addition of new management contracts in Europe increased some $1.9 million. An additional sum of approximately $2.8 million was received as part of a final settlement pursuant to a re-negotiation of a servicing contract in the UK. Also contributing to the increase are management fees earned by Westfalenbank totaling approximately $1.6 million and management fees earned by the Scandinavian office relating to new management contracts totaling approximately $1.2 million.

Loan servicing fees increased by $2,016,250 to $6,530,021 in 2006 from $4,513,771 in 2005. This increase is derived almost entirely from servicing fees earned in Europe and is the result of increased volumes from new or existing contracts.

Disposition fees increased $761,559 to $4,200,948 for the twelve months ended December 31, 2006 versus $3,439,389 for the comparable period in 2005. On June 30, 2005, Crown European Holding Limited (“CEH”), a subsidiary of Crown, sold all of the stock of Crown Fastigheter AB (formerly Crown Properties Holding AB)(“CFAB”). At the time of the sale, CFAB held a portfolio of 59 real estate assets in Sweden. Crown managed the assets in the portfolio and pursuant to the terms of agreements governing this management relationship, Crown received incentive compensation of $3,439,389 net of payment of expenses during 2005. Crown continued its management of the assets in this portfolio for the new owner and as the result of a sale of the portfolio in 2006, Crown received incentive compensation of approximately $4.0 million.

Interest income increased $1,073,217 to $1,205,079 for the twelve months ended December 31, 2006 from $131,862 for the corresponding period in 2005. Interest income earned by Westfalenbank during 2006 totaled some $1.2 million. This amount was offset slightly by declines in interest income in the U.S. of some $22,000 and in the UK of approximately $82,000.

In conjunction with the sale of CFAB and its receipt of the incentive compensation noted above, Crown purchased from two holders approximately $3.5 million in promissory notes payable by Royal Investments, LLC (“Royal LLC”). Royal LLC owned approximately 26.7% of CEH. Royal LLC then repaid the promissory notes in full from its proceeds of sale. The distribution Royal LLC received in excess of the amounts needed to repay the notes in full was approximately $417,000. There was no similar transaction in 2006.

Operating and administrative expense changes were as follows:

		2006				2005				$ Change
Personnel		$	9,997,576			$	5,823,021			$	4,174,555
Legal, accounting and professional		$	2,336,393			$	1,752,928			$	583,465
Insurance and other administrative expenses		$	5,515,518			$	1,362,716			$	4,152,802
Occupancy		$	3,262,870			$	1,821,751			$	1,441,119
Write off servicing rights		$	178,661			$	1,906,918			$	(1,728,257	)
Interest		$	1,679,466			$	111			$	1,679,355
Amortization and depreciation		$	1,063,447			$	713,045			$	350,402
Total		$	24,033,933			$	13,380,490			$	10,653,441

Personnel expenses include salaries, related payroll taxes and benefits, travel and living expenses and professional development expenses. Personnel expenses increased $4,174,555 to $9,997,576 during 2006 from $5,823,021 for the same period in 2005. A significant component of this increase was an increase in payroll and contract labor costs in the UK of approximately $1.8 million arising from additional personnel in the company’s information technology, compliance and loan servicing areas. Also contributing to the increase were personnel costs of Westfalenbank of some $1.9 million. In addition, increases in U.S. payroll, contract payroll and travel amounted to approximately $400,000.

Legal, accounting and professional services increased $583,465 to $2,336,393 for the year ending December 31, 2006 from $1,752,928 for the comparable period in 2005. Westfalenbank contributed to $760,900 of the increase, with decreases in legal and professional costs in the U.S. of some $200,000 contributing to the majority of the remainder of the net change.

Insurance and other administrative expenses increased by $4,152,802 to $5,515,518 in 2006 from $1,362,716 in 2005. The increase in these expenses was largely attributable to the company’s Scandinavian office where increases of approximately $800,000 in costs were incurred in generating the disposition fees mentioned above. In addition, that office also experienced an increase in administrative and professional costs of approximately $1.34 million due to increases in assets under management. Westfalenbank incurred approximately $1.8 million of administrative expenses during 2006. The remainder of the increase was attributable to operations in the UK where an increase of approximately $200,000 was incurred as result of an increase in staff with the attendant costs therewith.

Occupancy costs increased $1,441,119 to $3,262,870 in 2006 from $1,821,751 in 2005. The increase was attributable, in large part, to Westfalenbank’s $1.5 million in occupancy costs and increases in office rent in the UK of some $109,000. These increases are offset by declines in computer related expenses in the US and UK of some $243,000.

The write down of capitalized mortgage servicing rights decreased by approximately $1,728,000 in 2006 over the corresponding period in 2005. The majority of the decrease is attributable to exceptional activity in 2005 when a write down of some $1,069,000 was necessitated by the

termination of a sub-servicing agreement held by one of the company’s European subsidiaries, which termination was not for cause, but rather the result of a business decision by the company’s client to perform the servicing itself. The termination was effective as of March 31, 2005. In accordance with SFAS No. 5 “Accounting for Contingencies,” the company provided for the reduction in the value of its servicing portfolio. The remainder of the decrease in write-down was due to declines in the value of the servicing portfolios due to early loan payoffs in 2005.

Interest expense increased from $111 in 2005 to $1,679,466 in 2006. The increase is due almost entirely to interest expense incurred in connection with the financing of the acquisition of Westfalenbank (see note 8). See also the Form 8-K filed by the company on January 12, 2007 and a Form 8-K/A filed by the company on March 16, 2007 incorporated by reference herein.

Depreciation and amortization increased to $1,063,447 in 2006 from $713,045 in 2005. The majority of the $350,000 increase is the result of depreciation/amortization expense incurred at Westfalenbank totaling some $436,000.

Liquidity and Capital Resources

Cash and cash equivalents increased by $55,354,300 to $57,586,963 in 2006 from $2,474,005 in 2005. The majority of the increase in cash is the result of the acquisition of Westfalenbank whose assets consisted predominately of cash and cash equivalents. Crown seeks to improve liquidity and access to cash resources by generating new business revenues, raising additional capital and, in selected instances, entering into strategic alliances.

For the foreseeable future, the company expects to continue to fund operations from cash generated by its own operations and from management fee income received from its operating subsidiaries. Crown will continue to attempt to develop new sources of revenue, to expand revenues from its existing client base and to reduce operating expenses. The company will continue to seek new capital resources as a means of funding its operations.

Historical Cash Flows

Cash flows from operating activities provided cash of $1,172,167 in 2006. Operating activities used $315,043 in 2005.

Investing activities provided cash of $21,856,432 in 2006. Similar activities used $417,554 in 2005. The increase in cash provided is predominately the result of the net cash acquired in conjunction with the Westfalenbank purchase.

Financing activities provided $32,325,701 in cash in 2006. There was no comparable financing activity in 2005. The majority of the increase in cash is attributable to the credit facility obtained to purchase Westfalenbank (see note 2).

Item 7. – Financial Statements

INDEX TO FINANCIAL STATEMENTS

		Page
Independent Auditors’ Report		F-1
Consolidated Balance Sheets, December 31, 2006 and 2005		F-2
Consolidated Statements of Operations for the years ended December 31, 2006 and 2005		F-3
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2006 and 2005		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005		F-5
Notes to Consolidated Financial Statements for the years ended December 31, 2006 and 2005		F-6

INDEPENDENT AUDITORS’ REPORT

To The Shareholders
Crown NorthCorp, Inc. and Subsidiaries
Cheyenne, Wyoming

We have audited the accompanying consolidated balance sheets of Crown NorthCorp, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of Crown NorthCorp, Inc. and subsidiaries’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversighl Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Crown NorthCorp, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Columbus, Ohio
April 16, 2007

383 North Front Street / Columbus, Ohio 43215 / Telephone 614-888-8000 / Facsimile 614-888-8634 / www.SchoonoverBoyer.com

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

		2006				2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	57,586,963			$	2,474,005
Accounts receivable
Servicing fee receivables			7,692,538				3,110,438
Receivable from subsidiaries in liquidation (see note 3)			3,079,686				—
Miscellaneous receivables			3,000,911				—
Total accounts receivable			13,773,135				3,110,438
Prepaid expenses and other assets			293,467				187,966
Total current assets			71 ,653,565				5,772,409
PROPERTY AND EQUIPMENT — net			2,361,694				455,769
RESTRICTED CASH			1,758,274				368,477
INTANGIBLE ASSETS
Bank License (see note 2)			3,960,390				—
OTHER ASSETS
Investment in partnerships and joint ventures			542,475				545,282
Mortgage loans, net of reserves (see note 6)			6,803,584				647,607
Loan servicing rights— net (see note 16)			4,508,701				4,830,765
Capitalized software cost — net			716,391				416,975
Capitalized financing costs — net (see note 8)			3,320,607				—
Tax claims receivable			1,107,804				—
Deferred tax asset			304,658				—
Other assets			219,078				38,895
Trust fund assets (see note 7)			12,963,417				—
Total other assets			30,486,715				6,479,524
TOTAL		$	110,220,638			$	13,076,179

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		2006				2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	8,446,241			$	682,882
Foreign interest bearing deposits			874,331				—
Accrued expenses:
Bonuses			668,758				—
Interest			1,217,327				—
Other			1 ,096,526				1,121,259
Total accrued expenses			2,982,611				1,121,259
Current portion of long term debt (see note 8)			20,201,950				—
Tax payable			1,419,052				—
Other current liabilities			225,680				—
Total current liabilities			34,149,865				1,804,141
LONG-TERM OBLIGATIONS:
Long term debt (see note 8)			39,424,628				—
Subordinated debt (see note 9)			2,640,260				—
Provision for credit business			2,435,550				—
Deferred data storage expense			1,128,149				—
Pension provision (see note 14)			1,176,790				—
Restructuring provision			1,178,864				—
Other long term liabilities			2,185,788				—
Allowance for loan losses			243,076				243,076
Trust fund liabilities (see note 7)			12,963,417				—
Total long-term obligations			63,376,522				243,076
SHAREHOLDERS’ EQUITY:
Common stock			299,573				296,223
Additional paid-in capital			21,947,176				20,015,450
Accumulated comprehensive income			197,516				56,815
Accumulated deficit			(9,572,956	)			(9,162,468	)
Treasury stock, at cost			(177,058	)			(177,058	)
Total shareholders’ equity			12,694,251				11,028,962
TOTAL		$	110,220,638			$	13,076,179

See notes to consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

		2006				2005
REVENUES:
Management fees		$	10,130,430			$	2,654,760
Loan servicing fees, net			6,530,021				4,513,771
Disposition fees			4,200,948				3,439,389
Interest income			1,205,080				131,862
Reversal of loan loss provision			2,007,181				—
Income from partnerships and joint ventures			—				(114,462	)
Gain on short term note disposition			—				417,276
Other			149,331				173,667
Total revenues			24,222,991				11,216,263
OPERATING AND ADMINISTRATIVE EXPENSES:
Personnel			9,997,576				5,823,021
Legal, accounting and professional fees			2,336,393				1,752,928
Insurance and other administrative expenses			5,514,646				1,362,716
Occupancy			3,262,870				1,821,751
Write off mortgage servicing rights			178,661				1,906,918
Depreciation and amortization			1,063,435				713,045
Total operating and administrative expenses			22,353,581				13,380,379
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE			1,869,410				(2,164,116	)
INTEREST EXPENSE			1,679,466				111
NET INCOME (LOSS) BEFORE TAX			189,944				(2,164,227	)
INCOME TAX EXPENSE (BENEFIT)			600,430				—
NET INCOME (LOSS)			(410,486	)			(2,164,227	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment, net of tax effect			329,347				(479,425	)
COMPREHENSIVE INCOME (LOSS)		$	(81,139	)		$	(2,643,652	)
EARNINGS (LOSS) PER SHARE		$	(0.01	)		$	(0.08	)
WEIGHTED AVERAGE SHARES OUTSTANDING			29,069,152				28,681,316

See notes to consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(410,486	)		$	(2,164,227	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,473,430				701,347
Equity in income from investment in partnerships and joint ventures			(44,835	)			74,927
Write off unamortized cost of disposed asset			178,661				—
Interest capitalization			502,795
Provision to impairment to mortgage servicing rights			—				1,906,918
Payment of board of directors’ fees by the issuance of common stock			33,500				34,749
Deferred tax asset			203,080
Change in operating assets and liabilities: net of effects from purchase of subsidiary
Accounts receivable			8,346,176				(951,865	)
Prepaid expenses and other assets			14,897,449				(35,287	)
Accounts payable and accrued expenses			(24,007,603	)			118,395
Net cash provided by (used in) operating activities			1,172,167				(315,043	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition			24,673,762				—
Purchase of property and equipment			(518,553	)			(276,241	)
Decrease (increase) in other investments			(921,917	)			(134,170	)
Decrease (increase) in restricted cash			(1,376,860	)			(7,097	)
Deposits			—				(46	)
Net cash provided by (used in) investing activities			21,856,432				(417,554	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable			33,403,250				—
Loan fees			(1,077,549	)			—
Net cash provided by (used in) financing activities			32,325,701				—
NET INCREASE (DECREASE) IN CASH DURING THE PERIOD			55,354,300				(732,597	)
EFFECT OF EXCHANGE RATE ON CASH			(241,342	)			(80,501	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			2,474,005				3,287,103
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	57,586,963			$	2,474,005
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		$	94,820			$	—
Cash paid for taxes		$	5,199
See notes to consolidated financial statements.
INVESTING AND FINANCING ACTIVITIES
CORPORATE ACQUISITION
Receivables from Customers		$	22,794,734
Investments in Associates			17,221
Trust Assets			14,295,795
Intangible Asset — Bank License			3,960,390
Intangible Asset — Software			563,408
Fixed Assets			2,067,353
Other Assets			17,053,534
Prepaid Expenese			710,167
Fair Value of Assets acquired			61,462,601
Due to banks			(4,779,434	)
Liabilities to customers (LT NOTES)			(25,082,470	)
Liabilities to Customers (OTHER)			(12,981,835	)
Trust Liabilities			(14,295,795	)
Other liabilities (Accounts payable)			(18,397,423	)
Accrued expenses			(2,585	)
Other Provisions			(7,108,022	)
Provisons for Pensions			(719,786	)
Deferred Tax Liabilty			(128,752	)
Subordinated Debt			(2,640,260	)
Liabilities assumed			(86,136,362	)
Cash acquired in acquistion, net of cash paid		$	(24,673,762	)

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

										Convertible Preferred Stock
		Common Stock								Series CC								Series DD								Series EE								Series FF								Series GG								Series HH								Series II								Additional								Accumulated												Total
		Shares								Shares								Shares								Shares										Shares						Shares								Shares								Shares								Paid-In				Accumulated				Comprehensive				Treasury Stock								Shareholders'
		Issued				Amount				Issued				Amount				Issued				Amount				Issued			Amount							Issued			Amount			Issued				Amount				Issued				Amount				Issued				Amount				Capital				Deficit				Income				Shares				Amount				Equity
BALANCE, DECEMBER 31, 2002			12,742,851				127,428				1								1								1								1								1								15								12								8,791,832				(7,862,162	)			113,306				(682,073	)			(67,053	)			1,103,351
Net income (loss)																																																																			—				(213,129	)															(213,129	)
Conversion of convertible preferred			15,356,997				153,570				(1	)							(1	)							(1	)							(1	)							(1	)							(15	)							—								11,086,593												—				(110,005	)			11,130,158
Comprehensive Income																																																																											926												926
Issuance of common stock			515,000				5,150				—																—																—																								46,350												—								51,500
BALANCE, DECEMBER 31, 2003			28,614,848				286,148																																																												19,924,775				(8,075,291	)			114,232				(682,073	)			(177,058	)			12,072,806
Net income (loss)																																																																							975,372																975,372
Reclassification adjustment																																																																							114,231				(114,231	)											—
Audit adjustment																																																																							(12,553	)															(12,553	)
Comprehensive Income																																																																											536,241												536,241
Issuance of common stock			660,000				6,600																																																												59,400																				66,000
BALANCE, DECEMBER 31, 2004			29,274,848				292,748																																																												19,984,175				(6,998,241	)			536,242				(682,073	)			(177,058	)			13,637,866
Net income (loss)																																																																							(2,164,229	)															(2,164,229	)
Comprehensive Income																																																																											(479,427	)											(479,427	)
Issuance of common stock			347,500				3,475																																																												31,275																				34,750
BALANCE, DECEMBER 31, 2005			29,622,348				296,223				—				—				—				—				—				—				—				—				—				—				—				—				12				—				20,015,450				(9,162,470	)			56,815				(682,073	)			(177,058	)			11,028,960
Net income (loss)																																																																			—				(410,486	)															(410,486	)
Accrued pension cost per FASB 158																																																																							—				(188,646	)											(188,646	)
Warrants issued in connection with facility agreement																																																																			1,901,576																				1,901,576
Comprehensive Income																																																																							—				329,347												329,347
Issuance of common stock			335,000				3,350				—																—																—																								30,150												—								33,500
BALANCE, DECEMBER 31, 2006			29,957,348				299,573				—				—				—				—				—				—				—				—				—				—				—				—				12				—				21,947,176				(9,572,956	)			197,516				(682,073	)			(177,058	)			12,694,251

See notes to consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES

       Principles of Consolidation

The accompanying consolidated financial statements included the accounts of Crown NorthCorp and its majority-owned subsidiaries (collectively, the “Company”). Investments in majority-owned affiliates where the Company does not have a majority voting interest and non-majority owned affiliates are accounted for on the equity method. All significant intercompany balances and transactions have been eliminated.

       Business Description

The Company is a financial services company providing comprehensive asset management and risk management services to owners and operators of commercial and residential real estate interests. Assets managed are located throughout the United States and Europe and include commercial and residential real estate, performing and non-performing real estate, residential and commercial loans, partnership investments and other miscellaneous assets.

       Cash and Cash Equivalents

       The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

       Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a reserve for uncollectible accounts, based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the reserve account. Changes in the reserve have not been material to the financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

       Property and Equipment

Property and equipment are recorded at cost. Repairs, maintenance and minor replacements are expensed as incurred. Upon retirement, sale or disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and a gain or loss is included in operations.

       Depreciation is computed using the straight-line method over the expected useful life of the assets as follows:

Computer hardware		3 years
Vehicles		6 years
Office furniture and equipment		3 to 13 years

       Works of art are not depreciated.

       Banking License

The Banking license is deemed to have an indefinite life and not subject to amortization. Management expects to generate cash flows indefinitely from origination services expected to commence with the addition of the Banking license.

       Capitalized Software Costs

The Company follows the accounting guidance as specified in Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The Company capitalizes significant costs in the acquisition or development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees incurred in developing internal-use computer software once final selection of the software is made. Costs incurred prior to the final selection of software and costs not qualifying for capitalization are charged to expense. They are carried at cost less accumulated amortization. Capitalized Software Costs are amortized on a straight-line basis over a useful life of three to five years. If there are indications that impairment might have occurred, a write down is recognized for the relevant asset.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Long- Lived Assets

The Company evaluates long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When discounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The discount rate reflects the risk that is specific to that asset. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed. Long-lived assets to be disposed by sale are classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased.

Loan Servicing Rights

The Company records an asset upon the sale of a loan with servicing retained and allocates the cost of the loan to the servicing rights and to the loans based on their relative fair values. Fair values are estimated using discounted cash flows based on a current market interest rate. The resulting gain on sale of loans is included in mortgage origination. The Company also purchases mortgage-servicing rights and records such rights at the cost to purchase.

The cost of loan servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of loan servicing rights is assessed based on the fair value of those rights. The carrying amount of loan servicing rights approximates the fair value.

Capitalized Financing Costs

The Company capitalizes direct loan fees incurred with obtaining financing. These costs are amortized over the term of the financing.

Tax Claims Receivables

Tax claims receivables consist of short-term claims against the local German tax authorities and claims for withholding tax against foreign tax authorities. The claim for the foreign withholding tax is expected to be reimbursed within the next 5 years and is recorded at a discount.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Investments in Non-Performing Loans and Reserves for Loan Losses

Investments in non-performing loans are carried at lower of cost or fair value. At each balance sheet date, the Company assesses whether there is objective evidence that the loan is impaired. A loan is considered impaired when the borrower fails to make any payment within three months and there are no assessable collaterals. When a loan is considered non-performing, accruals of interest are no longer capitalized. An allowance is applied in full on the current loan amount (principle, accrued interest and costs). Collaterals are assessed only if there is a market price for the charged objects and sale or foreclosure can be achieved within a reasonable time. Real estate is assessed by considering the source, quality and date of valuations or appraisals. Discounts are made when necessary because of market development and individual aspects of the properties. Regarding properties in legal foreclosure proceedings, discounts are applied on valuations depending on historical local foreclosure results. This discount can vary from 30% to 50% of the appraised value. When no formal appraisal is available, asset managers who are experienced in standard appraisal techniques make assessments. Assignment of life insurances and deposits are assessed according to official statements of the relevant companies. Liens on chattels are assessed only when a market price is traceable.

Investments in Partnerships and Joint Ventures

Certain of the Company’s general partner and joint venture investments (ranging from 20% to 50%) are carried at cost, adjusted for the Company’s proportionate share of undistributed earnings and losses because the Company exercises significant influence over their operating and financial activities.

Subordinated Liabilities

Subordinated liabilities include liabilities, which will only be repaid once all other liabilities have been repaid in the case of insolvency or liquidation.

Provision for Credit Business

The provision for Credit Business reflects outstanding commitments related to customers totaling $2,058,719 at December 31, 2006. The letters of credit do not have a specific maturity date. These commitments are to various parties who hold letters of credit issued by Westfalenbank AG (“the Bank”) on behalf of customers that cannot meet their commitments. In addition, the Bank provisioned $376,831 for specific costs for the liquidation of discontinued business lines that occurred prior to the acquisition by the Company, as fully described in Note 2.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Deferred Data Storage Expense

Prior to the acquisition, as fully described in Note 2, the Bank had sold the majority of their business lines. German bank regulations impose an obligation on the Bank to archive all electronic data relating to the discontinued business for 10 years. A provision for the cost of archiving this data was established at the date of the Bank’s acquisition.

Pension Provisions

Pension provisions are recorded at discounted value according to actuarial principles in accordance with SFAS No. 158.

Other Provisions

Other provisions are recognized for current legal or constructive obligations for which the date and/or the amount of the obligations are uncertain, and for which an outflow of resources required to settle the obligations is probable.

Allowance for Loan Losses

The Company established an allowance for loan losses to provide for estimated losses in acquired mortgage portfolios serviced. The Company sold the mortgage portfolio in December 1999 (See Note 10). At the time, a reserve balance was established to offset losses incurred or sustained by the purchaser by reason of or associated with the mortgage loans. There were no charges against the reserve in 2006 or 2005.

Income Taxes

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in the tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Loan Servicing Fees

Loan servicing fees are recognized as earned under the terms of the related servicing contract.

Management Fees

Management fees are recorded as services required under the contracts are performed, and are based on a percentage applied to the aggregate value of assets managed, as assigned in the contracts, or on original base monthly amounts, as defined in the contracts. Upon each disposition, withdrawal or addition of an asset or asset group, the management fee is adjusted to reflect the change in aggregate value of the assets. Management fees are calculated on a daily basis as set forth in the contracts.

Disposition Fees

Disposition and bonus fees, less retentions, are recorded as revenue when the disposition of an asset has been consummated and the asset owner has received the gross proceeds from the disposition. Disposition fees are generally based on a percentage of the proceeds of an asset disposition, as defined by the contracts, or a fixed amount per disposition.

Incentive Fees

Certain contracts provide for incentive fees if the Company achieves net cash collections in excess of thresholds established in the contracts. Upon substantial achievement of related thresholds, long-term contract revenues are recognized on the percentage-of-completion method based on assets realized relative to total contract assets, net of any anticipated losses. Billings for long-term contracts are rendered periodically, as permitted by contract terms.

Leases

The Company has lease commitments under operating leases for rental space, IT equipment and office equipment. Facility leases with free rent periods or rent escalation clauses are expensed on a straight-line basis over the life of the lease commencing at lease inception. Leasehold improvements are depreciated over the shorter of the facility’s useful life or the term of the lease. A liability for costs that will continue to be incurred under a lease for its remaining term without economic benefit to the Company is recognized and measured at its fair value when the Company ceases using the leased property.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Foreign Currency Translation

Results of operations for the Company’s non-U.S. subsidiaries and affiliates are translated from the designated functional currency to the U.S. dollar using average exchange rates during the period, while assets and liabilities are translated at the average monthly exchange rate in effect at the reporting date. Resulting gains or losses from translating foreign currency financial statements are reported as other comprehensive income (loss). The effect of changes in exchanges rates between the designated functional currency and the currency in which a transaction is denominated are recorded as foreign currency transaction gains (losses).

Estimates

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

Credit Risk

The Company maintains several cash accounts with several financial institutions located in the following countries:

		2006				2005
United States		$	288,979			$	2,240,529
United Kingdom			2,947,082				601,953
Germany			55,647,994				—
Netherlands			31,743				—
Sweden			429,438				—
Total cash and restricted cash		$	59,345,236			$	2,842,482

Management believes that the risk is limited because these institutions are large national or international institutions with strong financial positions.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

Recently Issued Accounting Standards

In March 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 156 “Accounting for Servicing of Financial Assets – An Amendment of FASB No. 140” (SFAS No 156). SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset, by entering into a servicing contract in any of the following situations: 1) a transfer of the servicer’s financial assets that meets the requirements for sale accounting, 2) a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities, or 3) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. Further, SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. And lastly, SFAS No. 156 permits the entity to choose either the amortization method or fair value measurement method for subsequent measurement of each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption permitted. The Company has not yet assessed the effect of this accounting standard on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements but does not in itself require any new fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management is evaluating this standard and its impact, if any, on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans – An Amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS No. 158 requires employers to recognize the over funded or under funded status of a defined post-retirement plan in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006 for employers with publicly traded equity securities. See Note 14 for disclosure on adoption of SFAS No. 158.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES – Continued

In June 2006, the FASB issued interpretation No. 48, “Accounting for the Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies certain aspects of accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Management is evaluating the potential impact of the adoption of this interpretation.

In June 2005, the FASB ratified the EITF’s consensus on EITF Issue No. 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” The Task Force reached a consensus that for general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreements are modified, the guidance is effective after June 29, 2005. The Task Force also reached a consensus that for general partners in all other limited partnerships, the guidance is effective no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of the consensus did not have a material effect on the consolidated results of operations or the consolidated financial position of the Company.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform with current year presentation.

NOTE 2 – ACQUISTION OF WESTFALENBANK AG

Effective October 26, 2006, the Company, through a newly incorporated special-purpose subsidiary, acquired from HypoVereinsbank (“HVB”) all of the issued and registered share capital of Westfalenbank AG (“the Bank”), a banking and credit institution licensed and operating under the laws of Germany. The Company acquired the share capital of the Bank from HVB pursuant to a definitive Stock Purchase and Transfer Agreement dated July 31, 2006 (“SPA”), whereby the Company became the economic owner of the Bank effective July 3, 2006 (“Acquisition Date”). The SPA called for a purchase price of €25,000,000, which price was derived from arm’s-length negotiations and represents the net equity of the Bank as set forth on its June 30, 2006 financial statements, plus certain premiums and adjustments. Additionally the Company incurred transaction costs, which included legal, accounting and other external costs directly related to the acquisition, of approximately €2,601,266. The transaction closed on October 26, 2006 upon the approval of regulatory authorities in Germany and the satisfaction of certain other closing conditions.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 2 – ACQUISTION OF WESTFALEN BANK AG – Continued

In conjunction with the execution of the SPA, the Company and certain of its subsidiaries entered into a €25,000,000 Facility Agreement (the “Facility Agreement”) with a financial institution (the “Lender”). The Company utilized the Facility Agreement and cash on hand to effect the acquisition of the Bank.

Pursuant to the Facility Agreement and related documentation, the Company and certain of its subsidiaries have provided cross-guarantees in favor of the Lender and have granted the Lender security over certain of their assets (including security over specific shareholdings). Additionally, throughout the term of the Facility Agreement, the Company must also adhere to a comprehensive set of financial covenants and operating restrictions.

The Company initially pledged €2,000,000 to ensure payment of interest and fees that may become due under the Facility Agreement. The Lender has also been issued warrants to subscribe, under certain terms and conditions through 2011, to up to 19% of the share capital of the single-purpose entity the Company utilized to acquire the Bank at that entity’s book value as at the date of the Bank’s acquisition. See Note 8 for discussions on the assumptions used to assign a fair value to the warrants using a Black-Scholes valuation model. See Note 20 for subsequent event in relation to the warrants.

Purchase Price Allocation

Pursuant to SFAS No. 141, “Business Combinations”, the purchase price, including acquisition costs, of €27,601,266 has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the Acquisition Date. The purchase price allocation, while substantially complete, is subject to further adjustments up to one year from the purchase date. The allocation of the purchase price including acquisition costs to their fair values of the assets acquired and liabilities assumed as of the Acquisition Date, subject to future adjustments, is presented below:

Current assets		€	62,747,677
Property and equipment			1,566,022
Software			426,782
Banking license			3,000,000
Non-performing loan portfolio			12,174,520
Loan costs			501,266
Other long term assets			1,604,312
Current liabilities			(27,392,209	)
Long term debt			(19,000,000	)
Subordinated debt			(2,000,000	)
Other long term liabilities			(6,027,104	)
Total purchase price		€	27,601,266

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 2 – ACQUISTION OF WESTFALEN BANK AG – Continued

Proforma Financial Information

The Bank has operated in its present form since June 2006. Historically, the Bank, which is headquartered in Bochum, Germany, provided corporate and personal banking services. In 2005, the Bank implemented a business plan to dispose of all of its business lines and substantially consolidate operations. In furtherance of this plan, the Bank sold its asset management and private banking lines of business to third parties in 2005. In June 2006, HVB acquired the Bank’s corporate banking business. This series of transactions reduced the Bank’s assets by approximately 94% leaving the Bank with assets comprising mainly cash as well as a portfolio of non-performing loans and fixed and other assets required to maintain a core-banking platform. The SPA contains usual and customary representations, warranties and indemnities from HVB in favor of the Company with respect to the disposed operations.

As a result of the dispositions and consolidation noted above, the Bank is in no material respect comparable to the much larger enterprise that existed before the Bank sold its business lines. Consequently, the Company does not believe that historical financial statements of the Bank would provide relevant or useful information on the Bank as it has operated since June 2006 and as it was acquired by the Company. For example, in any audited financial statements for the Bank for the years 2004 and 2005, the vast majority of assets and operations set forth in the reports would be ones that the Bank sold prior to the Company’s acquisition and for which, as noted above, the Company has received appropriate indemnification. The Company believes that the inclusion of any such historical financial reports would be unhelpful and misleading for any third party trying to understand the impact upon the Company of making this acquisition. The operating results of the Bank for the period July 3, 2006 (date of acquisition) to December 31, 2006 are included in the consolidated statements of operations.

NOTE 3 – RECEIVABLE FROM SUBSIDIARIES IN LIQUIDATION

The Bank that was acquired had participations in five affiliated companies. Four of those companies are in liquidation. Shareholder meetings at each of the companies decided the liquidation. According to German law there is a waiting period of 12 months between the liquidation resolution and the initial termination of a company. The start of the liquidation process is published in the “Bundesanzeiger” in order to inform creditors so they can raise claims against the assets before distribution.

The four companies are:

BAK Verwaltungsgesellschaft mbH, Bochum, Huestr. 21-25 – The company was founded in 1969 in order to manage participations in other banks. The liquidation resolution was passed on January 26, 2006. The book value is €25,673 (approximately $33,892 at December 31, 2006).

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 3 – RECEIVABLE FROM SUBSIDIARIES IN LIQUIDATION – Continued

Gesellschaft für Grundbesitz mbH, Bochum, Huestr. 21-25 – The company was founded in 1922 for trading with real estate and for building, letting and administration of buildings. The liquidation resolution was passed on January 26, 2006. The book value is €766,989 (approximately $1,012,524 at December 31, 2006).

Westfalen Kapitalverwaltungsgesellschaft mbH, Bochum, Huestr. 21-25 – The company was founded in 1987 for a joint shareholding with a corporate customer of the bank. The liquidation resolution was passed on January 26, 2006. The book value is €511,292 (approximately $674,972 at December 31, 2006).

Westfalen Corporate Finance mbH, Bochum, Huestr. 21-25 – The company was founded in 1993 to manage Corporate Finance projects. The liquidation resolution was passed on January 26, 2006. The book value is €1,028,913 (approximately $1,358,298 at December 31, 2006).

The liquidation of these subsidiaries had no strategic impact to the Bank. The Bank will receive at a minimum the book value of the subsidiaries of a total of €2,332,866 (approximately $3,079,686 at December 31, 2006). This amount has been guaranteed by HVB in the SPA of the shares of the Bank. Since the Bank will receive the balance of its investment accounts in cash at the end of the 12 months waiting period without any risk; these companies are not consolidated and instead they are included in the balance sheet as “Receivables from subsidiaries in liquidation”.

NOTE 4 – PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE COSTS

Property and equipment consists of the following at December 31:

		2006				2005
Land and buildings		$	546,256			$	—
Office equipment and fixtures			1,613,954				333,485
Computer equipment			1,871,775				1,259,681
Vehicles			6,692				—
Property and equipment — total			4,038,677				1,593,166
Less accumulated depreciation			(1,676,983	)			(1,137,397	)
Property and equipment — net		$	2,361,694			$	455,769

Depreciation expense for the year ended 2006 and 2005 was $404,428 and $340,295, respectively.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 4 – PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE COSTS – Continued

Land and buildings above includes land valued at $546,256. The Bank obtained this land from a deed in lieu of foreclosure. In connection with the former loan commitment and the realization of the land, the Bank received an advance payment in the amount of $343,239, which is shown in other long-term liabilities. The SPA stated that HVB would guarantee the net value of $546,256 after netting the prepayment and selling costs with an expected sale date no later than December 31, 2007.

Capitalized software consists of the following at December 31:

		2006				2005
Capitalized software		$	2,470,043			$	1,538,011
Less accumulated amortization			(1,753,652	)			(1,121,036	)
Capitalized software — net		$	716,391			$	416,975

Amortization expense for capitalized software for the year ended 2006 and 2005 was $571,825 and $372,750, respectively.

NOTE 5 – INVESTMENTS IN AFFILIATES AND JOINT VENTURES

The Company has investments in affiliates that are accounted for using the equity method of accounting.

Titrisation Belge-Belgische Effectisering SA/NV

In October 2003, Crown Mortgage Management Limited, a subsidiary of the Company (“CMM”) acquired 75% of the shares in Titrisation Belge-Belgische Effectisering SA/NV (“TBE”) for 110% of the net asset value at September 30, 2003, approximately $532,300. Fortis Bank acquired a 25% share. CMM and Fortis agreed to jointly own TBE with a view of developing its master servicing business. Within a few days of the original transaction, CMM sold 25% of its share to Fortis for $177,434 thereby creating a 50/50 joint venture.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 5 – INVESTMENTS IN AFFILIATES AND JOINT VENTURES – Continued

Summarized condensed financial information of TBE, a 50% owned corporate joint venture accounted for by the equity method follows:

Balance sheet at December 31,		2006				2005
Assets:
Current assets		$	859,690			$	634,371
Fixed assets			153,144				177,610
Liabilities:
Current liabilities			249,548				94,975
Income statement:
Revenue			759,012				737,304
Expense			793,779				668,489
Net income (loss) before tax			(34,797	)			68,814
Tax			—				23,290
Net income (loss)		$	(34,797	)		$	45,524

Other Investments

In addition, the Bank is a limited partner in Nadinion Objekt Huestraße GmbH & Co KG, Munich. The Company has a 100% investment in this partnership, but as a limited partner it has no influence on the financial operations. Therefore, the investment is carried at cost, which is €25,000 (approximately $33,000, at December 31, 2006). The Company can exercise a Put Option, which will be likely to be used in 2007. The purchase price for the Company’s interest shall equal its book value as stated in the SPA for the Bank’s acquisition.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 6 – NON-PERFORMING LOAN PORTFOLIOS

		2006
		Face Value				Reserves				Carrying Value
Germany		$	117,811,926			$	(111,715,642	)		$	6,096,284
United Kingdom			2,293,359				(1,586,059	)			707,300
Total		$	120,105,285			$	(113,301,701	)		$	6,803,584

		2005
		Face Value				Reserves				Carrying Value
United Kingdom		$	2,119,706			$	(1,472,099	)		$	647,607

In Germany, when a loan is classified as non-performing, the original terms of the loans are cancelled. Therefore, the Company has ceased accruing interest on these loans. The loans in the United Kingdom continue to accrue interest.

NOTE 7 – TRUST ASSETS AND LIABILITIES

Prior to the acquisition, the Bank entered into an Agency and Trust Agreement with Credit Suisse International, London (“CS”) on November 23/24, 2005 governing the management of receivables acquired by CS. This Agreement was amended December 30, 2005 due to CS purchasing a loan portfolio from a savings bank in the second half of 2005. According to the Trust Agreement, the Bank, in its capacity as agent and trustee, is responsible for account maintenance and loan extensions for these customers acting on behalf of its principal and beneficiary, CS. All credit and economic risks arising from these receivables are borne by CS.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 8 – LONG TERM DEBT

     Long-term debt as of December 31, 2006 consists of the following items:

€25 million Facility Agreement, issued in connection with the acquisition discussed in Note 2. Interest payable quarterly at a variable rate of 12% plus EURIBOR (3.8015% at December 31, 2006). Principal of €15 million due March 31, 2007 with the balance due December 31, 2008. Also, the Company may elect to capitalize 8% of the accrued interest and accrued letter of credit fee due. At December 31, 2006, €864,201 has been capitalized and included in the amount due. See Note 20 for subsequent event.		$	34,144,108
$400,000 Convertible Promissory note from a director, issued September 11, 2006 with interest payable at a rate of 16%. Balance is due March 31, 2007. The lender at their option may elect to convert the entire unpaid balance to Common Stock par value of $0.01 per share. The conversion will be calculated based upon the unpaid balance times the net book value at maturity date times 80%			400,000
The following notes were assumed in the acquisition of the Bank, as described in Note 2:
€5,000,000 Promissory note, issued June 9, 2006 with interest payable annually at a rate of 4.55%. Principal due February 11, 2013.			6,600,650
€1,000,000 Promissory note, issued June 9, 2006 with interest payable annually at a rate of 5.19%. Principal due March 4, 2014.			1,320,130
€5,000,000 Promissory note, issued June 9, 2006 with interest payable quarterly at a variable rate of 3 month Libor +0.805% (3.585% at December 31, 2006). Principal due January 16, 2013.			6,600,650
€7,000,000 Promissory note, issued June 9, 2006 with interest payable annually at a rate of 5.13%. Principal due February 4, 2014.			9,240,910
€1,000,000 Promissory note, issued June 9, 2006 with interest payable annually at a rate of 4.70%. Principal due February 4, 2014.			1,320,130
Total debt			59,626,578
Less: current portion			20,201,950
Total long term debt		$	39,424,628

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 8 – LONG TERM DEBT – Continued

     Future debt maturities are as follows:

Year ending December 31,
2007		$	20,201,950
2008			14,342,158
2009			—
2010			—
2011			—
Thereafter			25,082,470
Total		$	59,626,578

In connection with the €25 million facility agreement described above, the Company issued 5,652 warrants to the Lender to purchase shares in the special purpose entity used to acquire the Bank as described in Note 2. This equates to 19% of the shares of common stock in the special purpose entity. The warrants are exercisable at a price of €840.41 per share at any time through December 31, 2011. The fair value of the warrants of $1,903,158 was determined using the Black-Scholes option-pricing model with the following assumptions: fair value of stock $1,070 (€840), exercise price $1,070 (€840); expected life of 5.3 years, expected volatility of 21.99% and a risk free return of 4.63%. See Note 20 for subsequent event.

The Company has paid the following loan costs including the issuance of warrants in connection with the €25 million facility agreement:

Arrangement fee		$	660,065
Agency fee			66,006
Letter of credit fee			968,096
Warrants			1,903,158
Total loan costs			3,597,325
Accumulated amortization			(276,718	)
Net loan costs		$	3,320,607

These costs are being amortized over the term of the facility agreement. The $276,718 has been expensed for the year ended December 31, 2006.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

NOTE 8 – LONG TERM DEBT – Continued

Also in connection with this facility agreement, the Company and certain of its subsidiaries have provided cross-guarantees in favor of the Lender and have granted the Lender security over certain assets including security over specific shareholdings. The facility agreement also maintains several restrictive financial covenants, net worth requirements and capital expenditure restrictions. The Company is also required to maintain a restricted interest reserve cash account in order to pay for interest. At December 31, 2006, the balance is $1,493,687 and included in restricted cash on the balance sheet

NOTE 9 – SUBORDINATED DEBT

Subordinated debt, which was assumed with the acquisition of the Bank, as of December 31, 2006 consists of the following:

€2,000,000 Subordinated promissory note, issued January 25, 2005 with interest payable annually at a rate of 6.13%. Principal due February 4, 2014		$	2,640,260
Total subordinated debt			2,640,260
Less: current portion			—
Total subordinated debt		$	2,640,260