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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950144-04-006669.txt : 20040629
<SEC-HEADER>0000950144-04-006669.hdr.sgml : 20040629
<ACCEPTANCE-DATETIME>20040629142820
ACCESSION NUMBER:		0000950144-04-006669
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040629

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NICHOLAS FINANCIAL INC
		CENTRAL INDEX KEY:			0001000045
		STANDARD INDUSTRIAL CLASSIFICATION:	SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153]
		IRS NUMBER:				593019317
		STATE OF INCORPORATION:			FL
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26680
		FILM NUMBER:		04888152

	BUSINESS ADDRESS:	
		STREET 1:		2454 MCMILLEN BOOTH RD
		STREET 2:		BLDG C 501 B
		CITY:			CLEARWATER
		STATE:			FL
		ZIP:			33759
		BUSINESS PHONE:		8137260763

	MAIL ADDRESS:	
		STREET 1:		2454 MCMULLEN BOOTH RD
		STREET 2:		BLDG C SUITE 501B
		CITY:			CLEARWATER
		STATE:			FL
		ZIP:			33759
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>g89766e10ksb.txt
<DESCRIPTION>NICHOLAS FINANCIAL, INC.
<TEXT>
<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2004

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

              FOR THE TRANSITION PERIOD FROM ________ TO _________.

                         COMMISSION FILE NUMBER: 0-26680

                            NICHOLAS FINANCIAL, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

           BRITISH COLUMBIA, CANADA                       8736-3354
        (State or Other Jurisdiction of               (I.R.S. Employer
        Incorporation or Organization)               Identification No.)

                            NICHOLAS FINANCIAL, INC.
                      2454 MCMULLEN BOOTH ROAD, BUILDING C
                            CLEARWATER, FLORIDA 33759
               (Address of Principal Executive Offices) (Zip Code)

                 ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (727) 726-0763

       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
                           COMMON STOCK, NO PAR VALUE

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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]  No [ ]

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

The issuer's revenues for its most recent fiscal year ended March 31, 2004 were
$25,500,485.
As of June 8, 2004, 6,487,288 shares of the issuer's Common Stock, no par value,
were outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $38,666,596

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the issuer's definitive Proxy Statement for the Annual Meeting of
Stockholders currently scheduled to be held on August 5, 2004, expected to be
filed with the Commission pursuant to Regulation 14A on or about July 8, 2004,
are incorporated by reference in Part III of this Annual Report on Form 10-KSB.

Transitional Small Business Disclosure Format (check one) : Yes [ ]  No [X]

<PAGE>

                      (This page intentionally left blank)

<PAGE>

                            NICHOLAS FINANCIAL, INC.

                            FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE NO.
<S>                                                                                                         <C>
PART I
       ITEM 1.      Description of Business.............................................................       3
       ITEM 2.      Description of Property.............................................................      13
       ITEM 3.      Legal Proceedings...................................................................      13
       ITEM 4.      Submission of Matters to a Vote of Security Holders.................................      13

PART II

       ITEM 5.      Market for Common Equity, Related Stockholder Matters and Small Business
                               Issuer Purchases of Equity Securities....................................      14
       ITEM 6.      Management's Discussion and Analysis of Financial Condition
                               and Results of Operations...............................................       16
       ITEM 7.      Financial Statements................................................................      25
       ITEM 8.      Changes In and Disagreements With Accountants on Accounting
                               and Financial Disclosure.................................................      50
       ITEM 8A.     Controls and Procedures.............................................................      50

PART III

       ITEM 9.      Directors, Executive Officers, Promoters and Control Persons;
                               Compliance with Section 16 (a) of the Exchange Act.......................      50
       ITEM 10.     Executive Compensation..............................................................      50
       ITEM 11.     Security Ownership of Certain Beneficial Owners, Management and
                               Related Stockholder Matters..............................................      51
       ITEM 12.     Certain Relationships and Related Transactions......................................      51
       ITEM 13.     Exhibits and Reports on Form 8-K....................................................      52
       ITEM 14.     Principal Accountant Fees and Services..............................................      53
</TABLE>

                                        1

<PAGE>

FORWARD-LOOKING INFORMATION

      THIS REPORT ON FORM 10-KSB CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934 AND INFORMATION THAT IS BASED ON
MANAGEMENT'S BELIEFS AND ASSUMPTIONS, AS WELL AS INFORMATION CURRENTLY AVAILABLE
TO MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE,"
"EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. ALTHOUGH NICHOLAS FINANCIAL, INC., INCLUDING ITS SUBSIDIARIES
("COLLECTIVELY THE COMPANY"), BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO BE CORRECT. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR
EXPECTED. AMONG THE KEY FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS INCLUDE
FLUCTUATIONS IN THE ECONOMY, THE DEGREE AND NATURE OF COMPETITION, FLUCTUATIONS
IN INTEREST RATES, DEMAND FOR CONSUMER FINANCING IN THE MARKETS SERVED BY THE
COMPANY, THE COMPANY'S PRODUCTS AND SERVICES, INCREASES IN THE DEFAULT RATES
EXPERIENCED ON RETAIL INSTALLMENT SALES CONTRACTS, REGULATORY CHANGES IN THE
COMPANY'S EXISTING AND FUTURE MARKETS, AND THE COMPANY'S ABILITY TO EXPAND ITS
BUSINESS, INCLUDING ITS ABILITY TO IDENTIFY AND COMPLETE ACQUISITIONS AND
INTEGRATE THE OPERATIONS OF ACQUIRED BUSINESSES, TO RECRUIT AND RETAIN QUALIFIED
EMPLOYEES, TO EXPAND INTO NEW MARKETS AND TO MAINTAIN PROFIT MARGINS IN THE FACE
OF INCREASED PRICING COMPETITION. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN
THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENT. PROSPECTIVE INVESTORS SHOULD ALSO CONSULT THE RISK FACTORS DESCRIBED
FROM TIME TO TIME IN THE COMPANY'S FILINGS MADE WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING ITS REPORTS ON FORMS 10-QSB, 8-K AND 10-KSB AND ANNUAL
REPORTS TO SHAREHOLDERS.

                                        2

<PAGE>

                                     PART I

ITEM  1. DESCRIPTION OF BUSINESS

GENERAL

      Nicholas Financial, Inc. ("Nicholas Financial-Canada") is a Canadian
holding company incorporated under the laws of British Columbia in 1986. The
business activities of Nicholas Financial-Canada are conducted through its two
wholly-owned subsidiaries formed pursuant to the laws of the State of Florida,
Nicholas Financial, Inc. ("Nicholas Financial") and Nicholas Data Services,
Inc., ("NDS"). Nicholas Financial is a specialized consumer finance company
engaged primarily in acquiring and servicing retail installment sales Contracts
("Contracts") for purchases of new and used automobiles and light trucks. To a
lesser extent, Nicholas Financial also makes direct loans and sells
consumer-finance related products. NDS is engaged in supporting and updating
industry specific computer application software for small businesses located
primarily in the Southeast United States. Nicholas Financial's financing
activities accounted for approximately 99% of consolidated revenues for each of
the fiscal years ended March 31, 2004 and 2003. NDS's activities accounted for
approximately 1% of such revenues during the same periods.

      Nicholas Financial-Canada, Nicholas Financial and NDS are hereafter
collectively referred to as the "Company". All financial information herein is
designated in United States currency.

      The Company's principal executive offices are located at 2454 McMullen
Booth Road, Building C, Clearwater Florida 33759, and its telephone number is
(727) 726-0763.

GROWTH STRATEGY

      The Company's principal goals are to increase its profitability and its
long-term shareholder value through greater penetration in its current markets
and controlled geographic expansion into new markets. The Company also intends
to continue its expansion through a proportionate increase in its origination of
direct consumer loans. The Company is currently expanding its automobile
financing program in the States of Georgia, Michigan, North Carolina, Ohio,
South Carolina and Virginia. The Company has targeted certain geographic
locations within these states where it believes there is a sufficient market for
its automobile financing program. The Company is currently purchasing Contracts
utilizing employees who reside in these states. These employees are developing
their respective markets, and the Company has created a Central Buying Office in
its Corporate Headquarters to purchase, process and service these Contracts. The
Company's strategy is to monitor these new markets and ultimately decide where
and when to open additional branch locations. The Company also continues to
analyze other markets in states in which it does not currently operate. Although
the Company has not made any bulk purchases of Contracts in the last five years,
if the opportunity arises, the Company may consider possible acquisitions of
portfolios of seasoned Contracts from dealers in bulk transactions as a means of
further penetrating its existing markets or expanding its presence in targeted
geographic locations. The Company cannot provide any assurances, however, that
it will be able to further expand in either its current markets or any targeted
new markets.

                                        3

<PAGE>

AUTOMOBILE FINANCE BUSINESS - CONTRACTS

      The Company is engaged in the business of providing financing programs,
primarily on behalf of purchasers of new and used cars and light trucks who meet
the Company's credit standards, but who do not meet the credit standards of
traditional lenders, such as banks and credit unions, because of the age of the
vehicle being financed or the customer's job instability or credit history.
Unlike traditional lenders, which look primarily to the credit history of the
borrower in making lending decisions and typically finance new automobiles, the
Company is willing to purchase Contracts for purchases made by borrowers who do
not have a good credit history and for older model and high mileage automobiles.
In making decisions regarding the purchase of a particular Contract the Company
considers the following factors related to the borrower: place and length of
residence, current and prior job status, history in making installment payments
for automobiles, current income and credit history. In addition, the Company
examines its prior experience with Contracts purchased from the dealer from
which the Company is purchasing the Contract, and the value of the automobile in
relation to the purchase price and the term of the Contract.

      The Company's automobile finance programs are currently conducted in seven
states through a total of 32 branch offices, consisting of 16 in Florida, five
in Ohio, four in North Carolina, three in Georgia, two in South Carolina, and
one in each of Michigan and Virginia. Each branch office is budgeted (size of
branch, number of employees and location) to handle up to 1,000 accounts and up
to $7.5 million in outstanding receivables. To date, none of our branches has
reached this capacity. As of March 31, 2004 the Company had non-exclusive
agreements with approximately 1,275 dealers, of which approximately 950 are
active, for the purchase of individual Contracts that meet the Company's
financing criteria. The Company considers a dealer agreement to be active if the
Company has purchased a Contract thereunder in the last six months. The dealer
agreements require the dealer to originate Contracts in accordance with the
Company's guidelines. Once a Contract is purchased by the Company the dealer is
no longer involved in the relationship between the Company and the borrower,
other than through the existence of limited representation and warranties of the
dealer.

      Customers under the Contracts typically make down payments, in the form of
cash or trade-in, ranging from 5% to 20% of the sale price of the vehicle
financed. The balance of the purchase price of the vehicle plus taxes, title
fees and, if applicable, premiums for extended service Contracts, accident and
health insurance and/or credit life insurance, are generally financed over a
period of 12 to 66 months. Accident and health insurance coverage enables the
customer to make required payments under the Contract in the event the borrower
becomes unable to work because of illness or accident and credit life insurance
pays the customer's obligations under the Contract upon his or her death.

      The Company purchases Contracts from automobile dealers at a negotiated
price that is less than the original principal amount being financed (the
discount) by the purchaser of the automobile. The amount of the discount depends
upon factors such as the age and value of the automobile and the
creditworthiness of the customer. The Company will pay more (i.e., purchase the
Contract at a smaller discount from the original principal amount) for Contracts
as the credit risk of the customer improves. In certain markets, competition
determines the discount that the Company can charge. Historically, the Contracts
purchased by the Company have been purchased at discounts that range from 1% to
15% of the original principal amount of the Contract. In addition to the
discount, the Company charges the dealer a processing fee of $75 per Contract
purchased. As of March 31, 2004, the Company's loan portfolio consists
exclusively of Contracts purchased without recourse to the dealer. Although all
the Contracts in the Company's loan portfolio were acquired without recourse,
the dealer remains liable to the Company for liabilities arising from certain
representations and warranties made by the dealer with respect to compliance
with applicable federal and state laws and valid title to the vehicle.

                                        4

<PAGE>

      The Company's policy is to only purchase a Contract after the dealer has
provided the Company with the requisite proof that the Company has a first
priority lien on the financed vehicle (or the Company has, in fact perfected
such first priority lien) that the customer has obtained the required collision
insurance naming the Company as loss payee and that the Contract has been fully
and accurately completed and validly executed. Once the Company has received and
approved all required documents, it pays the dealer for the Contract and
commences servicing the Contract.

      The Company requires the owner of the vehicle to obtain and maintain
collision insurance, naming the Company as the loss payee, with a deductible of
not more than $500. Both the Company and the dealers we do business with offer
purchasers of vehicles certain other "add on products." These products are
offered by the dealer on behalf of the Company or by the automobile dealer on
behalf of the dealership at the time of sale. They consist of a roadside
assistance plan, extended warranty protection, gap insurance, credit life
insurance, credit accident and health insurance and credit property insurance.
If the purchaser so desires, the cost of these products may be included in the
amount financed under the Contract.

CONTRACT PROCUREMENT

      The Company purchases Contracts in the states listed below. The Contracts
purchased by the Company are predominately for used vehicles; for the periods
shown below, less than 3% were new. The average model year collateralizing the
portfolio as of March 31, 2004 and 2003 was a 2000 and 1999 vehicle,
respectively. The amounts shown in the table represent the Company's finance
receivables, net of unearned interest on Contracts purchased:

<TABLE>
<CAPTION>
            MAXIMUM                     FISCAL YEAR ENDED
           ALLOWABLE                        MARCH 31,
STATE    INTEREST RATE (1)           2004              2003
- -----    -----------------        -----------       -----------
<S>      <C>                      <C>               <C>
FL           18-30% (2)           $38,887,398       $37,230,822

GA           18-30% (2)             8,682,016         7,880,717

NC           18-29% (2)             7,428,824         7,618,287

SC              (3)                 3,252,211         2,788,167

OH              25%                11,489,914         8,484,637

VA              (3)                 1,536,667           134,636

MI              25%                 2,143,231           291,994
         -----------------        -----------       -----------
Total                             $73,420,261       $64,429,260
                                  ===========       ===========
</TABLE>

                                        5

<PAGE>

        (1)     The allowable maximum interest rates by state is subject to
                change and are governed by the individual states the Company
                conducts business in.

        (2)     The maximum allowable interest rate in each of these states
                varies depending upon the model year of the vehicle being
                financed. In addition, Georgia does not currently impose a
                maximum allowable interest rate with respect to Contracts over
                $5,000.

        (3)     Neither of these states currently impose a maximum allowable
                interest rate with respect to the types and sizes of Contracts
                the Company purchases. The maximum rate which the Company will
                currently charge any customer in each of these states is 29% per
                annum.

The following table represents information on Contracts purchased by the
Company, net of unearned interest:

<TABLE>
<CAPTION>
                                         FISCAL YEAR ENDED
                                              MARCH 31,
      CONTRACTS                         2004             2003
- ---------------------               -----------       -----------
<S>                                 <C>               <C>
Purchases                           $73,420,261       $64,429,260
Weighted APR                              24.04%            24.22%
Average Discount                           8.95%             8.91%
Average Term (months)                        44                43
Average Loan                        $     8,121       $     8,102
Number of Contracts                       9,041             7,952
                                    ===========       ===========
</TABLE>

DIRECT LOANS

      The Company currently originates direct loans in Florida, Georgia and
North Carolina. Direct loans are loans originated directly between the Company
and the consumer. These loans are typically for amounts ranging from $1,000 to
$6,000 and are generally secured by a lien on an automobile, water craft or
other permissible tangible personal property. The average loan made to date by
the Company had an initial principal balance of approximately $3,000. The
Company does not expect the average loan size to increase significantly within
the foreseeable future. The majority of direct loans are originated with current
or former customers under the Company's automobile financing program. The
typical direct loan has significantly better credit risk due to the customer's
historical payment history with the Company. The Company does not have a direct
loan license in Ohio, South Carolina, Michigan or Virginia, and none is
presently required in Georgia (as the Company currently does not make direct
loans under $3,000 in that state). Typically, the Company allows for a seasoning
process to occur in a new market prior to determining whether to pursue a direct
loan license there. The Company expects to make a decision in the current fiscal
year on whether or not to pursue a direct loan license for Ohio. The Company
does not expect to pursue a direct loan license in any other states during the
current fiscal year. The size of the loan and maximum interest rate that can be
charged varies from state to state. In deciding whether or not to make a loan,
the Company considers the individual's credit history, job stability, income and
impressions created during a personal interview with a Company loan officer.
Additionally, because most of the direct consumer loans made by the Company to
date have been made to borrowers under Contracts previously purchased by the
Company, the payment history of the borrower under the Contract is a significant
factor in making the loan decision. The Company's direct loan program was
implemented in April 1995 and currently accounts for approximately 4% of total
annual revenue for the Company. As of March 31, 2004, loans made by the Company
pursuant to its direct loan program constituted approximately 3% of the
aggregate principal amount of the Company's loan portfolio.

                                        6

<PAGE>

      In connection with its direct loan program, the Company also offers health
and accident insurance coverage and credit life insurance to customers.
Customers in approximately 71% of the 1,452 direct loan transactions outstanding
as of March 31, 2004 had elected to purchase insurance coverage offered by the
Company. The cost of this insurance is included in the amount financed by the
customer.

      The following table represents information on direct loans originated by
the Company, net of unearned interest:

<TABLE>
<CAPTION>
                                         FISCAL YEAR ENDED
                                             MARCH 31,
DIRECT LOAN ORIGINATIONS                 2004             2003
- ------------------------             ----------        ----------
<S>                                  <C>               <C>
Originations                         $3,925,537        $3,647,074
Weighted APR                              26.27%            26.29%
Average Term (months)                        27                27
Average Loan                         $    2,967        $    2,965
Number of Contracts                       1,323             1,230
                                     ==========        ==========
</TABLE>

UNDERWRITING GUIDELINES

      The Company's typical customer has a credit history that fails to meet the
lending standards of most banks and credit unions. Among the credit problems
experienced by the Company's customers that resulted in a poor credit history
are: unpaid revolving credit card obligations; unpaid medical bills; unpaid
student loans; prior bankruptcy; and evictions for nonpayment of rent. The
Company believes that its customer profile is similar to that of its direct
competitors.

      Prior to its approval of the purchase of a Contract, the Company is
provided with a standardized credit application completed by the consumer which
contains information relating to the consumer's background, employment, and
credit history. The Company also obtains credit reports from Equifax, TRW or
TransUnion, which are independent reporting services. The Company verifies the
consumer's employment history, income and residence. In most cases, consumers
are interviewed by telephone by a Company application processor.

      The Company has established internal buying guidelines to be used by its
Branch Managers and underwriters when purchasing Contracts. Any Contract that
does not meet these guidelines must be approved by the senior management of the
Company. The Company currently has District Managers charged with managing the
specific branches in a defined geographic area. In addition to a variety of
administrative duties, the District Managers are responsible for monitoring
their assigned branch's compliance with the Company's underwriting standards.

      The Company uses essentially the same criteria in analyzing a direct loan
as it does in analyzing the purchase of a Contract. Lending decisions regarding
direct loans are made based upon a review of the customer's loan application,
credit history, job stability, income, in-person interviews with a Company loan
officer and the value of the collateral offered by the borrower to secure the
loan. To date, since approximately 90% of the Company's direct loans have been
made to individuals whose automobiles have been financed by the Company, the
customer's payment history under his or her existing or past Contract is a
significant factor in the lending decision. The decision process with respect to
the purchase of Contracts is similar, although the customer's prior payment
history with automobile loans is weighted more heavily in the decision making
process and the collateral value of the automobile being financed is considered.

                                        7

<PAGE>

      After reviewing the information included in the Contract or direct loan
application and taking the other factors into account, Company representatives
categorize the customer using internally developed credit classifications of
"1", indicating higher creditworthiness, through "5", indicating lower
creditworthiness. In the absence of other factors, such as a favorable payment
history on a Contract held by the Company, the Company generally makes direct
loans only to individuals rated in categories "3" or higher. Contracts are
financed for individuals who fall within all five acceptable rating categories
utilized, "1" through "5".

      Usually customers who fall within the two highest categories are
purchasing a two- to four-year old, low mileage used automobile from the
inventory of a new car or franchise dealer while customers in the two lowest
categories are purchasing an older, high mileage automobile from an independent
used automobile dealer.

      The Company continues to utilize its Loss Recovery Department ("LRD") to
perform on-site audits of branch compliance with Company buying guidelines. LRD
audits Company branches on a schedule that is variable depending on the size of
the branch, length of time a branch has been open, current tenure of the branch
manager, previous branch audit score and current and historical branch
profitability. LRD reports directly to the Accounting and Administrative
Management of the Company. The Company believes that an independent review and
audit of its branches that is not tied to the sales function of the Company is
imperative in order to assure the information obtained is impartial.

MONITORING AND ENFORCEMENT OF CONTRACTS

      The Company requires all customers to obtain and maintain collision
insurance covering damage to the vehicle. Failure to maintain insurance
constitutes a default under the Contract and the Company may at its discretion,
repossess the vehicle. To reduce potential loss due to insurance lapse, the
Company has the Contractual right to force place its own collateral protection
insurance policy, which covers loss due to physical damage to vehicles not
covered by collision insurance.

      The Company's Management Information Services personnel maintain a number
of reports to monitor compliance by customers with their obligations under
Contracts and direct loans made by the Company. These reports may be accessed on
a real-time basis throughout the Company by management personnel, including
Branch Managers and staff, at computer terminals located in the main office and
each branch office. The reports include: delinquency aging reports, insurance
due reports, customer promises reports, vehicle information reports, purchase
reports, dealer analysis reports, static pool reports, and repossession reports.

      A delinquency report is an aging report that provides basic information
regarding each account and indicates accounts that are past due. The report
includes information such as the account number, address of the customer, home
and work phone numbers of the customer, original term of the Contract, number of
remaining payments, outstanding balance, due dates, date of last payment, number
of days past due, scheduled payment amount, amount of last payment, total past
due, and special payment arrangements or agreements.

                                        8

<PAGE>

      Accounts that are less than 120 days matured are included on the
delinquency report on the first day that the Contract is contractually past due.
After an account has matured more than 120 days, it is not included on the
delinquency report until it is 11 days past due. Once an account becomes 30 days
past due, repossession proceedings are implemented unless the customer provides
the Company with an acceptable explanation for the delinquency and displays a
willingness, and the ability to make the payment, and commits to a plan to
return the account to current status. When an account is 60 days past due, the
Company ceases recognition of income on the Contract and repossession
proceedings are initiated. At 120 days delinquent, if the vehicle has not yet
been repossessed, the account is written off. Once a vehicle has been
repossessed, the related loan balance no longer appears on the delinquency
report. It instead appears on the Company's repossession report and is sold,
either at auction or to an automobile dealer.

      When an account becomes delinquent, the Company immediately contacts the
customer to determine the reason for the delinquency and to determine if
arrangements for payment can appropriately be made. Once payment arrangements
acceptable to the Company have been made, the information is entered in its
database and is used to generate a "Promises Report", which is utilized by the
Company's collection staff for account follow up.

      The Company generates an insurance report to monitor compliance with the
insurance obligations imposed upon customers. This report includes the account
number, name and address of the customer, and information regarding the
insurance carrier, as well as summarizes the insurance coverage, identifies the
expiration date of the policy, and provides basic information regarding payment
dates and the term of the Contract. This report assists the Company in
identifying customers whose insurance policies are up for renewal or are in
jeopardy of being canceled. The Company sends written notices to, and makes
direct contact with, customers whose insurance policies are about to lapse or be
canceled. If a customer fails to provide proof of coverage within 30 days of
notice, the Company has the option of purchasing insurance and adding the cost
and applicable finance charges to the balance of the Contract.

      The Company prepares a repossession report that provides information
regarding repossessed vehicles and aids the Company in disposing of repossessed
vehicles. In addition to information regarding the customer, this report
provides information regarding the date of repossession, date the vehicle was
sold, number of days it was held in inventory prior to sale, year and make and
model of the vehicle, mileage, payoff amount on the Contract, NADA book value,
Black Book value, suggested sale price, location of the vehicle, original
dealer, condition of the vehicle, and notes other information that may be
helpful to the Company.

      The Company also prepares a dealer analysis report that provides
information regarding each dealer from which it purchases Contracts. This report
allows the Company to analyze the volume of business done with each dealer and
the terms on which it purchased Contracts from the dealer.

      The Company's policy is to aggressively pursue legal remedies to collect
deficiencies from customers. Delinquency notices are sent to customers and
verbal requests for payment are made beginning when an account becomes 11 days
delinquent. When an account becomes 30 days delinquent and the customer has not
made payment arrangements acceptable to the Company or has failed to respond to
the requests for payment, a repossession request form is prepared by the
responsible branch office employee for approval by the Branch Manager for the
vicinity in which the borrower lives. Once the repossession request has been
approved, first by the Branch Manager and secondly by their District Manager, it
must then be approved by a corporate officer. The repossessor delivers the
vehicle to a secure location specified by the Company where it is held. The
Company maintains relationships with several licensed repossession firms that
repossess vehicles for fees that range from $175 to $350 for each vehicle
repossessed. As required by Florida, Georgia, North Carolina, South Carolina,
Ohio, Michigan and Virginia law, the customer is notified by certified letter
that the vehicle has been repossessed and that to regain the vehicle, he or she
must make arrangements satisfactory to the Company and pay the amount owed under
the Contract within ten days after delivery of the letter.

                                        9

<PAGE>

      The minimum requirement for return of the vehicle is payment of all past
due amounts under the Contract and all expenses associated with the repossession
incurred by the Company. If satisfactory arrangements for return of the vehicle
are not made within the statutory period, the Company then sends title to the
vehicle to the applicable state title transfer department, which then registers
the vehicle in the name of the Company. The Company then either sells the
vehicle to a dealer or has it transported to an automobile auction for sale. On
average, approximately 30 days lapse between the time the Company takes
possession of a vehicle and the time it is sold by a dealer or at auction. When
the Company determines that there is a reasonable likelihood of recovering part
or all of any deficiency against the customer under the Contract, it pursues
legal remedies available to it, including lawsuits, judgement liens and wage
garnishments. Historically, the Company has recovered approximately 10-15% of
deficiencies from such customers. Proceeds from the disposition of the vehicles
are not included in calculating the foregoing percentage range.

MARKETING AND ADVERTISING

      The Company's Contract marketing efforts are directed toward automobile
dealers. The Company attempts to meet dealers' needs by offering
highly-responsive, cost-competitive and service-oriented financing programs. The
Company relies on its District and Branch Managers to solicit agreements for the
purchase of Contracts with automobile dealers located within a 25-mile radius of
each branch office. The Branch Manager provides dealers with information
regarding the Company and the general terms upon which the Company is willing to
purchase Contracts. The Company presently has no plans to implement any other
forms of advertising for the purchase of Contracts such as radio or newspaper
advertisements.

      The Company solicits customers under its direct loan program primarily
through direct mailings, followed by telephone calls, to individuals who have a
good credit history with the Company in connection with Contracts purchased by
the Company. To some extent the Company also uses direct mail marketing to those
customers who meet the criteria for a direct loan.

COMPUTERIZED INFORMATION SYSTEM

      The Company utilizes integrated computer systems developed by NDS to
enhance its ability to respond to customer inquiries and to monitor the
performance of its Contract and direct loan portfolio and the performance of
individual customers under Contracts. All Company personnel are provided with
instant, simultaneous access to information from a single shared database. The
Company has created specialized programs to automate the tracking of Contracts
and direct loans from inception. The capacity of the networking system includes
the Company's branch office locations. See " Monitoring and Enforcement of
Contracts" for a summary of the different reports prepared by the Company.

COMPETITION

      The consumer finance industry is highly fragmented and highly competitive.
There are numerous financial service companies that provide consumer credit in
the markets served by the Company, including banks, other consumer finance
companies, and captive finance companies owned by automobile manufacturers and
retailers. Many of these companies have significantly greater resources than the
Company. The Company does not believe that increased competition for the
purchase of Contracts will cause a material reduction in the interest rate
payable by the purchaser of the automobile. However, increased competition for
the purchase of Contracts will enable automobile dealers to shop for the best
price, thereby giving rise to an erosion in the discount from the initial
principal amount at which the Company would be willing to purchase Contracts.

                                       10

<PAGE>

      The Company's target market consists of persons who are generally unable
to obtain traditional used car financing because of their credit history or the
vehicle's mileage or age. The Company has been able to expand its automobile
finance business in the non-prime credit market by offering to purchase
Contracts on terms that are competitive with those of other companies which
purchase automobile receivables in that market segment. Because of the daily
contact that many of its employees have with automobile dealers located
throughout the market areas served by it, the Company is generally aware of the
terms upon which its competitors are offering to purchase Contracts. The
Company's policy is to modify its terms, if necessary, to remain competitive.
However, the Company will not sacrifice credit quality, its purchasing criteria
or prudent business practices in order to meet the competition.

      The Company's ability to compete effectively with other companies offering
similar financing arrangements depends upon maintaining close business
relationships with dealers of new and used vehicles. No single dealer out of the
approximately 950 dealers that the Company currently has active Contractual
relationships with accounted for over 3% of its business volume for either of
the fiscal years ended March 31, 2004 or 2003.

REGULATION

      The Company's financing operations are subject to regulation, supervision
and licensing under various federal, state and local statutes and ordinances.
Additionally, the procedures that the Company must follow in connection with the
repossession of vehicles securing Contracts are regulated by each of the states
in which the Company does business. To date, the Company's operations have been
conducted exclusively in the states of Florida, Georgia, Michigan, North
Carolina, Ohio, South Carolina and Virginia. Accordingly, the laws of such
states, as well as applicable federal law, govern the Company's operations.
Compliance with existing laws and regulations has not had a material adverse
effect on the Company's operations to date. The Company's management believes
that the Company maintains all requisite licenses and permits and is in material
compliance with all applicable local, state and federal laws and regulations.
The Company periodically reviews its branch office practices in an effort to
ensure such compliance. The following constitute certain of the federal, state
and local statutes and ordinances with which the Company must comply:

            -     State consumer regulatory agency requirements. Pursuant to
                  regulations of the state of Florida governing the Company's
                  financing business activities, the Department of Banking and
                  Finance periodically conducts an on-site audit of each of the
                  Company's Florida branches to monitor compliance with
                  applicable regulations. These regulations govern, among other
                  matters, licensure requirements, requirements for maintenance
                  of proper records, payment of required fees, maximum interest
                  rates that may be charged on loans to finance used vehicles
                  and proper disclosure to customers regarding financing terms.
                  Pursuant to North Carolina law, the Company's direct loan
                  activities in that state are subject to similar periodic
                  on-site audits by the North Carolina Office of the
                  Commissioner of Banks.

            -     State licensing requirements. The Company maintains a Sales
                  Finance Company License with the Florida Department of Banking
                  and Finance, as well as consumer loan licenses in Florida and
                  North Carolina. The dealers that the Company does business
                  with are required to maintain a Retail Installment Seller's
                  License with the state or states in which they operate.

            -     Fair Debt Collection Act. The Fair Debt Collection Act and
                  applicable state law counterparts prohibit the Company from
                  contacting customers during certain times and at certain
                  places, from using certain threatening practices and from
                  making false implications when attempting to collect a debt.

                                       11

<PAGE>

REGULATION (CONTINUED)

            -     Truth in Lending Act. The Truth in Lending Act requires the
                  Company and the dealers it does business with to make certain
                  disclosures to customers, including the terms of repayment,
                  the total finance charge and the annual percentage rate
                  charged on each Contract or direct loan.

            -     Equal Credit Opportunity Act. The Equal Credit Opportunity Act
                  prohibits creditors from discriminating against loan
                  applicants on the basis of race, color, sex, age or marital
                  status. Pursuant to Regulation B promulgated under the Equal
                  Credit Opportunity Act, creditors are required to make certain
                  disclosures regarding consumer rights and advise consumers
                  whose credit applications are not approved of the reasons for
                  the rejection.

            -     Fair Credit Reporting Act. The Fair Credit Reporting Act
                  requires the Company to provide certain information to
                  consumers whose credit applications are not approved on the
                  basis of a report obtained from a consumer reporting agency.

            -     Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act requires
                  the Company to maintain privacy with respect to certain
                  consumer data in its possession and to periodically
                  communicate with consumers on privacy matters.

            -     Soldiers' and Sailors' Civil Relief Act. The Soldiers' and
                  Sailors' Civil Relief Act requires the Company to reduce the
                  interest rate charged on each loan to customers who have
                  subsequently joined, enlisted, been inducted or called to
                  active military duty.

            -     Electronic Funds Transfer Act. The Electronic Funds Transfer
                  Act prohibits the Company from requiring its customers to
                  repay a loan or other credit by electronic funds transfer
                  ("EFT"), except in limited situations which do not apply to
                  the Company. The Company is also required to provide certain
                  documentation to its customers when an EFT is initiated and to
                  provide certain notifications to its customers with regard to
                  preauthorized payments.

            -     Telephone Consumer Protection Act. The Telephone Consumer
                  Protection Act prohibits telephone solicitation calls to a
                  customer's home before 8 a.m. or after 9 p.m. In addition, if
                  the Company makes a telephone solicitation call to a
                  customer's home, the representative making the call must
                  provide his or her name, the Company's name, and a telephone
                  number or address at which the Company's representative may be
                  contacted. The Telephone Consumer Protection Act also requires
                  that the Company maintain a record of any requests by
                  customers not to receive future telephone solicitations, which
                  must be maintained for five years.

            -     Bankruptcy. Federal bankruptcy and related state laws may
                  interfere with or affect the Company's ability to recover
                  collateral or enforce a deficiency judgment.

EMPLOYEES

      The Company's executive management and various support functions are
centralized at the Company's Corporate Headquarters in Clearwater, Florida. As
of March 31, 2004 the Company employed a total of 155 persons, three of whom
work for NDS and 152 of whom work for Nicholas Financial. None of the Company's
employees is subject to a collective bargaining agreement, and the Company
considers its relations with its employees generally to be good.

                                       12

<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

      The Company leases its Headquarters and branch office facilities. The
Company's Headquarters, located at 2454 McMullen Booth Road, Building C, in
Clearwater, Florida, consist of approximately 10,000 square feet of office
space. The current lease relating to this space expires in January 2008.

      Each of the Company's 32 branch offices located in Florida, Georgia, North
Carolina, South Carolina, Michigan, Virginia and Ohio consists of approximately
1,200 square feet. These offices are located in office parks, shopping centers
or strip malls and are occupied pursuant to leases with an initial term of from
two to five years at annual rates ranging from approximately $8.00 to $16.00 per
square foot. The Company believes that these facilities and additional or
alternate space available to it are adequate to meet its needs for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

      On April 8, 2004, the defendant in a deficiency action brought by the
Company under the Ohio Uniform Commercial Code, filed a counterclaim in
Cleveland Municipal Court, Cuyahoga County, Ohio, on behalf of a putative class
of all persons who purchased motor vehicles pursuant to retail installment sales
agreements later assigned to the Company, which motor vehicles were subsequently
repossessed in Ohio by the Company or its agents (Nicholas Financial, Inc. v.
Sanborn, Case No. 2004 CVI 6969). The defendant counter-plaintiff's counterclaim
alleges, among other things; that the Company violated the Ohio Retail
Installment Sales Act, the Ohio Uniform Commercial Code and the Ohio Consumer
Sales Practices Act by: failing to provide members of the putative class with
accurate disclosures of their statutory rights upon repossession; unilaterally
abrogating those rights in the Company's repossession procedures; and improperly
collecting deficiencies from members of the putative class. The counterclaim
seeks compensatory, statutory and punitive damages (including compensatory
damages of at least $500,000 pursuant to one alleged cause of action),
prejudgment interest and attorneys' fees and expenses, as well as injunctive and
other equitable relief, including a restitution remedy.

      The Company's believes the material allegations of the counterclaim are
substantially without merit and intends to vigorously defend the counterclaim.
No assurances can be given, however, with respect to the outcome of the
counterclaim, and an adverse result could have a material adverse effect on the
Company's financial condition.

      Except as described above, the Company currently is not a party to any
pending legal proceedings other than ordinary routine litigation incidental to
its business, none of which, if decided adversely to the Company, would, in the
opinion of management, have a material adverse affect on the Company's financial
position.

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

      No matters were submitted to a vote of security holders during the quarter
ended March 31, 2004.

                                       13

<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
          ISSUER PURCHASES OF EQUITY SECURITIES

      On April 7, 2004, the Company's common stock began trading on the NASDAQ
National Market under the symbol "NICK." The Company's common stock was traded
on the NASDAQ SmallCap System under the symbol "NICK" through April 6, 2004.

      As of June 5, 2004, there were approximately 1,537 holders of record of
the Company's common stock.

      The following table reflects the high and low bid prices for the Company's
common stock for each of the periods indicated as reported by the NASDAQ Stock
Market. The over-the-counter market quotations reflect inter-dealer prices and
do not include retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
                                               HIGH               LOW
                                               ----              -----
<S>                                            <C>               <C>
FISCAL YEAR ENDED MARCH 31, 2004
         First Quarter ..............          $5.22             $3.40
         Second Quarter..............           7.57              4.77
         Third Quarter...............           8.80              5.60
         Fourth Quarter..............           9.46              7.61
</TABLE>

<TABLE>
<CAPTION>
                                               HIGH               LOW
                                               ----              -----
<S>                                            <C>               <C>
FISCAL YEAR ENDED MARCH 31, 2003
         First Quarter ..............          $6.15             $3.80
         Second Quarter..............           5.30              4.00
         Third Quarter...............           4.28              3.50
         Fourth Quarter..............           4.06              3.62
</TABLE>

      In August, 2003, the Company's Board of Directors announced an annual cash
dividend of $0.10 per share of common stock, payable semi-annually. The Company
paid its first cash dividend of $0.05 per share in September 2003, and its
second cash dividend of $0.05 per share in March 2004. The Company intends to
continue to pay cash dividends for the foreseeable future, provided its future
earnings meet expectations. Any payment of future cash dividends and the amounts
thereof will be dependent upon the Company's earnings, financial requirements,
requirements of its lenders and other factors deemed relevant by the Company's
Board of Directors. The Company's Line of credit facility prohibits the payment
of dividends without the written approval of the Company's consortium of
lenders. The Company's ability to receive the necessary approvals is largely
dependent upon its portfolio performance, and no assurances can be given that
the Company will be able to obtain the necessary approvals in the future.

                                       14

<PAGE>

      There are no Canadian foreign exchange controls or laws that would affect
the remittance of dividends or other payments to the Company's non-Canadian
resident shareholders. There are no Canadian laws that restrict the export or
import of capital, other than the Investment Canada Act (Canada), which requires
the notification or review of certain investments by non-Canadians to establish
or acquire control of a Canadian business. The Company is not a Canadian
business as defined under the Investment Canada Act because it has no place of
business in Canada, has no individuals employed in Canada in connection with its
business, and has no assets in Canada used in carrying on its business.

      Canada and the United States of America are signatories to the
Canada-United States Tax Convention Act, 1984 (the "Tax Treaty"). The Tax Treaty
contains provisions governing the tax treatment of interest, dividends, gains
and royalties paid to or received by a person residing in the United States. The
Tax Treaty also contains provisions to prevent the occurrence of double
taxation, essentially by permitting the taxpayer to claim a tax credit for taxes
paid in the foreign jurisdiction.

      Dividends paid to the Company from its U.S. subsidiaries current and
accumulated earnings and profits will be subject to a U.S. withholding tax of
5%. The gross dividends (i.e., before payment of the withholding tax) must be
included in the Company's net income. However, under certain circumstances, the
Company may be allowed to deduct the dividends in the calculation of its
Canadian taxable income. If the Company has no other foreign (i.e.,
non-Canadian) non-business income, no relief is available in that case to
recover the withholding taxes previously paid.

      A 15% Canadian withholding tax applies to dividends paid by the Company to
a U.S. shareholder that is an individual. The U.S. shareholder must include the
gross amount of the dividends in his net income to be taxed at the regular
rates. A foreign tax credit will be available to the extent of the lesser of:

      (i)   withholding taxes paid (up to a maximum of 15% of certain foreign
            income from property); and

      (ii)  the U.S. taxes payable in respect to that foreign income.

      Alternatively, an individual can claim the foreign withholding taxes paid
as a deduction in the computation of income for tax purposes. If the withholding
taxes paid exceed 15% of the foreign income from property, such excess must be
deducted in computing net income.

      Dividends paid to a corporate U.S. shareholder that owns less than 10% of
the Company's voting shares are also subject to a Canadian withholding tax of
15%.

The information set forth in the second paragraph (and accompanying table) under
the caption "Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters" of this Annual Report on Form 10-KSB
is incorporated herein by reference.

                                       15

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

      The Company is a Canadian holding company incorporated under the laws of
British Columbia in 1986. The Company conducts its business activities through
two wholly-owned Florida corporations: Nicholas Financial, which purchases and
services Contracts, makes direct loans and sells consumer-finance related
products; and NDS, which supports and updates certain computer application
software. Nicholas Financial accounted for approximately 99% of the Company's
consolidated revenue for the fiscal years ended March 31, 2004 and 2003,
respectively.

      The Company's consolidated revenues increased for the fiscal year ended
March 31, 2004 to $25.5 million as compared to $22.4 million for the fiscal year
ended March 31, 2003. The Company's consolidated net income increased for the
fiscal year ended March 31, 2004 to $5.2 million compared to $4.3 million for
the fiscal year ended March 31, 2003. The Company's earnings were favorable
impacted by the following: average finance receivables, net of unearned
interest, increased 14% in the fiscal year ended March 31, 2004 as compared to
the fiscal year ended March 31, 2003; average cost of borrowed funds decreased
from 6.86% for the fiscal year ended March 31, 2003 as compared to 5.93% for the
fiscal year ended March 31, 2004; and the Company's net charge-off rate
decreased from 8.13% for the fiscal year ended March 31, 2003 as compared to
7.26% for the fiscal year ended March 31, 2004.

<TABLE>
<CAPTION>
                                                                               FISCAL YEAR ENDED MARCH 31
                      PORTFOLIO SUMMARY                                         2004                2003
- ------------------------------------------------------------------          ------------         -----------
<S>                                                                         <C>                  <C>
Average finance receivables, net of unearned interest (1)                   $111,685,661         $97,806,772
                                                                            ============         ===========

Average indebtedness (2)                                                      64,922,080          57,335,767
                                                                            ============         ===========

Finance revenue (3)                                                           25,236,638          22,048,535

Interest expense                                                               3,851,924           3,936,042
                                                                            ------------         -----------

Net finance revenue                                                           21,384,714          18,112,493
                                                                            ============         ===========

Weighted average contractual rate (4)                                              24.04%              24.22%
                                                                            ============         ===========

Average cost of borrowed funds (2)                                                  5.93%               6.86%
                                                                            ============         ===========

Gross portfolio yield (5)                                                          22.60%              22.54%

Interest expense as a percentage of average finance receivables,
net of unearned interest                                                            3.45%               4.02%

Provision for credit losses as a percentage of average finance
receivables, net of unearned interest                                               1.97%               2.26%
                                                                            ------------         -----------

Net portfolio yield (5)                                                            17.18%              16.26%

Operating expenses as a percentage of average finance receivables,
net of unearned interest (6)                                                        9.63%               9.16%
                                                                            ------------         -----------
Pre-tax yield as a percentage of average finance receivables, net
of unearned interest(7)                                                             7.55%               7.10%
                                                                            ============         ===========
Write-off to liquidation (8)                                                        8.41%               9.32%

Net charge-off percentage (9)                                                       7.26%               8.13%
</TABLE>

                                       16

<PAGE>

(1)   Average finance receivables, net of unearned interest, represents the
      average of gross finance receivables, less unearned interest throughout
      the period.

(2)   Average indebtedness represents the average outstanding borrowings under
      the Line and notes payable-related party. Average cost of borrowed funds
      represents interest expense as a percentage of average indebtedness.

(3)   Finance revenue does not include revenue generated by NDS.

(4)   Weighted average contractual rate represents the weighted average annual
      percentage rate (APR) of all Contracts purchased and direct loans
      originated during the fiscal years ended March 31, 2004 and 2003,
      respectively.

(5)   Gross portfolio yield represents finance revenues as a percentage of
      average finance receivables, net of unearned interest. Net portfolio yield
      represents finance revenue minus (a) interest expense and (b) the
      provision for credit losses as a percentage of average finance
      receivables, net of unearned interest.

(6)   Operating expenses represent total expenses, less interest expense, the
      provision for credit losses and operating costs associated with NDS.

(7)   Pre-tax yield represents net portfolio yield minus operating expenses as a
      percentage of average finance receivables, net of unearned interest.

(8)   Write-off to liquidation percentage is defined as net charge-offs divided
      by liquidation. Liquidation is defined as beginning receivable balance
      pluc current period purchases minus voids and refinances minus ending
      receivable balance.

(9)   Net charge-off percentage represents net charge-offs divided by average
      finance receivables, net of unearned interest, outstanding during the
      period.

                                       17

<PAGE>

CRITICAL ACCOUNTING POLICY

      The Company's critical accounting policy relates to the allowance for
losses on loans. It is based on management's opinion of an amount that is
adequate to absorb losses in the existing portfolio. The allowance for credit
losses is established through allocations of dealer discount and unearned income
and a provision for loss based on management's evaluation of the risk inherent
in the loan portfolio, the composition of the portfolio, specific impaired loans
and current economic conditions. Such evaluation, which includes a review of all
loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated net realizable value or the fair value of the
underlying collateral, economic conditions, historical loan loss experience,
management's estimate of probable credit losses and other factors that warrant
recognition in providing for an adequate credit loss allowance.

FISCAL 2004 COMPARED TO FISCAL 2003

INTEREST INCOME AND LOAN PORTFOLIO

      Interest income on finance receivables, predominantly finance charge
income, increased 14% to $25.2 million in fiscal 2004 from $22.0 million in
fiscal 2003. The average finance receivables, net of unearned interest, totaled
$111.6 million at March 31, 2004, an increase of 14% from $97.8 million at March
31, 2003. The primary reason average finance receivables, net of unearned
interest increased was the increase in the receivable base of several existing
branches and the opening of two additional branch locations. The gross finance
receivable balance increased 14% to $151.1 million at March 31, 2004 from $132.3
million at March 31, 2003. The primary reason interest income increased was the
increase in the outstanding loan portfolio. The gross portfolio yield increased
from 22.54% for the fiscal year ended March 31, 2003 to 22.60% for the fiscal
year ended March 31, 2004. The net portfolio yield increased from 16.26% for the
fiscal year ended March 31, 2003 to 17.18% for the fiscal year ended March 31,
2004. The primary reasons for the increase in the net portfolio yield were a
decrease in charge-offs and a reduction in the cost of borrowed funds for the
fiscal year ended March 31, 2004. The net charge-off percentage for the fiscal
year ended March 31, 2004 was 7.26% as compared to 8.13% for the fiscal year
ended March 31, 2003.

COMPUTER SOFTWARE BUSINESS

      Sales for the fiscal year ended March 31, 2004 were $263,847 as compared
to $328,340 for the fiscal year ended March 31, 2003, a decrease of 20%. This
decrease was primarily due to lower revenue from the existing customer base
during the fiscal year ended March 31, 2004. Cost of sales and operating
expenses decreased from $426,349 for the fiscal year ended March 31, 2003 to
$303,402 for the fiscal year ended March 31, 2004.

OPERATING EXPENSES

      Total expenses, less the provision for credit losses, interest expense and
costs associated with NDS, increased to $10.8 million for the fiscal year ended
March 31, 2004 from $9.0 million for the fiscal year ended March 31, 2003. This
increase of 20% was primarily attributable to the additional staffing of several
existing branches, increased general operating expenses and the opening of two
additional branch offices. Operating expenses as a percentage of average finance
receivables, net of unearned interest, increased from 9.16% for the fiscal year
ended March 31, 2003 to 9.63% for the fiscal year ended March 31, 2004.

                                       18

<PAGE>

INTEREST EXPENSE

      Interest expense decreased to $3,851,924 for the fiscal year ended March
31, 2004 as compared to $3,936,042 for the fiscal year ended March 31, 2003. The
average indebtedness for the fiscal year ended March 31, 2004 increased to $64.9
million as compared to $57.4 million for the fiscal year ended March 31, 2003.
The cost associated with this increase was offset by a decrease in the average
cost of borrowed funds from 6.86% during the fiscal year ended March 31, 2003 to
5.93% during the fiscal year ended March 31, 2004.

ANALYSIS OF CREDIT LOSSES

      Because of the nature of the customers under the Company's Contracts and
its direct loan program, the Company considers the establishment of adequate
reserves for credit losses to be imperative. The Company segregates its
Contracts into static pools for purposes of establishing reserves for losses.
All Contracts purchased by a branch during a fiscal quarter comprise a static
pool. The Company pools Contracts according to branch location because the
branches purchase Contracts in different geographic markets. This method of
pooling by branch and quarter allows the Company to evaluate the different
markets where the branches operate. The pools also allow the Company to evaluate
the different levels of customer income, stability, credit history, and the
types of vehicles purchased in each market. Each such static pool consists of
the Contracts purchased by a Company branch office during fiscal quarter. The
average pool consists of 66 Contracts with aggregate finance receivables, net of
unearned interest, of approximately $570,000. As of March 31, 2004, the Company
had 488 active static pools.

      Contracts are purchased from many different dealers and are all purchased
on an individual Contract by Contract basis. Individual Contract pricing is
determined by the automobile dealerships and is generally the lesser of state
maximum interest rates or the maximum interest rate at which the customer will
accept. In certain markets, competitive forces will drive down Contract rates
from the maximum rate to a level where an individual competitor is willing to
buy an individual Contract. The Company only buys Contracts on an individual
basis and never purchases Contracts in batches, although the Company does
consider portfolio acquisitions as part of its growth strategy.

      A dealer discount represents the difference between the finance
receivable, net of unearned interest, of a Contract, and the amount of money the
Company actually pays for the Contract. The discount negotiated by the Company
is a function of the credit quality of the customer and the wholesale value of
the vehicle. The automotive dealer accepts these terms by executing a dealer
agreement with the Company. The entire amount of discount is related to credit
quality and is considered to be part of the credit loss reserve. The Company
utilizes a static pool approach to track portfolio performance. A static pool
retains an amount equal to 100% of the discount as a reserve for credit losses.
In situations where, at the date of purchase, the discount is determined to be
insufficient to absorb all potential losses associated with the static pool, a
portion of future unearned income associated with that specific static pool will
be added to the reserves for credit losses until total reserves have reached the
appropriate level. Subsequent to the purchase, if the reserve for credit losses
is determined to be inadequate for a static pool which is not fully liquidated,
then a charge to income through the provision is used to reestablish adequate
reserves. If a static pool is fully liquidated and has any remaining reserves,
the excess reserves are immediately recognized into income. For static pools not
fully liquidated, that are determined to have excess reserves, such excess
amounts are accreted into income over the remaining life of the static pool.
Reserves accreted into income for the year ended March 31, 2004 were
approximately $2.5 million as compared to $2.2 million for the year ended March
31, 2003. The primary reason for this increase in fiscal year 2004 as compared
to fiscal year 2003 was a decrease in the net charge-off rate from 8.13% to
7.26%.

                                       19

<PAGE>

      The Company has detailed underwriting guidelines it utilizes to determine
which Contracts to purchase. These guidelines are specific and are designed to
cause all of the Contracts that the Company purchases to have common risk
characteristics. The Company utilizes its District Managers to evaluate their
respective branch locations for adherence to these underwriting guidelines. The
Company also utilizes an internal audit department to assure adherence to its
underwriting guidelines. The Company utilizes the branch model, which allows for
Contract purchasing to be done on the branch level. Each Branch Manager may
interpret the guidelines differently and as a result the common risk
characteristics will be the same on an individual branch level but not
necessarily compared to another branch.

      In analyzing a static pool, the Company considers the performance of prior
static pools originated by the branch office, the performance of prior Contracts
purchased from the dealers whose Contracts are included in the current static
pool, the credit rating of the customers under the Contracts in the static pool,
and current market and economic conditions. Each static pool is analyzed monthly
to determine if the loss reserves are adequate and adjustments are made if they
are determined to be necessary.

      The Company experienced lower losses during the fiscal year ended March
31, 2004 as compared to the fiscal year ended March 31, 2003. This resulted in
static pools having reserves in excess of estimates currently needed to
liquidate these static pools. The Company is in the process of accreting these
excess reserves from these more mature static pools over their remaining life.
Static pools originated during the fiscal year ended March 31, 2004 have seen
losses lower than their most recent predecessors, however, there can be no
assurances that this trend will continue. The Company's overall reserve
percentage has increased from 13.17% of gross finance receivables as of March
31, 2003 to 13.72% of gross finance receivables as of March 31, 2004.

The following table sets forth a reconciliation of the changes in dealer
discounts on Contracts.

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED MARCH 31,
                                                      2004                  2003
                                                   -----------           -----------
<S>                                                <C>                   <C>
Balance at beginning of year                       $12,394,089           $11,259,898
Discounts acquired on new volume                    12,019,745            10,534,472
Losses absorbed                                     (7,867,889)           (8,401,071)
Recoveries                                           1,153,505             1,068,556
Discounts accreted                                  (2,321,868)           (2,067,766)
                                                   -----------           -----------
Balance at end of year                             $15,377,582           $12,394,089
                                                   ===========           ===========
Dealer discounts as a percent of gross
indirect contracts                                       10.18%                 9.37%
                                                   ===========           ===========
</TABLE>

The following table sets forth a reconciliation of the changes in the allowance
for credit losses on Contracts.

<TABLE>
<CAPTION>
                                                       FISCAL YEAR ENDED MARCH 31,
                                                      2004                  2003
                                                   -----------           -----------
<S>                                                <C>                   <C>
Balance at beginning of year                       $ 5,428,681           $ 4,105,174
Current period provision                             1,805,038             1,911,855
Losses absorbed                                     (1,445,955)             (588,348)
                                                   -----------           -----------
Balance at end of year                             $ 5,787,764           $ 5,428,681
                                                   ===========           ===========
Allowance as a percent of gross
indirect contracts                                        3.83%                 4.10%
                                                   ===========           ===========
</TABLE>

                                       20

<PAGE>

The following table sets forth a reconciliation of the changes in the allowance
for credit losses on direct loans.

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED MARCH 31,
                                                      2004                  2003
                                                   -----------           -----------
<S>                                                <C>                   <C>
Balance at beginning of year                       $   176,126           $   200,612
Current period provision                               298,649               302,004
Losses absorbed                                       (176,367)             (208,802)
Recoveries                                              29,714                29,372
Reserves accreted                                     (143,788)             (147,060)
                                                   -----------           -----------
Balance at end of year                             $   184,334           $   176,126
                                                   ===========           ===========
Allowance as a percent of gross
direct loan receivables                                   4.03%                 4.04%
                                                   ===========           ===========
</TABLE>

The following table summarizes the total amounts of Discounts and Allowances for
both Contracts and direct loans.

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED MARCH 31,
                                                      2004                   2003
                                                   -----------           -----------
<S>                                                <C>                   <C>
Total Discounts and Allowances at end of
year                                               $21,349,680           $17,998,896
                                                   ===========           ===========
Discounts and Allowances as a percent of
gross receivables                                        13.72%                13.17%
                                                   ===========           ===========
</TABLE>

                                       21

<PAGE>

      The average dealer discount associated with new volume for the years ended
March 31, 2004 and 2003 were 8.95% and 8.91%, respectively. The Company does not
consider this change to be material and such changes was not the result of any
change in buying philosophy or competition.

      The provision for credit losses remained virtually unchanged at $2.2
million for each of the fiscal years ended March 31, 2004 and 2003,
respectively. The Company's losses as a percentage of liquidation decreased from
9.32% for the fiscal year ended March 31, 2003 to 8.41% for the fiscal year
ended March 31, 2004. The Company anticipates losses as a percentage of
liquidation will continue to be in the 8-10% range in the current fiscal year.
The longer term outlook for portfolio performance will depend on the overall
economic conditions, the unemployment rate and the Company's ability to monitor,
manage and implement its underwriting philosophy in additional geographic areas
as it strives to continue its expansion. The Company does not believe there have
been any significant changes in loan concentrations, terms or quality of
Contracts purchased during fiscal 2004 that would have contributed to the
decrease in losses.

      Recoveries as a percentage of charge-offs were 12.5% and 11.9% for the
fiscal years ended March 31, 2004 and 2003, respectively. The Company believes
that as it continues to expand its operations, it will become more difficult to
implement its loss recovery model in geographic areas further away from its
Corporate headquarters, and as a result the Company will likely experience
declining recovery rates over the long term.

      Reserves accreted into income for the fiscal years ended March 31, 2004
and 2003 were $2.5 million and $2.2 million respectively. The amount and timing
of reserves accreted into income is a function of individual static pool
performance. The Company has seen improvement in the performance of the
portfolio, more specifically, newer static pools have seen a slight decrease in
the default rate when compared to prior year pool performance during their same
liquidation cycle. The Company attributes this decrease to an improvement in
overall general economic conditions.

      The U.S. unemployment rate has dropped slightly over the past year. The
Company believes there is a correlation between the unemployment rate and future
portfolio performance. The Company does not expect the U.S. unemployment rate to
rise or fall significantly in the foreseeable future. Therefore the Company does
not plan on increasing or decreasing reserves based on the current U.S.
unemployment rate. The number of voluntary repossessions decreased slightly for
the fiscal year ended March 31, 2004 as compared to the fiscal year ended March
31, 2003. The Company believes its percentage of voluntary repossessions will
stabilize in the current fiscal year, and as a result, management believes that
the Company's current reserve levels are adequate for the foreseeable future.
The number of bankruptcy filings decreased slightly during the fiscal year ended
March 31, 2004 as compared to the fiscal year ended March 31, 2003. The Company
believes the percentage of bankruptcy filings as a percentage of active
receivables will stabilize in the current fiscal year, and as a result,
management believes that the Company's current reserve levels are adequate for
the foreseeable future.

      The amount of future unearned income represents the amount of finance
charges the Company expects to fully earn over the life of its current Contract
portfolio, and is computed as the product of the Contract rate, the Contract
term, and the Contract amount. After the analysis of purchase date accounting
with respect to static pools is complete, any uncollectable amounts would be
contemplated in the allowance for credit losses.

                                       22

<PAGE>

      The following tables present certain information regarding the delinquency
rates experienced by the Company with respect to Contracts and under its direct
loan program:

<TABLE>
<CAPTION>
                              AT MARCH 31, 2004     AT MARCH 31, 2003
                              -----------------     -----------------
<S>                           <C>                   <C>
CONTRACTS
Gross Balance Outstanding     $     151,082,036     $     132,316,816
</TABLE>

<TABLE>
<CAPTION>
                                 Dollar                              Dollar
                                 Amount         Percent              Amount        Percent
                               -----------      -------            ----------      -------
<S>                            <C>              <C>                <C>             <C>
Delinquencies
30 to 59 days                  $ 1,848,735         1.22%           $2,166,719         1.64%
60 to 89 days                      388,309         0.26%              551,838         0.42%
90 + days                           91,172         0.06%              180,499         0.14%
                               -----------      -------            ----------      -------
Total Delinquencies            $ 2,328,216         1.54%           $2,899,056         2.20%

DIRECT LOANS
Gross Balance Outstanding      $ 4,572,030                         $4,357,032

Delinquencies

30 to 59 days                       44,296         0.97%               50,199         1.15%
60 to 89 days                       10,371         0.22%                5,724         0.13%
90 + days                           30,451         0.67%               40,987         0.94%
                               -----------      -------            ----------      -------
Total Delinquencies            $    85,118         1.86%           $   96,910         2.22%
</TABLE>

      The delinquency percentage for Contracts more than thirty days past due as
of March 31, 2004 decreased to 1.54% from 2.20% as of March 31, 2003. The
delinquency percentage for direct loans more than thirty days past due as of
March 31, 2004 decreased to 1.86% from 2.22% as of March 31, 2003. The Company
does not give significant consideration to short-term trends in delinquency when
evaluating reserve levels. Delinquency percentages tend to be volatile and often
are not necessarily an indication of future losses. The Company utilizes a
static pool approach to analyzing portfolio performance and looks at specific
static pool performance and recent trends as leading indicators to future
performance of the portfolio.

INCOME TAXES

      The provision for income taxes increased 24% to approximately $3.2 million
in fiscal year 2004 from approximately $2.6 million in fiscal year 2003
primarily as a result of higher pretax income. The Company's effective tax rate
increased from 37.38% in fiscal 2003 to 37.87% in fiscal 2004.

                                       23

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash flows for fiscal 2004 and 2003 are summarized as
follows:

<TABLE>
<CAPTION>
                                         FISCAL                  FISCAL
                                          2004                    2003
                                      ------------            ------------
<S>                                   <C>                     <C>
Cash provided by (used in):

  Operations                          $  6,900,644            $  5,644,421
  Investing activities -
  (primarily purchase of Contracts)    (13,564,996)            (12,611,588)

 Financing activities                    7,140,825               7,397,139
                                      ------------            ------------
Net increase in cash                  $    476,473            $    429,972
                                      ============            ============
</TABLE>

      The Company's primary use of working capital during fiscal year ended
March 31, 2004 was the funding of the purchase of Contracts. The Contracts were
financed substantially through borrowings under the Company's $75.0 million
Line. The Line is secured by all of the assets of Nicholas Financial. The
Company may borrow the lesser of $75.0 million or amounts based upon formulas
principally related to a percentage of eligible finance receivables, as defined.
Borrowings under the Line may be under various LIBOR pricing options or at the
prime rate plus twenty-five basis points. Prime rate based borrowings are
generally less than $5.0 million. As of March 31, 2004, the amount outstanding
under the Line was approximately $67.5 million and the amount available under
the Line was approximately $7.5 million. As of March 31, 2004, the Company was
in full compliance with all debt covenants thereunder.

      The Company has entered into interest rate swap agreements, each of which
effectively converts a portion of the Company's floating-rate debt to a
fixed-rate, thus reducing the impact of interest rate change on the Company's
interest expense. At March 31, 2004, approximately 75% of the Company's
borrowings under the Line were subject to interest rate swap agreements. These
swap agreements have maturities ranging from October 5, 2004 through May 19,
2008.

      The self-liquidating nature of Contracts and other loans enables the
Company to assume a higher debt-to-equity ratio than in most businesses. The
amount of debt the Company incurs from time to time under these financing
mechanisms depends on the Company's need for cash and ability to borrow under
the terms of the Line. The Company believes that borrowings available under the
Line as well as cash flow from operations will be sufficient to meet its short
term funding needs.

      The Company is currently negotiating amendments to the Line. The
amendments would increase the amount of the Line from $75.0 million to $85.0
million and extend the maturity date from November 30, 2004 to November 30,
2006. We currently anticipate completing such amendments on or before June 30,
2004.

                                       24

<PAGE>

      In late May and early June 2004, the Company closed the sale of an
aggregate of 1,400,000 shares of its common stock at a public offering price of
$8.00 per share. The net proceeds of the offering, approximately $9.8 million,
was used to pay down the Company's Line. In addition, approximately 900,000
shares of common stock were sold in the offering by a group of selling
shareholders. Ferris, Baker Watts, Incorporated served as the underwriter for
the offering.

      In August, 2003, the Company's Board of Directors announced an annual cash
dividend of $0.10 per share of common stock, payable semi-annually. The Company
paid its first cash dividend of $0.05 per share in September 2003, and its
second cash dividend of $0.05 per share in March 2004. The Company intends to
continue to pay cash dividends for the foreseeable future, provided its future
earnings meet expectations. Any payment of future cash dividends and the amounts
thereof will be dependent upon the Company's earnings, financial requirements,
requirements of its lenders and other factors deemed relevant by the Company's
Board of Directors. The Company's Line prohibits the payment of dividends
without the written approval of the Company's consortium of lenders. The
Company's ability to receive the necessary approvals is largely dependent upon
its portfolio performance, and no assurances can be given that the Company will
be able to obtain the necessary approvals in the future.

IMPACT OF INFLATION

      The Company is affected by inflation primarily through increased operating
costs and expenses including increases in interest rates. Inflationary pressures
on operating costs and expenses have been offset by the Company's continued
emphasis on stringent operating and cost controls. Management believes that the
Company's financial condition has enabled it to negotiate favorable interest
rates under its existing Line. No assurances can be given that the Company will
be able to continue to do so in the future.

ITEM 7. FINANCIAL STATEMENTS

The following financial statements are filed as part of this report (see pages
26-49)

<TABLE>
<S>                                                                         <C>
Reports of Independent Registered Public Accounting Firms.................  26-27

Audited Consolidated Financial Statements

Consolidated Balance Sheets...............................................     28
Consolidated Statements of Income ........................................     29
Consolidated Statements of Shareholders' Equity ..........................     30
Consolidated Statements of Cash Flows.....................................     31
Notes to Consolidated Financial Statements................................     32
</TABLE>

                                       25

<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors of
Nicholas Financial, Inc.

We have audited the accompanying consolidated balance sheet of Nicholas
Financial, Inc. and subsidiaries as of March 31, 2004 and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nicholas Financial,
Inc. and subsidiaries as of March 31, 2004 and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

/s/ Dixon Hughes PLLC

May 21, 2004, except for Note 13 as to which the date is June 8, 2004.
Atlanta, Georgia

                                       26

<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors of Nicholas Financial, Inc.

We have audited the accompanying consolidated balance sheet of Nicholas
Financial, Inc. and subsidiaries as of March 31, 2003, and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nicholas
Financial, Inc. and subsidiaries at March 31, 2003, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with U.S. generally accepted accounting principles..

June 9, 2003                                               /s/ ERNST & YOUNG LLP
Tampa, Florida

                                       27

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                MARCH 31,
                                                                                          2004             2003
                                                                                      -------------    -------------
<S>                                                                                   <C>              <C>
ASSETS
Cash                                                                                  $     957,684    $     481,211
Finance receivables, net                                                                 97,236,516       86,178,112
Accounts receivable                                                                          11,923           16,228
Assets held for resale                                                                      492,889          319,788
Prepaid stock offering costs                                                                134,200                -
Prepaid expenses and other assets                                                           470,476          317,485
Property and equipment, net                                                                 565,562          467,596
Deferred income taxes                                                                     3,354,202        2,256,508
                                                                                      -------------    -------------
Total assets                                                                          $ 103,223,452    $  90,036,928
                                                                                      =============    =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit                                                                        $  67,510,290    $  60,160,238
Drafts payable                                                                              911,101          664,520
Notes payable -- related party                                                              681,530          808,610
Accounts payable                                                                          3,765,044        3,070,876
Derivatives                                                                               1,711,393        2,219,480
Income taxes payable                                                                        125,618          105,875
Deferred revenues                                                                         1,072,883          916,889
                                                                                      -------------    -------------
Total liabilities                                                                        75,777,859       67,946,488

Shareholders' equity:
   Preferred stock, no par: 5,000,000 shares authorized;
     none issued and outstanding                                                                  -                -
   Common stock, no par: 50,000,000 shares authorized; 5,085,288 and
     5,006,021 shares issued and outstanding, respectively                                4,766,150        4,452,693
   Accumulated other comprehensive loss                                                  (1,065,342)      (1,402,345)
   Retained earnings                                                                     23,744,785       19,040,092
                                                                                      -------------    -------------
Total shareholders' equity                                                               27,445,593       22,090,440
                                                                                      -------------    -------------
Total liabilities and shareholders' equity                                            $ 103,223,452    $  90,036,928
                                                                                      =============    =============
</TABLE>

See accompanying notes.

                                       28

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                             YEAR ENDED MARCH 31,
                                                           2004             2003
                                                        -----------      -----------
<S>                                                     <C>              <C>
Revenue:
   Interest income on finance receivables               $25,236,638      $22,048,535
   Sales                                                    263,847          328,340
                                                        -----------      -----------
                                                         25,500,485       22,376,875
Expenses:
   Cost of sales                                             66,193           83,904
   Marketing                                                865,930          654,569
   Administrative                                         9,918,151        8,460,662
   Provision for credit losses                            2,198,501        2,213,859
   Depreciation                                             210,125          190,257
   Interest expense                                       3,851,924        3,936,042
                                                        -----------      -----------
                                                         17,110,824       15,539,293
                                                        -----------      -----------
Operating income before income taxes                      8,389,661        6,837,582

Income tax expense:
   Current                                                4,445,761        3,473,823
   Deferred                                              (1,268,778)        (917,635)
                                                        -----------      -----------
                                                          3,176,983        2,556,188
                                                        -----------      -----------
Net income                                              $ 5,212,678      $ 4,281,394
                                                        ===========      ===========
Earnings per share:
   Basic                                                $      1.03      $      0.86
                                                        ===========      ===========
   Diluted                                              $      0.96      $      0.81
                                                        ===========      ===========
Dividends declared per share                            $      0.10                -
                                                        ===========      ===========
</TABLE>

See accompanying notes.

                                       29

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

                 Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                                                      ACCUMULATED
                                            COMMON STOCK                OTHER                               TOTAL
                                      -------------------------      COMPREHENSIVE     RETAINED          SHAREHOLDERS'
                                       SHARES          AMOUNT            LOSS          EARNINGS             EQUITY
                                      ---------      ----------      -------------   ------------        ------------
<S>                                   <C>            <C>             <C>             <C>                 <C>
Balance at April 1, 2002              4,993,764      $4,402,960      $    (725,325)  $ 14,758,698        $ 18,436,333
Issuance of common stock under
   stock options                         21,667          47,717                  -              -              47,717
Issued in connection with
   services rendered                         90             405                  -              -                 405
Repurchase and retirement of
   common stock                          (9,500)        (38,012)                 -              -             (38,012)
Income tax benefit on exercise
   of non-qualified stock options             -          39,623                  -              -              39,623
Net Income                                    -               -                  -      4,281,394           4,281,394
Mark to market - interest rate
   swaps                                      -               -           (677,020)             -            (677,020)
                                      ---------      ----------      -------------   ------------        ------------
Balance at March 31, 2003             5,006,021       4,452,693         (1,402,345)    19,040,092          22,090,440
                                      ---------      ----------      -------------   ------------        ------------
Issuance of common stock under
   stock options                         79,267         175,698                  -              -             175,698
Dividends paid                                                                           (507,985)           (507,985)
Income tax benefit on exercise
   of non-qualified stock options             -         137,759                  -              -             137,759
Net income                                    -               -                  -      5,212,678           5,212,678
Mark to market - interest rate
   swaps                                      -               -            337,003              -             337,003
                                      ---------      ----------      -------------   ------------        ------------
Balance at March 31, 2004             5,085,288      $4,766,150      $  (1,065,342)  $ 23,744,785        $ 27,445,593
                                      =========      ==========      =============   ============        ============
</TABLE>

See accompanying notes.

                                       30

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED MARCH 31,
                                                                                        2004             2003
                                                                                    ------------     ------------
<S>                                                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                          $  5,212,678     $  4,281,394
Adjustments to reconcile net income to net cash provided
   by operating activities:
     Depreciation                                                                        210,125          190,257
     Provision for credit losses                                                       2,198,501        2,213,859
     Deferred income taxes                                                            (1,268,778)        (917,635)
     Changes in operating assets and liabilities:
       Accounts receivable                                                                 4,305           (1,784)
       Prepaid expenses, other assets and assets held for resale                        (326,092)        (120,620)
       Accounts payable                                                                  694,168         (298,406)
       Income taxes payable                                                               19,743           36,023
       Deferred revenues                                                                 155,994          261,333
                                                                                    ------------     ------------
Net cash provided by operating activities                                              6,900,644        5,644,421

INVESTING ACTIVITIES
Purchase and origination of finance contracts                                        (68,920,330)     (60,795,789)
Principal payments received                                                           55,663,425       48,471,205
Purchase of property and equipment, net of disposals                                    (308,091)        (287,004)
                                                                                    ------------     ------------
Net cash used in investing activities                                                (13,564,996)     (12,611,588)

FINANCING ACTIVITIES
(Repayment) issuance of notes payable -- related party                                  (127,080)         215,595
Net proceeds from line of credit                                                       7,350,052        6,886,812
Increase in drafts payable                                                               246,581          245,404
Prepaid stock offering costs                                                            (134,200)               -
Payment of dividend                                                                     (507,985)               -
Proceeds from exercise of stock options                                                  313,457           49,328
                                                                                    ------------     ------------
Net cash provided by financing activities                                              7,140,825        7,397,139
                                                                                    ------------     ------------

Net increase in cash                                                                     476,473          429,972
Cash, beginning of year                                                                  481,211           51,239
                                                                                    ------------     ------------
Cash, end of year                                                                   $    957,684     $    481,211
                                                                                    ============     ============

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Stock issued in connection with services rendered                                              -     $        405
                                                                                    ============     ============
Conversion of accrued interest to notes payable - related party                                -     $     50,733
                                                                                    ============     ============
</TABLE>

See accompanying notes.

                                       31

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                 March 31, 2004

1. ORGANIZATION

Nicholas Financial, Inc. "Nicholas Financial - Canada" is a Canadian holding
company incorporated under the laws of British Columbia with two wholly-owned
United States subsidiaries, Nicholas Data Services, Inc. (NDS) and Nicholas
Financial, Inc. (NFI). NDS is engaged principally in the development, marketing
and support of computer application software. NFI is engaged principally in
providing installment sales financing. Both NDS and NFI are based in Florida,
U.S.A. The accompanying financial statements are stated in U.S. dollars and are
presented in accordance with accounting principles generally accepted in the
United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of "Nicholas
Financial - Canada" and its wholly-owned subsidiaries, NDS and NFI, collectively
referred to as the Company. All intercompany transactions and balances have been
eliminated.

FINANCE RECEIVABLES

Finance receivables purchased and originated are recorded at cost.

ASSETS HELD FOR RESALE

Assets held for resale are stated at net realizable value and consist primarily
of automobiles that have been repossessed by the Company and are awaiting final
disposition. Automobiles repossessed are charged-off in the month in which the
repossession occurred. Costs associated with repossession, transport and auction
preparation expenses are charges reported under operating expenses in the period
in which they were incurred. The Company maintains full responsibility for
repossessions.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets as follows:

<TABLE>
<S>                                                             <C>
Automobiles                                                        3 years
Equipment                                                          5 years
Furniture and fixtures                                             7 years
Leasehold improvements                                          Lease term
</TABLE>

                                       32

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is increased by charges against earnings and
decreased by charge-offs (net of recoveries). In addition to the allowance for
loan losses, a reserve for credit losses has been established using unearned
interest and dealer discounts to absorb potential credit losses. To the extent
actual credit losses exceed these reserves, a bad debt provision is recorded;
and to the extent credit losses are less than the reserve, the reserve is
accreted into income over the remaining estimated life of the pool. Management's
periodic evaluation of the adequacy of the allowance is based on the Company's
past loan experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions.

DRAFTS PAYABLE

Drafts payable represent checks disbursed for loan purchases which have not yet
been funded through the line of credit. Amounts cleared within one to two
business days of period end are then added to the line of credit.

INCOME TAXES

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

REVENUE RECOGNITION

Interest income on finance receivables is recognized using the interest method.
Accrual of interest income on finance receivables is suspended when a loan is
contractually delinquent for 60 days or more or the collateral is repossessed,
whichever is earlier. As of March 31, 2004 and 2003 the amount of gross finance
receivables not accruing interest was $520,303 and $575,554, respectively.

                                       33

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred revenues consist primarily of commissions received from the sale of
ancillary products. These products include automobile warranties, road-side
assistance programs, accident & health insurance, credit life insurance and
forced placed automobile insurance. These commissions are amortized over the
life of the contract using the effective annual interest method.

The Company attributes its entire dealer discount and a portion of unearned
income to a reserve for credit losses. Such amounts reduce the interest income
recognized over the life of the contract. The Company's net fees charged for
processing a loan are recognized as an adjustment to the yield and are amortized
over the life of the loan using the interest method.

The amount of future unearned income represents the amount of finance charges
the Company expects to fully earn over the life of the current portfolio, and is
computed as the product of the contract rate, the contract term, and the
contract amount. The Company aggregates the contracts purchased during a
three-month period for all of its branch locations. After the analysis of
purchase date accounting is complete, any uncollectable amounts would be
contemplated in estimating the allowance for credit losses.

Revenues resulting from the sale of hardware and software are recognized when
persuasive evidence of an agreement exists, delivery of the products has
occurred, no significant Company obligation with regard to implementation
remain, the fee is fixed or determinable and collectibility is probable. If the
fee due from the customer is not fixed or determinable, revenue is recognized as
payments become due from the customer. If collectibility is not considered
probable, revenue is recognized when the fee is collected. Arrangements that
included software services are evaluated to determine whether those services are
essential to the functionality of other elements of the arrangement. When
software services are considered essential, revenue under the arrangement is
recognized using contract accounting. When software services are not considered
essential, the revenue related to the software services is recognized as the
services are performed. The unamortized amounts are included in the caption
"deferred revenues."

                                       34

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE

Basic earnings per share excludes any dilutive effects of common stock
equivalents such as options, warrants, and convertible securities. Diluted
earnings per share includes the effects of dilutive options, warrants, and
convertible securities. Basic and diluted earnings per share have been computed
as follows:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED MARCH 31,
                                                                            2004                 2003
                                                                         ----------           ----------
<S>                                                                      <C>                  <C>
Numerator for earnings per share - net income                            $5,212,678           $4,281,394
                                                                         ==========           ==========
Denominator:
   Denominator for basic earnings per share - weighted average shares     5,047,094            5,004,055
   Effect of dilutive securities:
       Employee stock options                                               371,614              295,151
                                                                         ----------           ----------
   Denominator for diluted earnings per share                             5,418,708            5,299,206
                                                                         ==========           ==========
Earnings per share - basic                                               $     1.03           $     0.86
                                                                         ==========           ==========
Earnings per share - diluted                                             $     0.96           $     0.81
                                                                         ==========           ==========
</TABLE>

STOCK OPTION ACCOUNTING

As permitted under Statement of Financial Accounting Standards (SFAS) No. 148,
"Accounting for Stock-Based Compensation - Transaction and Disclosure" which
amended SFAS 123, "Accounting for Stock-Based Compensation," the Company has
elected to continue to follow the intrinsic value method in accounting for its
stock-based employee compensation arrangements as defined by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of APB 25. No stock-based employee compensation cost is reflected
in operations, as all options granted under those plans have an exercise price
equal to or above the market value of the underlying common stock on the date of
grant.

                                       35

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS

The Company's financial instruments consist of finance receivables, accounts
receivable, line of credit, notes payable -- related party and accounts payable.
For each of these financial instruments, the carrying value approximates its
fair value.

The Company's financial instruments that are exposed to concentrations of credit
risk are primarily finance receivables. The Company operates in seven states
through its twenty-nine branch locations. Fifteen of these branch locations are
in the state of Florida, which represents 60% of the finance receivables total
as of March 31, 2004. Of the remaining six states, no one state represents more
than 9% of the total finance receivables. The Company provides credit during the
normal course of business and performs ongoing credit evaluations of it
customers. The Company maintains allowances for potential credit losses which,
when realized, have been within the range of management's expectations. The
Company perfects a primary security interest in all vehicles financed as a form
of collateral.

USE OF ESTIMATES

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The most significant of these estimates
relates to the determination of the allowance for credit losses and related
reserves. Actual results could differ from those estimates.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive loss is composed entirely of the fair value of
cash flow hedges, net of the related tax effect.

STATEMENT OF CASH FLOWS

Cash paid for income taxes for the years ended March 31, 2004 and 2003 was
$4,288,259 and $3,399,990, respectively. Cash paid for interest for the years
ended March 31, 2004 and 2003 was $3,804,440 and $3,743,113, respectively.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the 2004
presentation.

                                       36

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVES

Derivatives are accounted for under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires the recognition of all
derivative instruments as either assets or liabilities in the consolidated
balance sheet at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based on the exposure being hedged, as either a fair value
hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
The Company does not use derivative instruments for speculative purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounts Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
which is an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements." FIN 46 was amended in December 2003. FIN 46 requires
business enterprises to consolidate variable interest entities which certain
characteristics. FIN 46 excludes qualifying special purpose entities subject to
the reporting requirements of SFAS 140. FIN 46 applies upon formation to
variable interest entities created after January 31, 2003, and to all variable
interest entities in the first fiscal year or interim period beginning after
June 15, 2003. At March 31, 2004, the Company's corporate structure included
only companies whose accounts were consolidated into the Company's financial
statements. Therefore, the adoption of FIN 46 did not have an impact on the
Company's financial statements.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." The changes
in this Statement improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly. This Statement is
generally effective for contracts entered into or modified after June 30, 2003.
The adoption of SFAS 149 did not have a material effect on the Company's
consolidated financial statements.

                                       37

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
Statement also includes required disclosures for financial instruments within
its scope. The Company currently does not have any financial instruments that
are within the scope of this Statement.

In October 2003, the AICPA issued SOP 03-3, "Accounting for Loans or Certain
Debt Securities Acquired in a Transfer." SOP 03-3 applies to a loan with
evidence of deterioration in credit quality subsequent to its origination that
is acquired by completion of a transfer (as defined in SOP 03-3), for which it
is probable at acquisition of such loan, that the acquirer will be unable to
collect all contractually required payments receivable. SOP 03-3 requires that
the acquirer recognize the excess of all cash flows expected at acquisition over
the investor's initial investment in the loan as interest income on a
level-yield basis over the life of the loan as the accretable yield. The loan's
contractual required payments receivable in excess of the amount of its cash
flows expected at acquisition (nonaccretable difference) should not be
recognized as an adjustment to yield, a loss accrual or a valuation allowance
for credit risk. Subsequent increases in cash flows expected to be collected
generally would be recognized prospectively through adjustment of the loan's
yield over its remaining life. Decreases in cash flows expected to be collected
would be recognized as impairment. SOP 03-3 is effective for loans acquired in
fiscal years beginning after December 31, 2004. Management is currently
evaluating the provisions of SOP 03-3.

                                       38

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. FINANCE RECEIVABLES

The Company purchases individual installment loan contracts from new and used
automobile dealers in its markets. There is no relationship between the Company
and the dealer with respect to a given contract once the assignment of that
contract is complete. The dealer has no vested interest in the performance of
any installment contract the Company purchases.

The Company charges-off receivables when an individual account has become more
than 120 days contractually delinquent. In the event of a repossession the
charge-off will occur in the month in which the vehicle was repossessed.

Consumer automobile finance installment contracts are included in finance
receivables and are detailed as follows:

<TABLE>
<CAPTION>
                                                   2004                 2003
                                               -------------        ------------
<S>                                            <C>                  <C>
Finance receivables, gross contract            $ 151,082,036        $132,316,816
Less:
   Unearned interest                             (36,135,832)        (31,610,003)
                                               -------------        ------------
Finance receivables, net of unearned interest    114,946,204         100,706,813

   Dealer discounts                              (15,377,582)        (12,394,089)
   Allowance for credit losses                    (5,787,764)         (5,428,681)
                                               -------------        ------------
   Finance receivables, net                    $  93,780,858        $ 82,884,043
                                               =============        ============
</TABLE>

The terms of the receivables range from 12 to 66 months and bear a weighted
average effective interest rate of 24% for both 2004 and 2003.

Direct consumer loans are also included in finance receivables and are detailed
as follows:

<TABLE>
<CAPTION>
                                                   2004                 2003
                                               -------------        ------------
<S>                                            <C>                  <C>
Direct loans, gross contract                   $   4,572,030        $  4,357,032
Less:
   Unearned interest                                (932,038)           (886,837)
                                               -------------        ------------
Finance receivables, net of unearned interest      3,639,992           3,470,195

   Allowance for credit losses                      (184,334)           (176,126)
                                               -------------        ------------
   Finance receivables, net                    $   3,455,658        $  3,294,069
                                               =============        ============
</TABLE>

                                       39

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. FINANCE RECEIVABLES (CONTINUED)

The terms of the receivables range from 6 to 48 months and bear a weighted
average effective interest rate of 25% for both 2004 and 2003, respectively.

The following table sets forth a reconciliation of the changes in dealer
discount for the years ended March 31:

<TABLE>
<CAPTION>
                                                         2004              2003
                                                      -----------       -----------
<S>                                                   <C>               <C>
Balance at beginning of year                          $12,394,089       $11,259,898
Discounts acquired on new volume                       12,019,745        10,534,472
Losses absorbed                                        (7,867,889)       (8,401,071)
Recoveries                                              1,153,505         1,068,556
Dealer discounts accreted                              (2,321,868)       (2,067,766)
                                                      -----------       -----------
Balance at end of year                                $15,377,582       $12,394,089
                                                      ===========       ===========
Dealer discounts as a percent of gross indirect
contracts                                                   10.18%             9.37%
                                                      ===========       ===========
</TABLE>

The following table sets forth a reconciliation of the changes in the allowance
for credit losses on consumer automobile finance installment contracts for the
years ended March 31:

<TABLE>
<CAPTION>
                                                         2004              2003
                                                      -----------       -----------
<S>                                                   <C>               <C>
Balance at beginning of year                          $ 5,428,681       $ 4,105,174
Current year provision                                  1,805,038         1,911,855
Losses absorbed                                        (1,445,955)         (588,348)
                                                      -----------       -----------
Balance at end of year                                $ 5,787,764       $ 5,428,681
                                                      ===========       ===========
Allowance as a percent of gross indirect contracts           3.83%             4.10%
                                                      ===========       ===========
</TABLE>

                                       40

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. FINANCE RECEIVABLES (CONTINUED)

The following table sets forth a reconciliation of the changes in the allowance
for credit losses on direct loans for the years ended March 31:

<TABLE>
<CAPTION>
                                                 2004              2003
                                               --------          ---------
<S>                                            <C>               <C>
Balance at beginning of year                   $176,126          $ 200,612
Current year provision                          298,649            302,004
Losses absorbed                                (176,367)          (208,802)
Recoveries                                       29,714             29,372
Accreted to income                             (143,788)          (147,060)
                                               --------          ---------
Balance at end of year                         $184,334          $ 176,126
                                               ========          =========
Allowance as a percent of gross direct loan
receivables                                        4.03%             4.04%
                                               ========          =========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2004 and 2003 is summarized as follows:

<TABLE>
<CAPTION>
                                                              ACCUMULATED           NET BOOK
                                                COST          DEPRECIATION           VALUE
                                             ----------       ------------         ----------
<S>                                          <C>              <C>                  <C>
2004
Automobiles                                  $  362,287       $    157,317         $  204,970
Equipment                                       572,915            426,064            146,851
Furniture and fixtures                          289,062            157,496            131,566
Leasehold improvements                          277,875            195,700             82,175
                                             ----------       ------------         ----------
                                             $1,502,139       $    936,577         $  565,562
                                             ==========       ============         ==========
2003
Automobiles                                  $  285,680       $    146,312         $  139,368
Equipment                                       515,210            373,457            141,753
Furniture and fixtures                          234,828            130,672            104,156
Leasehold improvements                          274,025            191,706             82,319
                                             ----------       ------------         ----------
                                             $1,309,743       $    842,147         $  467,596
                                             ==========       ============         ==========
</TABLE>

                                       41

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

5. LINE OF CREDIT

The Company has a $75 million Line of Credit facility (the Line) which expires
on November 30, 2004. The Company may borrow the lesser of the $75 million or
amounts based upon formulas principally related to a percentage of eligible
finance receivables, as defined. Borrowings under the Line may be under various
LIBOR pricing options or at the prime rate plus twenty-five basis points. Prime
rate based borrowings are generally less than $5 million. Pledged as collateral
for this credit facility are all of the assets of Nicholas Financial, Inc. As of
March 31, 2004 the outstanding amount of the credit facility was approximately
$67.5 million and the amount available under the line of credit was
approximately $7.5 million. As of March 31, 2004, the Company was in full
compliance with all debt covenants.

6. NOTES PAYABLE -- RELATED PARTY

Notes payable to shareholders, directors and individuals related thereto at
March 31:

The Company has unsecured notes totaling $681,530 and $808,610 at March 31, 2004
and 2003, respectively. For fiscal year 2004, the notes bear a variable interest
rate equal to the average cost of borrowed funds for the Company plus
twenty-five basis points (5.98% at March 31, 2004). The interest rate is
recalculated every three months. For fiscal year 2003, the notes had a fixed
interest rate of 8.87%. The notes are due upon 30-day demand.

The company incurred interest expense on the above notes of approximately
$83,000 and $62,000 for the years ended March 31, 2004 and 2003, respectively.

                                       42

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. DERIVATIVES AND HEDGING

The Company is party to interest rate swap agreements which are derivative
instruments. For derivative instruments that are designated and qualify as a
cash flow hedge (i.e., hedging the exposure to variability in expected future
cash flows that is attributable to a particular risk, such as interest rate
risk), the effective portion of the gain or loss on the derivative instrument is
reported as a component of comprehensive income and reclassified into earnings
in the same period or periods during which the hedged transaction affects
earnings. The remaining gain or loss on the derivative instrument in excess of
the cumulative change in the present value of the future cash flows of the
hedged item, if any, is recognized in current earnings during the period of
change.

The Company has entered into interest rate swap agreements that effectively
convert a portion of its floating-rate debt to a fixed-rate basis, thus reducing
the impact of interest rate changes on future interest expense. At March 31,
2004, $50,000,000 of the Company's borrowings have been designated as the hedged
items to interest rate swap agreements. Under the swap agreements, the Company
received an average variable rate of 3.41% and paid an average fixed rate of
5.93% during the year ended March 31, 2004. A loss of $1,711,393 related to the
fair value of the swaps at March 31, 2004 has been recorded in the caption
derivatives on the balance sheet. Accumulated other comprehensive loss at March
31, 2004 in the amount of $1,065,342 represents the after-tax effect of the
derivative losses. Amounts of net losses on derivative instruments expected to
be reclassified from comprehensive income to earnings in the next 12 months are
not expected to be material. The Company has also entered into two forward
locking swaps disclosed in the table below.

<TABLE>
<CAPTION>
                                                                 Fixed
                                                                  Rate
                                                 Notional          Of
  Date Entered             Effective Date         Amount        Interest    Maturity Date
- -----------------          ---------------    -------------     --------    -------------
<S>                        <C>                <C>               <C>         <C>
May 17, 2000               May 17, 2000       $  10,000,000         6.87%   May 17, 2004
                                                                            October 5,
October 5, 2001            October 5, 2001       10,000,000         3.85%   2004
June 28, 2002              June 28, 2002         10,000,000         3.83%   July 2, 2005
January 6, 2003            April 2, 2003         10,000,000         3.35%   April 2, 2007
January 31, 2003           August 1, 2003        10,000,000         3.20%   August 2, 2006
February 26, 2003          May 17, 2004          10,000,000         3.91%   May 19, 2008
                                                                            October 5,
March 11, 2004             October 5, 2004       10,000,000         3.64%   2009
</TABLE>

                                       43

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. DERIVATIVES AND HEDGING (CONTINUED)

The Company has also entered into various interest rate option agreements with
maturities through May 17, 2004.

The Company utilizes the above noted interest rate swaps to manage its interest
rate exposure. The swaps effectively convert a portion of the Company's floating
rate debt to a fixed rate, more closely matching the interest rate
characteristics of the Company's finance receivables. There has historically
been no ineffectiveness associated with the Company's hedges.

The following table reconciles net income with comprehensive income for the
years ended March 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                       2004               2003
                                                    ----------         ----------
<S>                                                 <C>                <C>
Net Income                                          $5,212,678         $4,281,394

Mark to market - interest rate swaps (net of tax)      337,003           (677,020)
                                                    ----------         ----------
Comprehensive income                                $5,549,681         $3,604,374
                                                    ==========         ==========
</TABLE>

                                       44

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8. INCOME TAXES

The provision for income taxes reflects an effective U.S tax rate, which differs
from the corporate tax rate (34%) for the following reasons:

<TABLE>
<CAPTION>
                                                          2004              2003
                                                       ----------        ----------
<S>                                                    <C>               <C>
Provision for income taxes at federal statutory rate   $2,852,485        $2,324,778
   Increase resulting from:
     State income taxes, net of federal benefit           343,373           258,686
     Other                                                (18,875)          (27,276)
                                                       ----------        ----------
                                                       $3,176,983        $2,556,188
                                                       ==========        ==========
</TABLE>

The Company's deferred tax assets consist of the following as of March 31:

<TABLE>
<CAPTION>
                                                                            2004             2003
                                                                         ----------       ----------
<S>                                                                      <C>              <C>
Allowance for credit losses not currently deductible for tax purposes    $2,685,501       $1,379,024
Derivatives                                                                 646,051          817,135
Other items                                                                  22,650           60,349
                                                                         ----------       ----------
                                                                         $3,354,202       $2,256,508
                                                                         ==========       ==========
</TABLE>

Nicholas Financial - Canada has income tax loss carryforward balances of
approximately $302,000 (2003 -- $318,000) which are available to reduce future
taxable income. The related deferred tax asset, more likely than not, will not
be realized and is offset entirely by a valuation allowance. The tax loss
carryforwards are the result of the Company's annual Canadian operating expenses
not deductible for U.S tax purposes. The Company has no operations in Canada,
does not expect to have such operations and therefore does not create any
revenue to offset these income tax loss carryforwards.

                                       45

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS

The Company has an employee stock incentive plan (the SIP) for officers,
directors and key employees. The Company is authorized to grant options for up
to 940,000 common shares under the SIP, of which 374,534 shares are available
for future granting at March 31, 2004. Options currently granted by the Company
generally vest over a five-year period.

The fair value method uses the Black-Scholes option-pricing model to determine
compensation expense associated with the Company's options. The follow table
illustrates the effect on net income and net income per share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                       MARCH 31,
                                                                 2004           2003
                                                              ----------     ----------
<S>                                                           <C>            <C>
Net income as reported                                        $5,212,678     $4,281,394
  Basic earnings per share as reported                        $     1.03     $     0.86
  Fully diluted earnings per share as reported                $     0.96     $     0.81
Stock based employee compensation cost
  under the Fair Value Method, net of tax                     $   44,320     $   69,932
Pro forma net income                                          $5,168,358     $4,211,462
  Pro forma basic earnings per share                          $     1.02     $     0.84
  Pro forma fully diluted earnings per share                  $     0.95     $     0.79
</TABLE>

The effects of applying SFAS 123 for pro-forma disclosures are not likely to be
representative of the effects on reported net income for future years.

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2004 were: expected volatility of 32%, dividend
yield of 1.61%, risk free interest rate of 3.75% and expected life of 7 years.

                                       46

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                     2004                        2003
                                             ----------------------     ---------------------
                                                           WEIGHTED                  WEIGHTED
                                             OPTIONS        AVERAGE     OPTIONS       AVERAGE
                                                &          EXERCISE        &         EXERCISE
                                             WARRANTS       PRICE       WARRANTS      PRICE
                                             --------      --------     --------     --------
<S>                                          <C>           <C>          <C>          <C>
Outstanding -- beginning of year              590,266      $   2.21      653,866     $   2.26
Granted                                        62,000          7.99            -            -
Exercised                                     (79,267)         2.16      (21,667)        2.20
Canceled/expired                               (7,533)         3.36      (41,933)        2.90
                                             --------                   --------
Outstanding -- end of year                    565,466          2.83      590,266         2.21
                                             ========                   ========
Exercisable at end of year                    447,067      $   2.07      490,776     $   2.03
                                             ========                   ========
Weighted-average fair value of options
   granted during the year                                 $   1.35                         -
</TABLE>

<TABLE>
<CAPTION>
                                                                                CURRENTLY EXERCISABLE
                                                                WEIGHTED        ---------------------
                                           WEIGHTED             AVERAGE                      WEIGHTED
                                           AVERAGE             REMAINING                      AVERAGE
                                           EXERCISE           CONTRACTUAL                    EXERCISE
                           SHARES            PRICE               LIFE           SHARES        PRICE
                           -------         --------           -----------       -------      --------
<S>                        <C>             <C>                <C>               <C>          <C>
$1.00 TO 1.99              260,200         $   1.70           4.19 years        260,200      $   1.70
 2.00 TO 2.99              170,466             2.45           5.71 years        154,066          2.42
 3.00 TO 3.99               72,800             3.36           7.32 years         32,801          3.39
 6.00 TO 6.99               28,000             6.64           9.35 years              -             -
 9.00 TO 9.99               34,000             9.10           9.87 years              -             -
                           -------         --------           ----------        -------      --------
        TOTAL              565,466         $   2.83           5.65 years        447,067      $   2.07
                           =======                                              =======
</TABLE>

                                       47

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

10. EMPLOYEE BENEFIT PLANS

The Company has a 401(k) retirement plan under which all employees are eligible
to participate. Employee contributions are voluntary and subject to Internal
Revenue Service limitations. The Company matches, based on annually determined
factors, employee contributions provided the employee completes certain levels
of service annually. For the years ended March 31, 2004 and 2003, the Company
recorded expenses of approximately $126,000 and $68,000, respectively, related
to this plan. All employees who were eligible under the plan received a profit
sharing contribution based on their total compensation in relation to the total
compensation of all eligible employees. For the years ended March 31, 2004 and
2003, the Company recorded expenses of $0 and $139,000, respectively, related to
this plan.

11. COMMITMENTS AND CONTINGENCIES

The Company leases its corporate and branch offices under operating lease
agreements which provide for annual minimum rental payments as follows:

<TABLE>
<CAPTION>
Year ending March 31:
- ---------------------
<S>                        <C>
         2005              $  499,997
         2006                 326,996
         2007                 200,636
         2008                  22,517
                           ----------
                           $1,050,146
                           ==========
</TABLE>

Rent expense for the years ended March 31, 2004 and 2003 was approximately
$661,000 and $503,000, respectively.

On April 8, 2004, the defendant in a deficiency action brought by the Company
under the Ohio Uniform Commercial Code, filed a counterclaim in Cleveland
Municipal Court, Cuyahoga County, Ohio, on behalf of a putative class of all
persons who purchased motor vehicles pursuant to retail installment sales
agreements later assigned to the Company, which motor vehicles were subsequently
repossessed in Ohio by the Company or its agents. The Company believes the
material allegations of the counterclaim are substantially without merit and
intends to vigorously defend the counterclaim. No assurances can be given,
however, with respect to the outcome of the counterclaim, and an adverse result
could have a material adverse effect on the Company's financial condition.

                                       48

<PAGE>

                    Nicholas Financial, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

12. SEGMENT INFORMATION

The segments presented have been identified based on the difference in the
products and services of the Company's two wholly owned subsidiaries. Internal
financial results for each subsidiary are presented to and reviewed by the
senior management of the Company. Substantially all of the Company's operations
are in the United States. The industry segments are as follows:

<TABLE>
<CAPTION>
                                                                   COMPUTER
                                                                 APPLICATION
                                                GENERAL          SOFTWARE AND
                                               FINANCING           SUPPORT          CORPORATE           TOTAL
                                             ------------        ------------       ---------        ------------
<S>                                          <C>                 <C>                <C>              <C>
2004
Interest income and sales                    $ 25,236,638        $    263,847               -        $ 25,500,485
Operating income (loss) before income
  taxes                                         8,350,407              50,445        (11,191)           8,389,661
Interest expense                                3,851,924                   -               -           3,851,924
Income tax expense                              3,157,941              19,042               -           3,176,983
Identifiable assets                           102,961,157             261,795             500         103,223,452
Net capital expenditures                          308,091                   -               -             308,091
Depreciation                                      210,125                   -               -             210,125

2003
Interest income and sales                    $ 22,048,535        $    328,340               -        $ 22,376,875
Operating income (loss) before income
  taxes                                         6,845,591              (8,009)              -           6,837,582
Interest expense                                3,936,042                   -               -           3,936,042
Income tax expense                              2,559,212              (3,024)              -           2,556,188
Identifiable assets                            89,772,818             262,735           1,375          90,036,928
Net capital expenditures                          287,004                   -               -             287,004
Depreciation                                      190,257                   -               -             190,257
</TABLE>

13. SUBSEQUENT EVENTS

In late May and early June 2004, the Company closed the sale of 1,400,000 shares
of its common stock at a public offering price of $8.00 per share. The net
proceeds of the offerings, approximately $9.8 million, was used to pay down the
Company's Line. In addition, approximately 900,000 shares of common stock were
sold in the offering by a group of selling shareholders. Ferris, Baker Watts,
Incorporated served as the underwriter for the offering.

                                       49
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      Based on their evaluation, as of the end of the period covered by this
annual report of the effectiveness of the Company's disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer have each
concluded that the Company's disclosure controls and procedures are effective
and sufficient to ensure that the Company records, processes, summarizes, and
reports information required to be disclosed by the Company in its periodic
reports filed under the Securities Exchange Act within the time periods
specified by the Securities and Exchange Commission's rules and forms.

      Subsequent to the date of their evaluation, there have not been any
significant changes in the Company's internal controls or in other factors to
the Company's knowledge that could significantly affect these controls,
including any corrective action with regard to significant deficiencies and
material weaknesses. The design of any system of controls and procedures is
based in part upon certain assumptions about the likelihood of future events.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
         WITH SECTION 16(a) OF THE EXCHANGE ACT

      The information set forth under the caption "Proposal 1: Election of
Directors" in the Proxy Statement and Information Circular, dated on or about
July 8, 2004, for the 2004 Annual General Meeting of Members of the Company to
be held August 5, 2004 (the "Proxy Statement"), the information set forth under
the caption "Executive Officers and Compensation" in the Proxy Statement, and
the information set forth under the caption "Section 16 (a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement are incorporated herein by
reference.

      The Company has adopted a code of ethics applicable to our principal
executive officers, principal financial officer, principal accounting officer
and persons performing similar functions. The text of this code of ethics is
filed as Exhibit 14 to this annual report. We intend to post notice of any
waiver from, or amendment to, any provision of our code of ethics on our web
site.

ITEM 10. EXECUTIVE COMPENSATION

      The information set forth under the caption "Executive Officers and
Compensation" in the Proxy Statement is incorporated herein by reference.

                                       50

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED
          STOCKHOLDER MATTERS

      The information set forth under the caption "Voting Shares and Ownership
of Management and Principal Holders" in the Proxy Statement is incorporated
herein by reference.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth certain information, as of March 31, 2004, with
respect to compensation plans under which equity securities of the Company are
authorized for issuance:

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                    NUMBER OF
                                 SECURITIES TO BE             WEIGHTED -           NUMBER OF SECURITIES
                                   ISSUED UPON             AVERAGE EXERCISE      REMAINING AVAILABLE FOR
                                   EXERCISE OF                 PRICE OF            FUTURE ISSUANCE UNDER
                                   OUTSTANDING               OUTSTANDING            EQUITY COMPENSATION
                                     OPTIONS,                  OPTIONS,              PLANS (EXCLUDING
                                   WARRANTS AND              WARRANTS AND         SECURITIES REFLECTED IN
    PLAN CATEGORY                     RIGHTS                    RIGHTS                  COLUMN (a)
- ---------------------            ----------------          ----------------      ------------------------
                                        (a)                      (b)                       (c)
                                 ----------------          ----------------      ------------------------
<S>                              <C>                       <C>                   <C>
Equity
Compensation
Plans Approved by
Security Holders                      565,466              $           2.83               374,534

Equity Compensation
Plans Not Approved by
Security Holders                       None                  Not Applicable                None

                                      -------              ----------------               -------
         TOTAL                        565,466              $           2.83               374,534
                                      =======              ================               =======
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.

                                       51

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.                            EXHIBIT DESCRIPTION
- -----------       --------------------------------------------------------------
<S>               <C>
3                 Memorandum and Articles, as amended, of Nicholas Financial,
                  Inc.

4                 Form of Common Stock Certificate

10.1              Amended and Restated Loan and Security Agreement, dated August
                  1, 2000 (1)

10.2              Amendment No. 1 to Loan Agreement, dated March 16, 2001 (2)

10.3              Amendment No. 2 to Loan Agreement, dated July 31, 2001 (3)

10.4              Amendment No. 3 to Loan Agreement, dated June 27, 2002 (4)

10.5              Employee Stock Option Plan (5)

10.6              Non-Employee Director Stock Option Plan (6)

10.7              Employment Contract, dated November 22, 1999, between Nicholas
                  Financial, Inc. and Ralph Finkenbrink, Senior Vice President
                  of Finance (7)

10.8              Employment Contract, dated March 16, 2001, between Nicholas
                  Financial, Inc. and Peter L. Vosotas, President and Chief
                  Executive Officer (8)

10.9              Form of Dealer Agreement and Schedule thereto listing dealers
                  that are parties to such agreements (9)

10.10             ISDA Master Agreement, dated as of March 30, 1999, between
                  Bank of America National Trust and Savings Association and
                  Nicholas Financial, Inc. (including Schedule thereto) (10)

10.11             Form of Letter Agreement (confirming terms and conditions of
                  Swap Transaction under the Master Agreement referred to in
                  Exhibit 10.10 above) and Schedule thereto listing variable
                  terms of outstanding Swap Transactions (11)

14                Code of Ethics for CEO and Senior Financial Officers

21                Subsidiaries of Nicholas Financial, Inc.

23.1              Consent of Dixon Hughes PLLC

23.2              Consent of Ernst & Young LLP

24                Powers of Attorney (included on signature page hereto)

31.1              Certification of President and CEO

31.2              Certification of Chief Financial Officer

32.1              Written Statement of the Chief Executive Officer Pursuant to
                  18 U.S.C. Section 1350

32.2              Written Statement of the Chief Financial Officer Pursuant to
                  18 U.S.C. Section 1350

(1)               Incorporated by reference to Exhibit 10.1 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.
</TABLE>

                                       52

<PAGE>

<TABLE>
<S>               <C>
(2)               Incorporated by reference to Exhibit 10.2 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(3)               Incorporated by reference to Exhibit 10.3 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(4)               Incorporated by reference to Exhibit 10.4 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(5)               Incorporated by reference to Exhibit 4 to the Company's Form
                  S-8 filed with the SEC on June 30, 1999 (SEC File. No.
                  333-81967).

(6)               Incorporated by reference to Exhibit 4 to the Company's Form
                  S-8 filed with the SEC on June 30, 1999 (SEC File. No.
                  333-81961).

(7)               Incorporated by reference to Exhibit 10.7 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(8)               Incorporated by reference to Exhibit 10.8 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(9)               Incorporated by reference to Exhibit 10.9 to the Company's
                  Registration Statement on Form S-2 (Reg. No. 333-113215) filed
                  with the SEC on March 2, 2004.

(10)              Incorporated by reference to Exhibit 10.10 to Amendment No. 2
                  to the Company's Registration Statement on Form S-2 (Reg. No.
                  333-113215) filed with the SEC on April 7, 2004.

(11)              Incorporated by reference to Exhibit 10.11 to Amendment No. 2
                  to the Company's Registration Statement on Form S-2 (Reg. No.
                  333-113215) filed with the SEC on April 7, 2004.
</TABLE>

      (b) Reports on Form 8-K

      On March 4, 2004, the Company filed a current report on Form 8-K
announcing that at a meeting held on March 3, 2004, the audit committee of the
Board of Directors of the Company approved the engagement of Dixon Hughes PLLC,
the successor in the merger of the Company's current independent auditors, Crisp
Hughes Evans LLP, and the firm of Dixon Odom PLLC, as its independent auditors
effective with the successful merger of the two firms. On March 1, 2004, the
audit committee of the Board of Directors was notified that the merger of the
two firms was completed and that the firm of Crisp Hughes Evans LLP would no
longer be providing audit services. On the same Form 8-K the Company announced
that the Company has established March 8, 2004 as the record date for its
semi-annual cash dividend of $.05 cents per share with a payment date of March
22, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information set forth under the caption "Appointment of Auditors" in
the Proxy Statement is incorporated herein by reference.

                                       53

<PAGE>

                                   SIGNATURES

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

                                               NICHOLAS FINANCIAL, INC.

Dated: June 29, 2004

                                               By: /s/ Peter L. Vosotas
                                               Peter L. Vosotas
                                               Chairman, Chief Executive Officer
                                               and President

      KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Peter L. Vosotas and Ralph T. Finkenbrink, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.

      In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

Signature                  Title                                 Date

/s/ Peter L. Vosotas       Chairman of the Board, Chief
Peter L. Vosotas           Executive Officer, President and      June 29, 2004
                           Director

/s/ Ralph T. Finkenbrink   Sr. Vice President - Finance          June 29, 2004
Ralph T. Finkenbrink       Chief Financial Officer and Director

/s/ Stephen Bragin         Director                              June 29, 2004
Stephen Bragin

/s/ Alton R. Neal          Director                              June 29, 2004
Alton R. Neal

                                       54

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
- -----------       --------------------------------------------------------------
<S>               <C>
       3          Memorandum and Articles, as amended, of Nicholas Financial,
                  Inc.

       4          Form of Common Stock Certificate

    10.1          Amended and Restated Loan and Security Agreement, dated August
                  1, 2000*

    10.2          Amendment No. 1 to Loan Agreement, dated March 16, 2001*

    10.3          Amendment No. 2 to Loan Agreement, dated July 31, 2001*

    10.4          Amendment No. 3 to Loan Agreement, dated June 27, 2002*

    10.5          Employee Stock Option Plan*

    10.6          Non-Employee Director Stock Option Plan*

    10.7          Employment Contract, dated November 22, 1999, between Nicholas
                  Financial, Inc. and Ralph Finkenbrink, Senior Vice President
                  of Finance*

    10.8          Employment Contract, dated March 16, 2001, between Nicholas
                  Financial, Inc. and Peter L. Vosotas, President and Chief
                  Executive Officer*

    10.9          Form of Dealer Agreement and Schedule thereto listing dealers
                  that are parties to such agreements*

   10.10          ISDA Master Agreement, dated as of March 30, 1999, between
                  Bank of America National Trust and Savings Association and
                  Nicholas Financial, Inc. (including Schedule thereto)*

   10.11          Form of Letter Agreement (confirming terms and conditions of
                  Swap Transaction under the Master Agreement referred to in
                  Exhibit 10.10 above) and Schedule thereto listing variable
                  terms of outstanding Swap Transactions*

      14          Code of Ethics for CEO and Senior Financial Officers

      21          Subsidiaries of Nicholas Financial, Inc.

    23.1          Consent of Dixon Hughes PLLC

    23.2          Consent of Ernst & Young LLP

      24          Powers of Attorney (included on signature page hereto)

    31.1          Certification of President and CEO

    31.2          Certification of Chief Financial Officer

    32.1          Written Statement of the Chief Executive Officer Pursuant to
                  18 U.S.C. Section 1350

    32.2          Written Statement of the Chief Financial Officer Pursuant to
                  18 U.S.C. Section 1350

</TABLE>

- ---------------------
*     Incorporated by reference.

                                       55

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<FILENAME>g89766exv3.txt
<DESCRIPTION>EX-3 MEMORANDUM & ARTICLES, OF NICHOLAS FINANCIAL
<TEXT>
<PAGE>

                                                                       EXHIBIT 3

                                                                NUMBER
          CANADA
PROVINCE OF BRITISH COLUMBIA                                     312561


                                     [LOGO]


                          PROVINCE OF BRITISH COLUMBIA
                   Ministry of Consumer and Corporate Affairs
                             REGISTRAR OF COMPANIES

                                  COMPANY ACT

                          Certificate of Incorporation

                             I HEREBY CERTIFY THAT

                          NICHOLAS DATA SERVICES LTD.


              HAS THIS DAY BEEN INCORPORATED UNDER THE COMPANY ACT


                [SEAL]                  GIVEN UNDER MY HAND AND SEAL OF OFFICE

                                            AT VICTORIA, BRITISH COLUMBIA,

                                            THIS 28TH DAY OF JULY, 1986

                                             /s/ F. A. Butler

                                            F. A. BUTLER
                                            ASST. DEPUTY REGISTRAR OF COMPANIES

<PAGE>

                                            I HEREBY CERTIFY THAT THESE ARE
                                            COPIES OF DOCUMENTS FILED WITH
                                            THE REGISTRAR OF COMPANIES ON
                                                   JUL 28 1986  19-----
                                                    /s/ [ILLEGIBLE]
                                            ------------------------------------
                                                  REGISTRAR OF COMPANIES
                                            FOR THE PROVINCE OF BRITISH COLUMBIA

                               FORM 1 (Section 5)

                                  COMPANY ACT

                                   MEMORANDUM

I wish to be formed into a company with limited liability under the Company Act
in pursuance of this memorandum.

1.    The name of the company is "NICHOLAS DATA SERVICES LTD."

2.    The authorized capital of the company consists of 25,000,000 shares
      divided into 20,000,000 Common shares without par value and 5,000,000
      Preference shares without par value.

3.    I agree to take the number and kind of shares in the company set opposite
      my name.

- --------------------------------------------------------------------------------
Full Name, Resident Address and                        Number and Kind of Shares
Occupation of Subscriber                               taken by Subscriber
- --------------------------------------------------------------------------------

                                                       Ten (10) Common shares
                                                       without par value
/s/ Elizabeth A. Watkins
- ----------------------------
ELIZABETH A. WATKINS
103 - 1470 Pennyfarthing Drive
Vancouver, B. C.
Barrister and Solicitor

TOTAL SHARES TAKEN:                                    Ten (10) Common shares
                                                       without par value

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

DATED this 24th day of July, 1986.

<PAGE>

                                    ARTICLES

                                       of

                          NICHOLAS DATA SERVICES LTD.
                               TABLE OF CONTENTS

PART  ARTICLE                           SUBJECT

1     INTERPRETATION

      1.1.  Definition
            Construction of Words
      1.2.  Definitions same as Company Act
      1.3.  Interpretation Act Rules of Construction apply

2     SHARES

      2.1.  Member entitled to Certificate
      2.2.  Replacement of Lost or Defaced Certificate
      2.3.  Execution of Certificates
      2.4.  Recognition of Trusts

3     ISSUE OF SHARES

      3.1.  Directors Authorized
      3.2.  Conditions of Allotment
      3.3.  Commissions and Brokerage
      3.4.  Conditions of Issue

4     SHARE REGISTERS

      4.1.  Registers of Members, Transfers and Allotments
      4.2.  Branch Registers of Members
      4.3.  Closing of Register of Members

5     TRANSFER AND TRANSMISSION OF SHARES

      5.1.  Transfer of Shares
      5.2.  Execution of Instrument of Transfer
      5.3.  Enquiry as to Title not Required
      5.4.  Submission of Instruments of Transfer
      5.5.  Transfer Fee
      5.6.  Personal Representative Recognized on Death
      5.7.  Death or Bankruptcy
      5.8.  Persons in Representative Capacity

6     ALTERATION OF CAPITAL

      6.1.  Increase of Authorized Capital
      6.2.  Other Capital Alterations
      6.3.  Creation, Variation and Abrogation of Special Rights and
            Restrictions
      6.4.  Consent of Class Required
      6.5.  Special Rights of Conversion
      6.6.  Class Meetings of Members

                             WORRALL SCOTT AND PAGE                            1
<PAGE>

PART  ARTICLE                       SUBJECT

7     PURCHASE AND REDEMPTION OF SHARES

      7.1.  Company Authorized to Purchase or Redeem its Shares
      7.2.  Selection of Shares to be Redeemed
      7.3.  Purchased or Redeemed Shares Not Voted

8     BORROWING POWERS

      8.1.  Powers of Directors
      8.2.  Special Rights Attached to and Negotiability of Debt Obligations
      8.3.  Register of Debentureholders
      8.4.  Execution of Debt Obligations
      8.5.  Register of Indebtedness

9     GENERAL MEETINGS

      9.1.  Annual General Meetings
      9.2.  Waiver of Annual General Meeting
      9.3.  Classification of General Meetings
      9.4.  Calling of Meetings
      9.5.  Advance Notice for Election of Directors
      9.6.  Notice of General Meeting
      9.7.  Waiver or Reduction of Notice
      9.8.  Notice of Special Business at General Meeting

10    PROCEEDINGS AT GENERAL MEETINGS

      10.1.  Special Business
      10.2.  Requirement of Quorum
      10.3.  Quorum
      10.4.  Lack of Quorum
      10.5.  Chairman
      10.6.  Alternate Chairman
      10.7.  Adjournments
      10.8.  Resolutions Need Not Be Seconded
      10.9.  Decisions by Show of Hands or Poll
      10.10. Casting Vote
      10.11. Manner of Taking Poll
      10.12. Retention of Ballots Cast on a Poll
      10.13. Casting of Votes
      10.14. Ordinary Resolution Sufficient

11    VOTES OF MEMBERS

      11.1.  Number of Votes Per Share or Member
      11.2.  Votes of Persons in Representative Capacity
      11.3.  Representative of a Corporate Member
      11.4.  Votes by Joint Holders
      11.5.  Votes by Committee for a Member
      11.6.  Appointment of Proxyholders
      11.7.  Execution of Form of Proxy
      11.8.  Deposit of Proxy
      11.9.  Validity of Proxy Note
      11.10. Revocation of Proxy

                             WORRALL SCOTT AND PAGE                            2
<PAGE>

PART  ARTICLE                   SUBJECT

12    DIRECTORS

      12.1. Number of Directors
      12.2. Remuneration and Expenses of Directors
      12.3. Qualification of Directors

13    ELECTION OF DIRECTORS

      13.1. Election at Annual General Meetings
      13.2. Eligibility of Retiring Director
      13.3. Continuance of Directors
      13.4. Election of Less than Required Number of Directors
      13.5. Filling a Casual Vacancy
      13.6. Additional Directors
      13.7. Alternate Directors
      13.8. Termination of Directorship
      13.9. Removal of Directors

14    POWERS OF DUTIES OF DIRECTORS

      14.1. Management of Affairs and Business
      14.2. Appointment of Attorney

15    DISCLOSURE OF INTEREST OF DIRECTORS

      15.1. Disclosure of Conflicting Interest
      15.2. Voting and Quorum re Proposed Contract
      15.3. Director May Hold Office or Place of Profit with Company
      15.4. Director Acting in Professional Capacity
      15.5. Director Receiving Remuneration from Other Interests

16    PROCEEDINGS OF DIRECTORS

      16.1. Chairman and Alternate
      16.2. Meetings - Procedure
      16.3. Meetings by Conference Telephone
      16.4. Notice of Meeting
      16.5. Waiver of Notice of Meetings
      16.6. Quorum
      16.7. Continuing Directors may Act During Vacancy
      16.8. Validity of Acts of Directors
      16.9. Resolution in Writing Effective

17    EXECUTIVE AND OTHER COMMITTEES

      17.1. Appointment of Executive Committee
      17.2. Appointment of Committees
      17.3. Procedure at Meetings

18    OFFICERS

      18.1. President and Secretary Required
      18.2. Persons Holding More Than One Office and Remuneration
      18.3. Disclosure of Conflicting Interest

                             WORRALL SCOTT AND PAGE                            3
<PAGE>

PART  ARTICLE                   SUBJECT

19    INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES

      19.1. Indemnification of Directors
      19.2. Indemnification of Officers, Employees, Agents
      19.3. Indemnification not invalidated by non-compliance
      19.4. Company may Purchase Insurance

20    DIVIDENDS AND RESERVES

      20.1. Declaration of Dividends
      20.2. Declared Dividend Date
      20.3. Proportionate to Number of Shares Held
      20.4. Reserves
      20.5. Receipts from Joint Holders
      20.6. No Interest on Dividends
      20.7. Payment of Dividends
      20.8. Capitalization of Undistributed Surplus

21    DOCUMENTS, RECORDS AND REPORTS

      21.1. Documents to be Kept
      21.2. Accounts to be Kept
      21.3. Inspection of Accounts
      21.4. Financial Statements and Reports for General Meeting
      21.5. Financial Statements and Reports for Members

22    NOTICES

      22.1. Method of Giving Notice
      22.2. Notice to Joint Holder
      22.3. Notice to Personal Representative
      22.4. Persons to Receive Notice

23    RECORD DATES

      23.1. Record Date
      23.2. No Closure of Register of Members

24    SEAL

      24.1. Affixation of Seal to Documents
      24.2. Reproduction of Seal
      24.3. Official Seal for Other Jurisdictions

25    MECHANICAL REPRODUCTION OF SIGNATURES

      25.1. Instruments may be Mechanically Signed
      25.2. Definition of Instruments

26    PROHIBITIONS

      26.1. Number of Members and No Securities to be Offered to the Public
      26.2. Restriction on Transfer of Shares

                             WORRALL SCOTT AND PAGE                            4

<PAGE>

                          PROVINCE OF BRITISH COLUMBIA

                                  COMPANY ACT

                                    ARTICLES
                                       OF

                           NICHOLAS DATA SERVICES LTD.

                                     PART I

                                 INTERPRETATION

      1.1. In these Articles, unless there is something in the subject or
      context inconsistent therewith:

      "Board" and "the Directors" or "the directors" mean the Directors, sole
      Director or alternate Director of the Company for the time being.

      "Company Act" means the Company Act of the Province of British Columbia as
      from time to time enacted and all amendments thereto and statutory
      modifications thereof and includes the regulations made pursuant thereto.

      "seal" means the common seal of the Company.

      "month" means calendar month.

      "registered owner" or "registered holder" when used with respect to a
      share in the authorized capital of the Company means the person registered
      in the register of members in respect of such share.

      "personal representative" shall include executors, administrators,
      trustees in bankruptcy and duly constituted representatives in lunacy.

      Expressions referring to writing shall be construed as including
references to printing, lithography, typewriting, photography and other modes of
representing or reproducing words in a visible form.

      Words importing the singular include the plural and vice versa; and words
importing male persons include female persons and words importing persons shall
include corporations.

      1.2. The meaning of any words or phrases defined in the Company Act shall,
if not inconsistent with the subject or context, bear the same meaning in these
Articles.

1.3. The Rules of Construction contained in the Interpretation Act shall apply,
mutatis mutandis, to the interpretation of these Articles.

                                     PART 2

                         SHARES AND SHARE CERTIFICATES

      2.1. Every member is entitled, without charge, to one certificate
representing the share or shares of each class held by him; provided that, in
respect of a share or shares held jointly by several persons, the Company shall
not be bound to issue more than one certificate, and delivery of a certificate
for a share to the first named of several joint registered holders or to his
duly authorized agent shall be sufficient delivery to all; and provided further
that the Company shall not be bound to issue certificates representing
redeemable shares, if such shares are to be redeemed within one month of the
date on which they were allotted. Any share certificate may be sent through the
mail by registered prepaid mail to the member entitled thereto, and neither the
Company nor any transfer agent shall be liable for any loss occasioned to the
member owing to any such share certificate so sent being lost in the mail or
stolen.

      2.2.  If a share certificate

      (i)   is worn out or defaced, the Directors shall, upon production to them
            of the said certificate and upon such other terms, if any, as they
            may think fit, order the said certificate to be cancelled and shall
            issue a new certificate in lieu thereof;

                             WORRALL SCOTT AND PAGE                            5
<PAGE>

      (ii)  is lost, stolen or destroyed, then, upon proof thereof to the
            satisfaction of the Directors and upon such indemnity, if any, as
            the Directors deem adequate being given, a new share certificate in
            lieu thereof shall be issued to the person entitled to such lost,
            stolen or destroyed certificate; or

      (iii) represents more than one share and the registered owner thereof
            surrenders it to the Company with a written request that the Company
            issue in his name two or more certificates each representing a
            specified number of shares and in the aggregate representing the
            same number of shares as the certificate so surrendered and, upon
            payment of an amount determined from time to time by the Directors,
            the Company shall cancel the certificate so surrendered and issue in
            lieu thereof certificates in accordance with such request.

      2.3. Every share certificate shall be signed manually by at least one
officer or Director of the Company, or by or on behalf of a registrar, branch
registrar, transfer agent or branch transfer agent of the Company and any
additional signatures may be printed, lithographed, engraved or otherwise
mechanically reproduced in accordance with these Articles.

      2.4. Except as required by law, statute or these Articles, no person shall
be recognized by the Company as holding any share upon any trust, and the
Company shall not be bound by or compelled in any way to recognize (even when
having notice thereof) any equitable, contingent, future or partial interest in
any share or in any fractional part of a share or (except only as by law,
statute or these Articles provided or as ordered by a court of competent
jurisdiction) any other rights in respect of any share except an absolute right
to the entirety thereof in its registered holder.

                                     PART 3

                                ISSUE OF SHARES

      3.1. Subject to Article 3.2 and to any direction to the contrary contained
in a resolution passed at a general meeting authorizing any increase or
alteration of capital, the shares shall be under the control of the Directors
who may, subject to the rights of the registered holders of the shares of the
Company for the time being issued, issue, allot, sell or otherwise dispose of,
and/or grant options on or otherwise deal in, shares authorized but not
outstanding at such times, to such persons (including Directors), in such
manner, upon such terms and conditions, and at such price or for such
consideration, as they, in their absolute discretion, may determine.

      3.2. If the Company is, or becomes, a company which is not a reporting
company and the Directors are required by the Company Act before allotting any
shares to offer them pro rata to the members, the Directors shall, before
allotting any shares, comply with the applicable provisions of the Company Act.

      3.3. Subject to the provisions of the Company Act, the Company, or the
Directors on behalf of the Company, may pay a commission or allow a discount to
any person in consideration of his subscribing or agreeing to subscribe, whether
absolutely or conditionally, for any shares, debentures, share rights, warrants
or debenture stock in the Company, or procuring or agreeing to procure
subscriptions, whether absolutely or conditionally, for any such shares,
debentures, share rights, warrants or debenture stock, provided that, if the
Company is not a specially limited company, the rate of the commission and
discount shall not in the aggregate exceed 25 per centum of the amount of the
subscription price of such shares, and if the Company is a specially limited
company, the rate of the commission and discount shall not in the aggregate
exceed 98 per centum of the amount of the subscription price of such shares,
debentures, share rights, warrants or debenture stock. The Company may also pay
such brokerage as may be lawful.

      3.4. No share may be issued until it is fully paid and the Company shall
have received the full consideration therefor in cash, property or past services
actually performed for the Company. The value of the property or services for
the purposes of this Article shall be the value determined by the Directors by
resolution to be, in all circumstances of the transaction, the fair market value
thereof.

                             WORRALL SCOTT AND PAGE                            6
<PAGE>

                                     PART 4

                                SHARE REGISTERS

      4.1. The Company shall keep or cause to be kept a register of members, a
register of transfers and a register of allotments within British Columbia, all
as required by the Company Act, and may combine one or more of such registers.
If the Company's capital shall consist of more than one class of shares, a
separate register of members, register of transfers and register of allotments
may be kept in respect of each class of shares. The Directors on behalf of the
Company may appoint a trust company to keep the register of members, register of
transfers and register of allotments or, if there is more than one class of
shares, the Directors may appoint a trust company, which need not be the same
trust company, to keep the register of members, the register of transfers and
the register of allotments for each class of shares. The Directors on behalf of
the Company may also appoint one or more trust companies, including the trust
company which keeps the said registers of its shares or of a class thereof, as
transfer agent for its shares or such class thereof, as the case may be, and the
same or another trust company or companies as registrar for its shares or such
class thereof, as the case may be. The Directors may terminate the appointment
of any such trust company at any time and may appoint another trust company in
its place.

      4.2. Unless prohibited by the Company Act, the Company may keep or cause
to be kept one or more branch registers of members at such place or places as
the Directors may from time to time deter mine.

      4.3. The Company may at any time close its register of members upon
resolution of the Directors.

                                     PART 5

                      TRANSFER AND TRANSMISSION OF SHARES

      5.1. Subject to the provisions of the Memorandum and of these Articles
that may be applicable, any member may transfer any of his shares by instrument
in writing executed by or on behalf of such member and delivered to the Company
or its transfer agent. The instrument of transfer of any share of the Company
shall be in the form, if any, on the back of the Company's share certificates or
in such other form as the Directors may from time to time approve. Except to the
extent that the Company Act may otherwise provide, the transferor shall be
deemed to remain the holder of the shares until the name of the transferee is
entered in the register of members or a branch register of members thereof.

      5.2. The signature of the registered holder of any shares, or of his duly
authorized attorney, upon an authorized instrument of transfer shall constitute
a complete and sufficient authority to the Company, its directors, officers and
agents to register, in the name of the transferee as named in the instrument of
transfer, the number of shares specified therein or, if no number is specified,
all the shares of the registered holder represented by share certificates
deposited with the instrument of transfer. If no transferee is named in the
instrument of transfer, the instrument of transfer shall constitute a complete
and sufficient authority to the Company, its directors, officers and agents to
register, in the name of the person in whose behalf any certificate for the
shares to be transferred is deposited with the Company for the purpose of having
the transfer registered, the number of shares specified in the instrument of
transfer or, if no number is specified, all the shares represented by all share
certificates deposited with the instrument of transfer.

      5.3. Neither the Company nor any Director, officer or agent thereof shall
be bound to inquire into the title of the person named in the form of transfer
as transferee, or, if no person is named therein as transferee, of the person on
whose behalf the certificate is deposited with the Company for the purpose of
having the transfer registered or be liable to any claim by such registered
holder or by any intermediate holder of the certificate or of any of the shares
represented thereby or any interest therein for registering the transfer, and
the transfer, when registered, shall confer upon the person in whose name the
shares have been registered a valid title to such shares.

                             WORRALL SCOTT AND PAGE                            7
<PAGE>

      5.4. Every instrument of transfer shall be executed by the transferor and
left at the registered office of the Company or at the office of its transfer
agent or registrar for registration together with the share certificate for the
shares to be transferred and such other evidence, if any, as the Directors or
the transfer agent or registrar may require to prove the title of the transferor
or his right to transfer the shares and the right of the transferee to have the
transfer registered. All instruments of transfer where the transfer is
registered shall be retained by the Company or its transfer agent or registrar
and any instrument of transfer, where the transfer is not registered, shall be
returned to the person depositing the same together with the share certificate
which accompanied the same when tendered for registration.

      5.5. There shall be paid to the Company in respect of the registration of
any transfer such sum, if any, as the Directors may from time to time determine.

      5.6. In the case of the death of a member, the survivor or survivors where
the deceased was a joint registered holder, and the legal personal
representative of the deceased where he was the sole holder, shall be the only
persons recognized by the Company as having any title to his interest in the
shares. Before recognizing any legal personal representative the Directors may
require him to obtain a grant of probate or letters of administration in British
Columbia.

      5.7. Upon the death or bankruptcy of a member, his personal representative
or trustee in bankruptcy, although not a member, shall have the same rights,
privileges and obligations that attach to the shares formerly held by the
deceased or bankrupt member if the documents required by the Company Act shall
have been deposited at the Company's registered office.

      5.8. Any person becoming entitled to a share in consequence of the death
or bankruptcy of a member shall, upon such documents and evidence being produced
to the Company as the Company Act requires or who becomes entitled to a share as
a result of an order of a Court of competent jurisdiction or a statute has the
right either to be registered as a member in his representative capacity in
respect of such share, or, if he is a personal representative, instead of being
registered himself, to make such transfer of the share as the deceased or
bankrupt person could have made; but the Directors shall, as regards a transfer
by a personal representative or trustee in bankruptcy, have the same right, if
any, to decline or suspend registration of a transferee as they would have in
the case of a transfer of a share by the deceased or bankrupt person before the
death or bankruptcy.

                                     PART 6

                             ALTERATION OF CAPITAL

      6.1. The Company may by ordinary resolution filed with the Registrar amend
its Memorandum to increase the authorized capital of the Company by:

      (i)   creating shares with par value or shares without par value, or both;

      (ii)  increasing the number of shares with par value or shares without par
            value, or both; or

      (iii) increasing the par value of a class of shares with par value, if no
            shares of that class are issued.

All new shares shall be subject to the same provisions with reference to
transfers, transmissions and otherwise as the existing shares of the Company.

      6.2. The Company may by special resolution alter its Memorandum to
subdivide, consolidate, change from shares with par value to shares without par
value, or from shares without par value to shares with par value, or change the
designation of, all or any of its shares but only to such extent, in such manner
and with such consents of members holding a class of shares which is the subject
of or affected by such alteration, as the Company Act provides.

      6.3.  The Company may alter its Memorandum or these Articles

      (i)   by special resolution, to create, define and attach special rights
            or restrictions to any shares, and

                             WORRALL SCOTT AND PAGE                            8
<PAGE>

      (ii)  by special resolution and by otherwise complying with any applicable
            provision of its Memorandum or these Articles, to vary or abrogate
            any special rights and restrictions attached to any shares

and in each case by filing a certified copy of such resolution with the
Registrar but no right or special right attached to any issued shares shall be
prejudiced or interfered with unless all members holding shares of each class
whose right or special right is so prejudiced or interfered with consent thereto
in writing, or unless a resolution consenting thereto is passed at a separate
class meeting of the holders of the shares of each such class by a majority of
three-fourths, or such greater majority as may be specified by the special
rights attached to the class of shares, of the issued shares of such class.

      6.4. Notwithstanding such consent in writing or such resolution, no such
alteration shall be valid as to any part of the issued shares of any class
unless the holders of the rest of the issued shares of such class either all
consent thereto in writing or consent thereto by a resolution passed by the
votes of members holding three-fourths of the rest of such shares.

      6.5. If the Company is or becomes a reporting company, no resolution to
create, vary or abrogate any special right of conversion attaching to any class
of shares shall be submitted to any meeting of members unless, if so required by
the Company Act, the Superintendent of Brokers shall have consented to the
resolution.

      6.6. Unless these Articles otherwise provide, the provisions of these
Articles relating to general meetings shall apply, with the necessary changes
and so far as they are applicable, to a class meeting of members holding a
particular class of shares but the quorum at a class meeting shall be one person
holding or representing by proxy one-third of the shares affected.

                                     PART 7

                       PURCHASE AND REDEMPTION OF SHARES

      7.1. Subject to the special rights and restrictions attached to any class
of shares, the Company may, by a resolution of the Directors and in compliance
with the Company Act, purchase any of its shares at the price and upon the terms
specified in such resolution or redeem any class of its shares in accordance
with the special rights and restrictions attaching thereto. No such purchase or
redemption shall be made if the Company is insolvent at the time of the proposed
purchase or redemption or if the proposed purchase or redemption would render
the Company insolvent. Unless the shares are to be purchased through a stock
exchange or the Company is purchasing the shares from dissenting members
pursuant to the requirements of the Company Act, the Company shall make its
offer to purchase pro rata to every member who holds shares of the class or
kind, as the case may be, to be purchased.

      7.2. If the Company proposes at its option to redeem some but not all of
the shares of any class, the Directors may, subject to the special rights and
restrictions attached to such class of shares, decide the manner in which the
shares to be redeemed shall be selected.

      7.3. Subject to the provisions of the Company Act, any shares purchased or
redeemed by the Company may be sold or issued by it, but, while such shares are
held by the Company, it shall not exercise any vote in respect of these shares.

                                     PART 8

                                BORROWING POWERS

      8.1. The Directors may from time to time on behalf of the Company

      (i)   borrow money in such manner and amount, on such security, from such
            sources and upon such terms and conditions as they think fit,

                             WORRALL SCOTT AND PAGE                            9
<PAGE>

      (ii)  issue bonds, debentures, and other debt obligations either outright
            or as security for any liability or obligation of the Company or any
            other person, and

      (iii) mortgage, charge, whether by way of specific or floating charge, or
            give other security on the undertaking, or on the whole or any part
            of the property and assets, of the Company (both present and
            future).

      8.2. Any bonds, debentures or other debt obligations of the Company may be
issued at a discount, premium or otherwise, and with any special privileges as
to redemption, surrender, drawing, allotment of or conversion into or exchange
for shares or other securities, attending and voting at general meetings of the
Company, appointment of Directors or otherwise and may by their terms be
assignable free from any equities between the Company and the person to whom
they were issued or any subsequent holder thereof, all as the Directors may
determine.

      8.3. The Company shall keep or cause to be kept within the Province of
British Columbia in accordance with the Company Act a register of its debentures
and a register of debentureholders, which registers may be combined, and,
subject to the provisions of the Company Act, may keep or cause to be kept one
or more branch registers of its debentureholders at such place or places as the
Directors may from time to time determine and the Directors may by resolution,
regulation or otherwise make such provisions as they think fit respecting the
keeping of such branch registers.

      8.4. Every bond, debenture or other debt obligation of the Company shall
be signed manually by at least one Director or officer of the Company or by or
on behalf of a trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the bond, debenture or other debt obligation appointed by the
Company or under any instrument under which the bond, debenture or other debt
obligation is issued and any additional signatures may be printed or otherwise
mechanically reproduced thereon and, in such event, a bond, debenture or other
debt obligation so signed is as valid as if signed manually notwithstanding
that any person whose signature is so printed or mechanically reproduced shall
have ceased to hold the office that he is stated on such bond, debenture or
other debt obligation to hold at the date of the issue thereof.

      8.5. The Company shall keep or cause to be kept a register of its
indebtedness to every Director or officer of the Company or an associate of any
of them in accordance with the provisions of the Company Act.

                                     PART 9

                                GENERAL MEETINGS

      9.1. Subject to any extensions of time permitted pursuant to the Company
Act, the first annual general meeting of the Company shall be held within
fifteen months from the date of incorporation and thereafter an annual general
meeting shall be held once in every calendar year at such time (not being more
than thirteen months after the holding of the last preceding annual general
meeting) and place as may be determined by the Directors.

      9.2. If the Company is, or becomes, a company which is not a reporting
company and all the members entitled to attend and vote at an annual general
meeting consent in writing to all the business which is required or desired to
be transacted at the meeting, the meeting need not be held.

      9.3. All general meetings other than annual general meetings are herein
referred to as and may be called extraordinary general meetings.

      9.4. The Directors may, whenever they think fit, convene an extraordinary
general meeting. An extraordinary general meeting, if requisitioned in
accordance with the Company Act, shall be convened by the Directors or, if not
convened by the Directors, may be convened by the requisitionists as provided in
the Company Act.

                             WORRALL SCOTT AND PAGE                           10
<PAGE>

      9.5. If the Company is or becomes a reporting company, advance notice of
any general meeting at which Directors are to be elected shall be published in
the manner required by the Company Act.

      9.6. A notice convening a general meeting specifying the place, the day,
and the hour of the meeting, and, in case of special business, the general
nature of that business, shall be given as provided in the Company Act and in
the manner hereinafter in these Articles mentioned, or in such other manner (if
any) as may be prescribed by ordinary resolution, whether previous notice
thereof has been given or not, to such persons as are entitled by law or under
these Articles to receive such notice from the Company. Accidental omission to
give notice of a meeting to, or the non-receipt of notice of a meeting, by any
member shall not invalidate the proceedings at that meeting.

      9.7. All the members of the Company entitled to attend and vote at a
general meeting may, by unanimous consent in writing given before, during or
after the meeting, or if they are present at the meeting by a unanimous vote,
waive or reduce the period of notice of such meeting and an entry in the minute
book of such waiver or reduction shall be sufficient evidence of the due
convening of the meeting.

      9.8. Except as otherwise provided by the Company Act, where any special
business at a general meeting includes considering, approving, ratifying,
adopting or authorizing any document or the execution thereof or the giving of
effect thereto, the notice convening the meeting shall, with respect to such
document, be sufficient if it states that a copy of the document or proposed
document is or will be available for inspection by members at the registered
office or records office of the Company or at some other place in British
Columbia designated in the notice during usual business hours up to the date of
such general meeting.

                                     PART 10

                        PROCEEDINGS AT GENERAL MEETINGS

      10.1. All business shall be deemed special business which is transacted at

      (i)   an extraordinary general meeting other than the conduct of and
            voting at, such meeting; and

      (ii)  an annual general meeting, with the exception of the conduct of, and
            voting at, such meeting, the consideration of the financial
            statement and of the respective reports of the Directors and
            Auditor, fixing or changing the number of directors, approval of a
            motion to elect two or more directors by a single resolution, the
            election of Directors, the appointment of the Auditor, the fixing of
            the remuneration of the Auditor and such other business as by these
            Articles of the Company Act may be transacted at a general meeting
            without prior notice thereof being given to the members or any
            business which is brought under consideration by the report of the
            Directors.

      10.2. No business, other than election of the chairman or the adjournment
of the meeting, shall be transacted at any general meeting unless a quorum of
members, entitled to attend and vote, is present at the commencement of the
meeting, but the quorum need not be present throughout the meeting.

      10.3. Save as herein otherwise provided, a quorum shall be two members or
proxyholders representing two members, or one member and a proxyholder
representing another member. The Directors, the Secretary or, in his absence, an
Assistant Secretary, and the solicitor of the Company shall be entitled to
attend at any general meeting but no such person shall be counted in the quorum
or be entitled to vote at any general meeting unless he shall be a member or
proxyholder entitled to vote thereat.

      10.4. If within half an hour from the time appointed for a general meeting
a quorum is not present, the meeting, if convened upon the requisition of
members, shall be dissolved. In any other case it shall stand adjourned to the
same day in the next week, at the same time and place, and, if at the adjourned
meeting a quorum is not present within half an hour from the time appointed for
the meeting, the person or persons present and being, or representing by proxy,
a member or members entitled to attend and vote at the meeting shall be a
quorum.

                             WORRALL SCOTT AND PAGE                           11
<PAGE>

      10.5. The Chairman of the Board, if any, or in his absence the President
of the Company or in his absence a Vice-President of the Company, if any, shall
be entitled to preside as chairman at every general meeting of the Company.

      10.6. If at any general meeting neither the Chairman of the Board nor
President nor a Vice-President is present within fifteen minutes after the time
appointed for holding the meeting or is willing to act as chairman, the
Directors present shall choose some one of their number to be chairman or if all
the Directors present decline to take the chair or shall fail to so choose or if
no Director be present, the members present shall choose some other person in
attendance, who need not be a member, to be chairman.

      10.7. The chairman may and shall, if so directed by the meeting, adjourn
the meeting from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place. When a meeting is adjourned
for thirty days or more, notice, but not advance notice, of the adjourned
meeting shall be given as in the case of an original meeting. Save as aforesaid,
it shall not be necessary to give any notice of an adjourned meeting or of the
business to be transacted at an adjourned meeting.

      10.8. No motion proposed at a general meeting need be seconded and the
chairman may propose or second a motion.

      10.9. Subject to the provisions of the Company Act, at any general meeting
a resolution put to the vote of the meeting shall be decided on a show of hands,
unless (before or on the declaration of the result of the show of hands) a poll
is directed by the chairman or demanded by at least one member entitled to vote
who is present in person or by proxy. The chairman shall declare to the meeting
the decision on every question in accordance with the result of the show of
hands or the poll, and such decision shall be entered in the book of proceedings
of the Company. A declaration by the chairman that a resolution has been
carried, or carried unanimously, or by a particular majority, or lost or not
carried by a particular majority and an entry to that effect in the book of the
proceedings of the Company shall be conclusive evidence of the fact, without
proof of the number or proportion of the votes recorded in favour of, or
against, that resolution.

      10.10. In the case of an equality of votes, whether on a show of hands or
on a poll, the chairman of the meeting at which the show of hands takes place or
at which the poll is demanded shall be entitled to a casting vote in addition to
the vote or votes to which he may be entitled as a member or proxyholder and
this provision shall apply notwithstanding the Chairman is interested in the
subject matter of the resolution.

      10.11. No poll may be demanded on the election of a chairman. A poll
demanded on a question of adjournment shall be taken forthwith. A poll demanded
on any other question shall be taken as soon as, in the opinion of the chairman,
is reasonably convenient, but in no event later than seven days after the
meeting and at such time and place and in such manner as the chairman of the
meeting directs. The result of the poll shall be deemed to be the resolution of
and passed at the meeting upon which the poll was demanded. Any business other
than that upon which the poll has been demanded may be proceeded with pending
the taking of the poll. A demand for a poll may be withdrawn. In any dispute as
to the admission or rejection of a vote the decision of the chairman made in
good faith shall be final and conclusive.

      10.12. Every ballot cast upon a poll and every proxy appointing a
proxyholder who casts a ballot upon a poll shall be retained by the Secretary
for such period and be subject to such inspection as the Company Act may
provide.

      10.13. On a poll a person entitled to cast more than one vote need not, if
he votes, use all his votes or cast all the votes he uses in the same way.

      10.14. Unless the Company Act, the Memorandum or these Articles otherwise
provide, any action to be taken by a resolution of the members may be taken by
an ordinary resolution.

                             WORRALL SCOTT AND PAGE                           12
<PAGE>

                                     PART 11

                                VOTES OF MEMBERS

      11.1. Subject to any special voting rights or restrictions attached to any
class of shares and the restrictions on joint registered holders of shares, on a
show of hands every member who is present in person and entitled to vote thereat
shall have one vote and on a poll every member shall have one vote for each
share of which he is the registered holder and may exercise such vote either in
person or by proxy- holder.

      11.2. Any person who is not registered as a member but is entitled to vote
at any general meeting in respect of a share, may vote the share in the same
manner as if he were a member; but, unless the Directors have previously
admitted his right to vote at that meeting in respect of the share, he shall
satisfy the Directors of his right to vote the share before the time for holding
the meeting, or adjourned meeting, as the case may be, at which he proposes to
vote.

      11.3. Any  corporation  not  being a  subsidiary  which is a member of the
Company may by  resolution of its directors or other  governing  body  authorize
such person as it thinks fit to act as its representative at any general meeting
or class  meeting.  The person so  authorized  shall be  entitled to exercise in
respect  of and at such  meeting  the same  powers on behalf of the  corporation
which he represents as that corporation  could exercise if it were an individual
member of the Company personally present,  including,  without  limitation,  the
right,  unless  restricted  by such  resolution,  to  appoint a  proxyholder  to
represent  such  corporation,  and shall be counted for the purpose of forming a
quorum if  present  at the  meeting.  Evidence  of the  appointment  of any such
representative may be sent to the Company by written instrument, telegram, telex
or any method of transmitting  legibly recorded  messages.  Notwithstanding  the
foregoing, a corporation being a member may appoint a proxyholder.

      11.4. In the case of joint registered holders of a share the vote of the
senior who exercises a vote, whether in person or by proxyholder, shall be
accepted to the exclusion of the votes of the other joint registered holders;
and for this purpose seniority shall be determined by the order in which the
names stand in the register of members. Several legal personal representatives
of a deceased member whose shares are registered in his sole name shall for the
purpose of this Article be deemed joint registered holders.

      11.5. A member of unsound mind entitled to attend and vote, in respect of
whom an order has been made by any court having jurisdiction, may vote, whether
on a show of hands or on a poll, by his committee, curator bonis, or other
person in the nature of a committee or curator bonis appointed by that court,
and any such committee, curator bonis, or other person may appoint a
proxyholder.

      11.6. A member holding more than one share in respect of which he is
entitled to vote shall be entitled to appoint one or more (but not more than
five) proxyholders to attend, act and vote for him on the same occasion. If such
member should appoint more than one proxyholder for the same occasion he shall
specify the number of shares each proxyholder shall be entitled to vote. A
member may also appoint one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.

      11.7. A form of proxy shall be in writing under the hand of the appointor
or of his attorney duly authorized in writing, or, if the appointor is a
corporation, either under the seal of the corporation or under the hand of a
duly authorized officer or attorney. A proxyholder need not be a member of the
Company.

      11.8. A form of proxy and the power of attorney or other authority, if
any, under which it is signed or a notarially certified copy thereof shall be
deposited at the registered office of the Company or at such other place as is
specified for that purpose in the notice convening the meeting, not less than 48
hours (excluding Saturdays, Sundays and holidays) before the time for holding
the meeting or such other time and place as is specified in the notice calling
the meeting. In addition to any other method of depositing proxies provided for
in these Articles, the Directors may from time to time by resolution make
regulations relating to the depositing of proxies at any place or places and
fixing the time or times for depositing the proxies not exceeding 48 hours
(excluding Saturdays, Sundays and holidays) preceding the meeting or adjourned
meeting specified in the notice calling a meeting of members and providing for
particulars of

                             WORRALL SCOTT AND PAGE                           13

<PAGE>

such proxies to be sent to the Company or any agent of the Company in writing or
by letter, telegram, telex or any method of transmitting legibly recorded
messages so as to arrive before the commencement of the meeting or adjourned
meeting at the office of the Company or of any agent of the Company appointed
for the purpose of receiving such particulars and providing that proxies so
deposited as required by this Part and votes given in accordance with such
regulations shall be valid and shall be counted.

      11.9. A vote given in accordance with the terms of a proxy is valid
notwithstanding the previous death or incapacity of the member giving the proxy
or the revocation of the proxy or of the authority under which the form of proxy
was executed or the transfer of the share in respect of which the proxy is
given, provided that no notification in writing of such death, incapacity,
revocation or transfer shall have been received at the registered office of the
Company or by the chairman of the meeting or adjourned meeting for which the
proxy was given before the vote is taken.

      11.10. Every proxy may be revoked by an instrument in writing

      (i)   executed by the member giving the same or by his attorney authorized
            in writing or, where the member is a corporation, by a duly
            authorized officer or attorney of the corporation; and

      (ii)  delivered either at the registered office of the Company at any time
            up to and including the last business day preceding the day of the
            meeting, or any adjournment thereof at which the proxy is to be
            used, or to the chairman of the meeting on the day of the meeting or
            any adjournment thereof before any vote in respect of which the
            proxy is to be used shall have been taken.

or in any other manner provided by law.

                                     PART 12

                                    DIRECTORS

      12.1. The subscribers to the Memorandum of the Company are the first
Directors. The Directors to succeed the first Directors may be appointed in
writing by a majority of the subscribers to the Memorandum or at a meeting of
the subscribers, or if not so appointed, they shall be elected by the members
entitled to vote on the election of Directors and the number of Directors shall
be the same as the number of Directors so appointed or elected. The number of
directors, excluding additional Directors, may be fixed or changed from time to
time by ordinary resolution, whether previous notice thereof has been given or
not, but notwithstanding anything contained in these Articles the number of
Directors shall never be less than one or, if the Company is or becomes a
reporting company, less than three.

      12.2. The remuneration of the Directors as such may from time to time be
determined by the Directors or, if the Directors shall so decide, by the
members. Such remuneration may be in addition to any salary or other
remuneration paid to any officer or employee of the Company as such who is also
a Director. The Directors shall be repaid such reasonable travelling, hotel and
other expenses as they incur in and about the business of the Company and if any
Director shall perform any professional or other services for the Company that
in the opinion of the Directors are outside the ordinary duties of a Director or
shall otherwise be specially occupied in or about the Company's business, he may
be paid a remuneration to be fixed by the Board, or, at the option of such
Director, by the Company in general meeting, and such remuneration may be either
in addition to, or in substitution for any other remuneration that he may be
entitled to receive. The Directors on behalf of the Company, unless otherwise
determined by ordinary resolution, may pay a gratuity or pension or allowance on
retirement to any Director who has held any salaried office or place of profit
with the Company or to his spouse or dependants and may make contributions to
any fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance.

      12.3. A Director shall not be required to hold a share in the capital of
the Company as qualification for his office but shall be qualified as required
by the Company Act, to become or act as a Director.

                           WORRALL SCOTT AND PAGE                             14

<PAGE>

                                     PART 13

                        ELECTION AND REMOVAL OF DIRECTORS

      13.1. At each annual general meeting of the Company all the Directors
shall retire and the members shall elect a Board of Directors consisting of the
number of Directors for the time being fixed pursuant to these Articles. If the
Company is, or becomes, a company that is not a reporting company and the
business to be transacted at any annual general meeting is consented to in
writing by all the members who are entitled to attend and vote thereat such
annual general meeting shall be deemed for the purpose of this Part to have been
held on such written consent becoming effective.

      13.2. A retiring Director shall be eligible for re-election.

      13.3. Where the Company fails to hold an annual general meeting in
accordance with the Company Act, the Directors then in office shall be deemed
to have been elected or appointed as Directors on the last day on which the
annual general meeting could have been held pursuant to these Articles and they
may hold office until other Directors are appointed or elected or until the day
on which the next annual general meeting is held.

      13.4. If at any general meeting at which there should be an election of
Directors, the places of any of the retiring Directors are not filled by such
election, such of the retiring Directors who are not re-elected as may be
requested by the newly-elected Directors shall, if willing to do so, continue in
office to complete the number of Directors for the time being fixed pursuant to
these Articles until further new Directors are elected at a general meeting
convened for the purpose. If any such election or continuance of Directors does
not result in the election or continuance of the number of Directors for the
time being fixed pursuant to these Articles such number shall be fixed at the
number of Directors actually elected or continued in office.

      13.5. Any casual vacancy occurring in the Board of Directors may be filled
by the remaining Directors or Director.

      13.6. Between successive annual general meetings the Directors shall have
power to appoint one or more additional Directors but not more than one-third of
the number of Directors fixed pursuant to these Articles and in effect at the
last general meeting at which Directors were elected. Any Director so appointed
shall hold office only until the next following annual general meeting of the
Company, but shall be eligible for election at such meeting and so long as he is
an additional Director the number of Directors shall be increased accordingly.

      13.7. Any Director may by instrument in writing delivered to the Company
appoint any person to be his alternate to act in his place at meetings of the
Directors at which he is not present unless the Directors shall have reasonably
disapproved the appointment of such person as an alternate Director and shall
have given notice to that effect to the Director appointing the alternate
Director within a reasonable time after delivery of such instrument to the
Company. Every such alternate shall be entitled to notice of meetings of the
Directors and to attend and vote as a Director at a meeting at which the person
appointing him is not personally present, and, if he is a Director, to have a
separate vote on behalf of the Director he is representing in addition to his
own vote. A Director may at any time by instrument, telegram, telex or any
method of transmitting legibly recorded messages delivered to the Company revoke
the appointment of an alternate appointed by him. The remuneration payable to
such an alternate shall be payable out of the remuneration of the Director
appointing him.

      13.8. The office of Director shall be vacated if the Director:

      (i)   resigns his office by notice in writing delivered to the registered
            office of the Company; or

      (ii)  is convicted of an indictable offence and the other Directors shall
            have resolved to remove him; or

      (iii) ceases to be qualified to act as a Director pursuant to the Company
            Act.

                           WORRALL SCOTT AND PAGE                             15

<PAGE>

      13.9. The Company may by special resolution remove any Director before the
expiration of his period of office, and may by an ordinary resolution appoint
another person in his stead.

                                     PART 14

                         POWERS AND DUTIES OF DIRECTORS

      14.1. The Directors shall manage, or supervise the management of, the
affairs and business of the Company and shall have the authority to exercise all
such powers of the Company as are not, by the Company Act or by the Memorandum
or these Articles, required to be exercised by the Company in general meeting.

      14.2. The Directors may from time to time by power of attorney or other
instrument under the seal, appoint any person to be the attorney of the Company
for such purposes, and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Directors under these Articles
and excepting the powers of the Directors relating to the constitution of the
Board and of any of its committees and the appointment or removal of officers
and the power to declare dividends) and for such period, with such remuneration
and subject to such conditions as the Directors may think fit, and any such
appointment may be made in favour of any of the Directors or any of the members
of the Company or in favour of any corporation, or of any of the members,
directors, nominees or managers of any corporation, firm or joint venture and
any such power of attorney may contain such provisions for the protection or
convenience of persons dealing with such attorney as the Directors think fit.
Any such attorney may be authorized by the Directors to sub-delegate all or any
of the powers, authorities and discretions for the time being vested in him.

                                     PART 15

                       DISCLOSURE OF INTEREST OF DIRECTORS

      15.1. A Director who is, in any way, directly or indirectly interested in
an existing or proposed contract or transaction with the Company or who holds
any office or possesses any property whereby, directly or indirectly, a duty or
interest might be created to conflict with his duty or interest as a Director
shall declare the nature and extent of his interest in such contract or
transaction or of the conflict or potential conflict with his duty and interest
as a Director, as the case may be, in accordance with the provisions of the
Company Act.

      15.2. A Director shall not vote in respect of any such contract or
transaction with the Company in which he is interested and if he shall do so his
vote shall not be counted, but he shall be counted in the quorum present at the
meeting at which such vote is taken. Subject to the provisions of the Company
Act, the foregoing prohibitions shall not apply to

      (i)   any such contract or transaction relating to a loan to the Company,
            which a Director or a specified corporation or a specified firm in
            which he has an interest has guaranteed or joined in guaranteeing
            the repayment of the loan or any part of the loan;

      (ii)  any contract or transaction made or to be made with, or for the
            benefit of a holding corporation or a subsidiary corporation of
            which a Director is a director;

      (iii) any contract by a Director to subscribe for or underwrite shares or
            debentures to be issued by the Company or a subsidiary of the
            Company, or any contract, arrangement or transaction in which a
            Director is, directly or indirectly, interested if all the other
            Directors are also, directly or indirectly interested in the
            contract, arrangement or transaction;

      (iv)  determining the remuneration of the Directors;

                           WORRALL SCOTT AND PAGE                             16

<PAGE>

      (v)   purchasing and maintaining insurance to cover Directors against
            liability incurred by them as Directors; or

      (vi)  the indemnification of any Director by the Company.

These exceptions may from time to time be suspended or amended to any extent
approved by the Company in general meeting and permitted by the Company Act,
either generally or in respect of any particular contract or transaction or for
any particular period.

      15.3. A Director may hold any office or place of profit with the Company
(other than the office of auditor of the Company) in conjunction with his office
of Director for such period and on such terms (as to remuneration or otherwise)
as the Directors may determine and no Director or intended Director shall be
disqualified by his office from contracting with the Company either with regard
to this tenure of any such other office or place of profit or as vendor,
purchaser or otherwise, and, subject to compliance with the provisions of the
Company Act, no contract or transaction entered into by or on behalf of the
Company in which a Director is in any way interested shall be liable to be
voided by reason thereof.

      15.4. Subject to compliance with the provisions of the Company Act, a
Director or his firm may act in a professional capacity for the Company (except
as auditor of the Company) and he or his firm shall be entitled to remuneration
for professional services as if he were not a Director.

      15.5. A Director may be or become a director or other officer or employee
of, or otherwise interested in, any corporation or firm in which the Company may
be interested as a shareholder or otherwise, and, subject to compliance with the
provisions of the Company Act, such Director shall not be accountable to the
Company for any remuneration or other benefits received by him as director,
officer or employee of, or from his interest in, such other corporation or firm,
unless the Company in general meeting otherwise directs.

                                     PART 16

                            PROCEEDINGS OF DIRECTORS

      16.1. The Chairman of the Board, if any, or in his absence, the President
shall preside as chairman at every meeting of the Directors, or if there is no
Chairman of the Board or neither the Chairman of the Board nor the President is
present within fifteen minutes of the time appointed for holding the meeting or
is willing to act as chairman, or, if the Chairman of the Board, if any, and the
President have advised the Secretary that they will not be present at the
meeting, the Directors present shall choose one of their number to be chairman
of the meeting.

      16.2. The Directors may meet together for the dispatch of business,
adjourn and otherwise regulate their meetings, as they think fit. Questions
arising at any meeting shall be decided by a majority of votes. In case of an
equality of votes the chairman shall not have a second or casting vote. Meetings
of the Board held at regular intervals may be held at such place, at such time
and upon such notice (if any) as the Board may by resolution from time to time
determine.

      16.3. A Director may participate in a meeting of the Board or of any
committee of the Directors by means of conference telephones or other
communications facilities by means of which all Directors participating in the
meeting can hear each other and provided that all such Directors agree to such
participation. A Director participating in a meeting in accordance with this
Article shall be deemed to be present at the meeting and to have so agreed and
shall be counted in the quorum therefor and be entitled to speak and vote
thereat.

      16.4. A Director may, and the Secretary or an Assistant Secretary upon
request of a Director shall, call a meeting of the Board at any time. Reasonable
notice of such meeting specifying the place, day and hour of such meeting shall
be given by mail, postage prepaid, addressed to each of the Directors and
alternate Directors at his address as it appears on the books of the Company or
by leaving it at his usual business or residential address or by telephone,
telegram, telex, or any method of transmitting legibly

                             WORRALL SCOTT AND PAGE                           17

<PAGE>

recorded messages. It shall not be necessary to give notice of a meeting of
Directors to any Director or alternate Director (i) who is at the time not in
the Province of British Columbia or (ii) if such meeting is to be held
immediately following a general meeting at which such Director shall have been
elected or is the meeting of Directors at which such Director is appointed.

      16.5. Any Director of the Company may file with the Secretary a document
executed by him waiving notice of any past, present or future meeting or
meetings of the Directors being, or required to have been, sent to him and may
at any time withdraw such waiver with respect to meetings held thereafter. After
filing such waiver with respect to future meetings and until such waiver is
withdrawn no notice need be given to such Director and, unless the Director
otherwise requires in writing to the Secretary, to his alternate Director of any
meeting of Directors and all meetings of the Directors so held shall be deemed
not to be improperly called or constituted by reason of notice not having been
given to such Director or alternate Director.

      16.6. The quorum necessary for the transaction of the business of the
Directors may be fixed by the Directors and if not so fixed shall be a majority
of the Directors or, if the number of Directors is fixed at one, shall be one
Director.

      16.7. The continuing Directors may act notwithstanding any vacancy in
their body, but, if and so long as their number is reduced below the number
fixed pursuant to these Articles as the necessary quorum of Directors, the
continuing Directors may act for the purpose of increasing the number of
Directors to that number, or of summoning a general meeting of the Company, but
for no other purpose.

      16.8. Subject to the provisions of the Company Act, all acts done by any
meeting of the Directors or of a committee of Directors, or by any person acting
as a Director, shall, notwithstanding that it be afterwards discovered that
there was some defect in the qualification, election or appointment of any such
Directors or of the members of such committee or person acting as aforesaid, or
that they or any of them were disqualified, be as valid as if every such person
had been duly elected or appointed and was qualified to be a Director.

      16.9. A resolution consented to in writing, whether by document, telegram,
telex or any method of transmitting legibly recorded messages or other means, by
all of the Directors or their alternates shall be as valid and effectual as if
it had been passed at a meeting of the Directors duly called and held. Such
resolution may be in two or more counterparts which together shall be deemed to
constitute one resolution in writing. Such resolution shall be filed with the
minutes of the proceedings of the Directors and shall be effective on the date
stated thereon or on the latest date stated on any counterpart.

                                     PART 17

                         EXECUTIVE AND OTHER COMMITTEES

      17.1. The Directors may by resolution appoint an Executive Committee to
consist of such member or members of their body as they think fit, which
Committee shall have, and may exercise during the intervals between the meetings
of the Board, all the powers vested in the Board except the power to fill
vacancies in the Board, the power to change the membership of, or fill vacancies
in, said Committee or any other committee of the Board and such other powers, if
any, as may be specified in the resolution. The said Committee shall keep
regular minutes of its transactions and shall cause them to be recorded in books
kept for that purpose, and shall report the same to the Board of Directors at
such times as the Board of Directors may from time to time require. The Board
shall have the power at any time to revoke or override the authority given to or
acts done by the Executive Committee except as to acts done before such
revocation or overriding and to terminate the appointment or change the
membership of such Committee and to fill vacancies in it. The Executive
Committee may make rules for the conduct of its business and may appoint such
assistants as it may deem necessary. A majority of the members of said Committee
shall constitute a quorum thereof.

                           WORRALL SCOTT AND PAGE                             18

<PAGE>

      17.2. The Directors may by resolution appoint one or more committees
consisting of such member or members of their body as they think fit and may
delegate to any such committee between meetings of the Board such powers of the
Board (except the power to fill vacancies in the Board and the power to change
the membership of or fill vacancies in any committee of the Board and the power
to appoint or remove officers appointed by the Board) subject to such conditions
as may be prescribed in such resolution, and all committees so appointed shall
keep regular minutes of their transactions and shall cause them to be recorded
in books kept for that purpose, and shall report the same to the Board of
Directors at such times as the Board of Directors may from time to time require.
The Directors shall also have power at any time to revoke or override any
authority given to or acts to be done by any such committees except as to acts
done before such revocation or overriding and to terminate the appointment or
change the membership of a committee and to fill vacancies in it. Committees
may make rules for the conduct of their business and may appoint such assistants
as they may deem necessary. A majority of the members of a committee shall
constitute a quorum thereof.

      17.3. The Executive Committee and any other committee may meet and adjourn
as it thinks proper. Questions arising at any meeting shall be determined by a
majority of votes of the members of the committee present, and in case of an
equality of votes the chairman shall not have a second or casting vote. A
resolution approved in writing by all the members of the Executive Committee or
any other committee shall be as valid and effective as if it had been passed at
a meeting of such Committee duly called and constituted. Such resolution may be
in two or more counterparts which together shall be deemed to constitute one
resolution in writing. Such resolution shall be filed with the minutes of the
proceedings of the committee and shall be effective on the date stated thereon
or on the latest date stated in any counterpart.

                                     PART 18

                                    OFFICERS

      18.1. The Directors shall, from time to time, appoint a President and a
Secretary and such other officers, if any, as the Directors shall determine and
the Directors may, at any time, terminate any such appointment. No officer shall
be appointed unless he is qualified in accordance with the provisions of the
Company Act.

      18.2. One person may hold more than one of such offices except that the
offices of President and Secretary must be held by different persons unless the
Company has only one member. Any person appointed as the Chairman of the Board,
the President or the Managing Director shall be a Director. The other officers
need not be Directors. The remuneration of the officers of the Company as such
and their terms and conditions of their tenure of office or employment shall
from time to time be determined by the Directors; such remuneration may be by
way of salary, fees, wages, commission or participation in profits or any other
means or all of these modes and an officer may in addition to such remuneration
be entitled to receive after he ceases to hold such office or leaves the
employment of the Company a pension or gratuity. The Directors may decide what
functions and duties each officer shall perform and may entrust to and confer
upon him any of the powers exercisable by them upon such terms and conditions
and with such restrictions as they think fit and may from time to time revoke,
withdraw, alter or vary all or any of such functions, duties and powers. The
Secretary shall, inter alia, perform the functions of the Secretary specified in
the Company Act.

      18.3. Every officer of the Company who holds any office or possesses any
property whereby, whether directly or indirectly, duties or interests might be
created in conflict with his duties or interests as an officer of the Company
shall, in writing, disclose to the President the fact and the nature, character
and extent of the conflict.

                            WORRALL SCOTT AND PAGE                            19

<PAGE>

                                     PART 19

          INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES

      19.1. Subject to the provisions of the Company Act, the Directors shall
cause the Company to indemnify a Director or former Director of the Company and
the Directors may cause the Company to indemnify a director or former director
of a corporation of which the Company is or was a shareholder and the heirs and
personal representatives of any such person against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him or them including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason of his
being or having been a Director of the Company or a director of such
corporation, including any action brought by the Company or any such
corporation. Each Director of the Company on being elected or appointed shall be
deemed to have contracted with the Company on the terms of the foregoing
indemnity.

      19.2. Subject to the provisions of the Company Act, the Directors may
cause the Company to indemnify any officer, employee or agent of the Company or
of a corporation of which the Company is or was a shareholder (notwithstanding
that he is also a Director) and his heirs and personal representatives against
all costs, charges and expenses whatsoever incurred by him or them and resulting
from his acting as an officer, employee or agent of the Company or such
corporation. In addition, the Company shall indemnify the Secretary or an
Assistant Secretary of the Company (if he shall not be a full time employee of
the Company and notwithstanding that he is also a Director) and his respective
heirs and legal representatives against all costs, charges and expenses
whatsoever incurred by him or them and arising out of the functions assigned to
the Secretary by the Company Act or these Articles and each such Secretary and
Assistant Secretary shall on being appointed be deemed to have contracted with
the Company on the terms of the foregoing indemnity.

      19.3. The failure of a Director or officer of the Company to comply with
the provisions of the Company Act or of the Memorandum or these Articles shall
not invalidate any indemnity to which he is entitled under this Part.

      19.4. The Directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a Director,
officer, employee or agent of the Company or as a director, officer, employee or
agent or any corporation of which the Company is or was a shareholder and his
heirs or personal representatives against any liability incurred by him as such
Director, director, officer, employee or agent.

                                     PART 20

                              DIVIDENDS AND RESERVE

      20.1. The Directors may from time to time declare and authorize payment of
such dividends, if any, as they may deem advisable and need not give notice of
such declaration to any member. No dividend shall be paid otherwise than out of
funds and/or assets properly available for the payment of dividends and a
declaration by the Directors as to the amount of such funds or assets available
for dividends shall be conclusive. The Company may pay any such dividend wholly
or in part by the distribution of specific assets and in particular by paid up
shares, bonds, debentures or other securities of the Company or any other
corporation or in any one or more such ways as may be authorized by the Company
or the Directors and where any difficulty arises with regard to such a
distribution the Directors may settle the same as they think expedient, and in
particular may fix the value for distribution of such specific assets or any
part thereof, and may determine that cash payments in substitution for all or
any part of the specific assets to which any members are entitled shall be made
to any members on the basis of the

                           WORRALL SCOTT AND PAGE                             20

<PAGE>

value so fixed in order to adjust the rights of all parties and may vest any
such specific assets in trustees for the persons entitled to the dividend as may
seem expedient to the Directors.

      20.2. Any dividend declared on shares of any class by the Directors may be
made payable on such date as is fixed by the Directors.

      20.3. Subject to the rights of members (if any) holding shares with
special rights as to dividends, all dividends on shares of any class shall be
declared and paid according to the number of such shares held.

      20.4. The Directors may, before declaring any dividend, set aside out of
the funds properly available for the payment of dividends such sums as they
think proper as a reserve or reserves, which shall, at the discretion of the
Directors, be applicable for meeting contingencies, or for equalizing dividends,
or for any other purpose to which such funds of the Company may be properly
applied, and pending such application may, at the like discretion, either be
employed in the business of the Company or be invested in such investments as
the Directors may from time to time think fit. The Directors may also, without
placing the same in reserve, carry forward such funds, which they think prudent
not to divide.

      20.5. If several persons are registered as joint holders of any share, any
one of them may give an effective receipt for any dividend, bonuses or other
moneys payable in respect of the share.

      20.6. No dividend shall bear interest against the Company. Where the
dividend to which a member is entitled includes a fraction of a cent, such
fraction shall be disregarded in making payment thereof and such payment shall
be deemed to be payment in full.

      20.7. Any dividend, bonuses or other moneys payable in cash in respect of
shares may be paid by cheque or warrant sent through the post directed to the
registered address of the holder, or in the case of joint holders, to the
registered address of that one of the joint holders who is first named on the
register, or to such person and to such address as the holder or joint holders
may direct in writing. Every such cheque or warrant shall be made payable to the
order of the person to whom it is sent. The mailing of such cheque or warrant
shall, to the extent of the sum represented thereby (plus the amount of any tax
required by law to be deducted) discharge all liability for the dividend, unless
such cheque or warrant shall not be paid on presentation or the amount of tax so
deducted shall not be paid to the appropriate taxing authority.

      20.8. Notwithstanding anything contained in these Articles the Directors
may from time to time capitalize any undistributed surplus on hand of the
Company and may from time to time issue as fully paid and non-assessable any
unissued shares, or any bonds, debentures or debt obligations of the Company as
a dividend representing such undistributed surplus on hand or any part thereof.

                                     PART 21

                         DOCUMENTS, RECORDS AND REPORTS

      21.1. The Company shall keep at its records office or at such other place
as the Company Act may permit, the documents, copies, registers, minutes, and
records which the Company is required by the Company Act to keep at its records
office or such other place, as the case may be.

      21.2. The Company shall cause to be kept proper books of account and
accounting records in respect of all financial and other transactions of the
Company in order properly to record the financial affairs and condition of the
Company and to comply with the Company Act.

      21.3. Unless the Directors determine otherwise, or unless otherwise
determined by an ordinary resolution, no member of the Company shall be entitled
to inspect the accounting records of the Company.

      21.4. The Directors shall from time to time at the expense of the Company
cause to be prepared and laid before the Company in general meeting such
financial statements and reports as are required by the Company Act.

                           WORRALL SCOTT AND PAGE                             21

<PAGE>

      21.5. Every member shall be entitled to be furnished once gratis on demand
with a copy of the latest annual financial statement of the Company and, if so
required by the Company Act, a copy of each such annual financial statement and
interim financial statement shall be mailed to each member.

                                     PART 22

                                     NOTICES

      22.1. A notice, statement or report may be given or delivered by the
Company to any member either by delivery to him personally or by sending it by
mail to him to his address as recorded in the register of members. Where a
notice, statement or report is sent by mail, service or delivery of the notice,
statement or report shall be deemed to be effected by properly addressing,
prepaying and mailing the notice, statement or report and to have been given on
the day, Saturdays, Sundays and holidays excepted, following the date of
mailing. A certificate signed by the Secretary or other officer of the Company
or of any other corporation acting in that behalf for the Company that the
letter, envelope or wrapper containing the notice, statement or report was so
addressed, prepaid and mailed shall be conclusive evidence thereof.

      22.2. A notice, statement or report may be given or delivered by the
Company to the joint holders of a share by giving the notice to the joint holder
first named in the register of members in respect of the share.

      22.3. A notice, statement or report may be given or delivered by the
Company to the persons entitled to a share in consequence of the death,
bankruptcy or incapacity of a member by sending it through the mail prepaid
addressed to them by name or by the title of representatives of the deceased or
incapacitated person or trustee of the bankrupt, or by any like description, at
the address (if any) supplied to the Company for the purpose by the persons
claiming to be so entitled, or (until such address has been so supplied) by
giving the notice in manner in which the same might have been given if the
death, bankruptcy or incapacity had not occurred.

      22.4. Notice of every general meeting or meeting of members holding a
class of shares shall be given in a manner hereinbefore authorized to every
member holding at the time of the issue of the notice or the date fixed for
determining the members entitled to such notice, whichever is the earlier,
shares which confer the right to notice of and to attend and vote at any such
meeting. No other person except the auditor of the Company and the Directors of
the Company shall be entitled to receive notices of any such meeting.

                                     PART 23

                                  RECORD DATES

      23.1. The Directors may fix in advance a date, which shall not be more
than the maximum number of days permitted by the Company Act preceding the date
of any meeting of members or any class thereof or of the payment of any dividend
or of the proposed taking of any other proper action requiring the determination
of members as the record date for the determination of the members entitled to
notice of, or to attend and vote at, any such meeting and any adjournment
thereof, or entitled to receive payment of any such dividend or for any other
proper purpose and, in such case, notwithstanding anything elsewhere contained
in these Articles, only members of record on the date so fixed shall be deemed
to be members for the purposes aforesaid.

      23.2. Where no record date is so fixed for the determination of members as
provided in the preceding Article the date on which the notice is mailed or on
which the resolution declaring the dividend is adopted, as the case may be,
shall be the record date for such determination.

                             WORRALL SCOTT AND PAGE                           22

<PAGE>

                                     PART 24

                                      SEAL

      24.1. The Directors may provide a seal for the Company and, if they do so,
shall provide for the safe custody of the seal which shall not be affixed to any
instrument except in the presence of the following persons, namely,

      (i)   any two Directors, or

      (ii)  one of the Chairman of the Board, the President, the Managing
            Director, a Director and a Vice-President together with one of the
            Secretary, the Treasurer, the Secretary-Treasurer, an Assistant
            Secretary, an Assistant Treasurer and an Assistant Secretary-
            Treasurer, or

      (iii) if the Company shall have only one member, the President or the
            Secretary, or

      (iv)  such person or persons as the Directors may from time to time by
            resolution appoint

and the said Directors, officers, person or persons in whose presence the seal
is so affixed to an instrument shall sign such instrument. For the purpose of
certifying under seal true copies of any document or resolution the seal may be
affixed in the presence of any one of the foregoing persons.

      24.2. To enable the seal of the Company to be affixed to any bonds,
debentures, share certificates, or other securities of the Company, whether in
definitive or interim form, on which facsimiles of any of the signatures of the
Directors or officers of the Company are, in accordance with the Company Act
and/or these Articles, printed or otherwise mechanically reproduced there may be
delivered to the firm or company employed to engrave, lithograph or print such
definitive or interim bonds, debentures, share certificates or other securities
one or more unmounted dies reproducing the Company's seal and the Chairman of
the Board, the President, the Managing Director or a Vice-President and the
Secretary, Treasurer, Secretary-Treasurer, an Assistant Secretary, an Assistant
Treasurer or an Assistant Secretary-Treasurer may by a document authorize such
firm or company to cause the Company's seal to be affixed to such definitive or
interim bonds, debentures, share certificates or other securities by the use of
such dies. Bonds, debentures, share certificates or other securities to which
the Company's seal has been so affixed shall for all purposes be deemed to be
under and to bear the Company's seal lawfully affixed thereto.

      24.3. The Company may have for use in any other province, state, territory
or country an official seal which shall have on its face the name of the
province, state, territory or country where it is to be used and all of the
powers conferred by the Company Act with respect thereto may be exercised by the
Directors or by a duly authorized agent of the Company.

                                     PART 25

                     MECHANICAL REPRODUCTIONS OF SIGNATURES

      25.1. The signature of any officer, Director, registrar, branch registrar,
transfer agent or branch transfer agent of the Company, unless otherwise
required by the Company Act or by these Articles, may, if authorized by the
Directors, be printed, lithographed, engraved or otherwise mechanically
reproduced upon all instruments executed or issued by the Company or any officer
thereof; and any instrument on which the signature of any such person is so
reproduced shall be deemed to have been manually signed by such person whose
signature is so reproduced and shall be as valid to all intents and purposes as
if such instrument had been signed manually, and notwithstanding that the person
whose signature is so reproduced may have ceased to hold the office that he is
stated on such instrument to hold at the date of the delivery or issue of such
instrument.

      25.2. The term "instrument" as used in Article 25.1. shall include deeds,
mortgages, hypothecs, charges, conveyances, transfers and assignments of
property, real or personal, agreements, releases, receipts and discharges for
the payment of money or other obligations, shares and share warrants of the
Company, bonds, debentures and other debt obligations of the Company, and all
paper writings.

                           WORRALL SCOTT AND PAGE                             23

<PAGE>

                                     PART 26

                                  PROHIBITIONS

      26.1. If the Company is, or becomes, a company which is not a reporting
company, (i) the number of members for the time being of the Company, exclusive
of persons who are for the time being in the employment of the Company and
continue to be members after the termination of such employment, shall not
exceed 50, and (ii) no securities issued by the Company shall be offered for
sale to the public nor shall the public be invited to subscribe therefore.

      26.2 If the Company is, or becomes a company which is not a reporting
company, or a reporting company but does not have any of its securities listed
for trading on any stock exchange wheresoever situate, or a reporting company
and has not with respect to any of its securities filed a prospectus with the
Superintendent of Brokers or any similar securities regulatory body and obtained
a receipt therefore, then no shares shall be transferred without the previous
consent of the Directors expressed by a resolution of the Board and the
Directors shall not be required to give any reason for refusing to any such
proposed transfer.

                                     PART 27

                                PREFERENCE SHARES

      27.1 The Preference Shares without par value may be issued from time to
time in one (1) or more series and shall as a class have attached thereto the
following preferences, rights, conditions, restrictions, limitations and
prohibitions;

      (i)   Each series of Preference Shares shall consist of such number of
            Preference Shares as may, before the issue thereof, be determined by
            the Directors of the Company.

      (ii)  The Directors may, by resolution ("Directors' Resolution") duly
            passed before the issuance of Preference Shares of any series alter
            the Memorandum to fix the number of Preference Shares in, and
            determine the designation of the Preference Shares of, each series
            and alter the Memorandum or Articles to create, define and attach
            special rights or restrictions to the Preference Shares of each
            series, subject to the special rights or restrictions attached to
            all Preference Shares and subject to the provisions of the Company
            Act.

      (iii) The Preference Shares of any series may have attached thereto such
            special rights or restrictions as may be determined by Directors'
            Resolution with respect to each series including (as examples only),
            without in any way limiting the generality of the foregoing, special
            rights or restrictions concerning (i) the rate or amount of
            dividends, whether cumulative or non-cumulative, the currency or
            currencies of payment, the date or dates and place or places of
            payment and the date or dates from which such dividends are to
            accrue, (ii) the right to receive notice of or to attend or to vote
            at any meeting of members of the Company, (iii) the right to convert
            or exchange Preference Shares into Common Shares or other shares,
            bonds, debentures, securities, or otherwise, (iv) the right of the
            Company to redeem or to purchase Preference Shares, (v) obligations
            with respect to sinking funds or funds for purchase or redemption of
            Preference Shares, rights of retraction or share purchase plans,
            (vi) restrictions upon the

                             WORRALL SCOTT AND PAGE                           24

<PAGE>

            payment of dividends on, or retirement of, any other shares of the
            Company or of any subsidiary of the Company, (vii) restrictions upon
            the redemption or purchase of any other shares of the Company or of
            any subsidiary of the Company, (viii) the exercise by the Company of
            any election open to it to make any payments of corporation, income
            or other taxes, (ix) the subdivision, consolidation or
            reclassification of any shares of the Company, (x) restrictions upon
            borrowing by the Company or by any subsidiary of the Company or the
            issue by the Company of any Preference Shares in addition to the
            Preference Shares of any series at any time outstanding, (xi)
            restrictions upon the reduction of capital by the Company or by any
            subsidiary of the Company, (xii) restrictions upon the retirement of
            notes, bonds or debentures or other indebtedness of the Company or
            of any subsidiary of the Company, (xiii) limitations or restrictions
            upon or regulations concerning the conduct of the business of the
            Company or the investment of its funds, (xiv) the holding of
            meetings of the holders of the Preference Shares of any series, (xv)
            restrictions upon the creation or issuance of any other shares or
            securities of the Company, and (xvi) the right of holders of the
            Preference Shares to convert or exchange the shares of any class of
            the Company into or for any other securities of the Company or into
            or for shares or securities of any other company.

      (iv)  The holders of the Preference Shares shall not as such be entitled
            to vote at any meetings of shareholders of the Company but shall be
            entitled to notice of meetings of shareholders called for the
            purpose of authorizing the dissolution of the Company or the sale of
            its undertaking or a substantial part thereof or the creation of any
            class or classes of shares ranking in priority to the Preference
            Shares.

      (v)   (a)   In the event of any distribution of assets or property of the
                  Company among its shareholders, as such, other than by way of
                  dividend or by way of redemption or purchase from cancellation
                  of Preference Shares of the Company whenever created, but
                  including, without limitation, any distribution of assets or
                  property of the Company resulting from any repayment of
                  capital to shareholders upon a decrease in issued capital of
                  the Company (except as aforesaid) or upon the winding up or
                  other liquidation or dissolution of the Company or rateably
                  among its shareholders as a condition precedent to the
                  liquidation or dissolution, no assets or property of the
                  Company shall be distributed to the holders of the Company
                  ranking junior to the Preference Shares until there has been
                  paid to the holders of the Preference Shares an amount equal
                  to the redemption price of such Preference Shares plus a sum
                  equal to all unpaid dividends accrued thereon to the date of
                  distribution (which for such purpose shall be calculated as if
                  the dividends on the Preference Shares were accruing for the
                  period from the expiration of the last quarterly dividend
                  period for which dividends have been paid in full up to such
                  date of distribution): for all purposes of these provisions
                  the redemption price of the Preference Shares shall mean the
                  amount paid up thereon plus the premium, if any, payable on
                  redemption of Preference Shares, and shares of the Company
                  ranking junior to the Preference Shares shall mean all shares
                  of any class of shares (including Common Shares of the
                  Company) ranking junior to the Preference Shares as to
                  dividends and distribution of assets and property of the
                  Company;

                           WORRALL SCOTT AND PAGE                             25

<PAGE>

            (b)   If upon any distribution of the assets and property of the
                  Company among its shareholders, as such, the assets and
                  property of the Company are insufficient to permit payment in
                  full to the holders of Preference Shares of the sum
                  distributable to them as aforesaid then the entire assets and
                  property of the Company shall be distributed rateably among
                  the holders of the Preference Shares then outstanding
                  according to their respective rights; and

            (c)   After payment in full to the holders of Preference Shares of
                  the sums distributable to them as aforesaid they shall not
                  have the right to receive anything further in the distribution
                  of assets and property of the Company and the remaining assets
                  and property of the Company shall be distributed to the
                  holders of shares of the Company ranking junior to the
                  Preference Shares according to their respective rights.

      (vi)  No dividends shall at any time be declared or paid on or set apart
            for any shares of the Company ranking junior to the Preference
            Shares (including, without limitation, the Common Shares) nor shall
            the Company redeem or purchase for cancellation any Preference
            Shares less than the total number of Preference Shares then
            outstanding or any shares of the Company ranking junior to the
            Preference Shares unless all accrued dividends on the Preference
            Shares then outstanding have been declared and paid or provided for,
            to and including the last dividend payable on the Preference Shares
            immediately prior to the date of Declaration or payment or setting
            apart for payment of dividends or redemption or purchase for
            cancellation, as the case may be.

      (vii) Subject to the provisions hereof and, in particular, the provisions
            of clause (vi) hereof, the Company may at any time or from time to
            time, purchase Preference Shares for cancellation:

            (a)   on the open market;

            (b)   with the consent of the holders of the Preference Shares; or

            (c)   pursuant to tenders received by the Company upon request for
                  tenders addressed to all of the holders of the Preference
                  Shares, the whole or any part of the Preference Shares at the
                  lowest price which, in the opinion of the Directors, such
                  shares are obtainable. If any such purchase for cancellation
                  is made by tender the Company shall afford to every holder of
                  Preference Shares the opportunity of tendering such shares for
                  purchase for cancellation as aforesaid; the Company shall
                  accept only the lowest tenders; if two or more shareholders
                  submit tenders at the same price which the Company is prepared
                  to accept, but which in number are in excess of the number of
                  shares which the Company is prepared to purchase for
                  cancellation, then the shares to be purchased shall be
                  selected by the Company on a pro rata basis (disregarding
                  fractions) according to the number of shares offered in such
                  tender.

                             WORRALL SCOTT AND PAGE                           26

<PAGE>

      (viii)(a)   Any amendment to the Articles of the Company to delete or vary
                  any preference, right, condition, restriction, limitation or
                  prohibition attaching to the Preference Shares or to create
                  any special shares ranking in priority to or on a parity with
                  the Preference Shares, in addition to the authorization by a
                  Special Resolution, shall be authorized by at least
                  three-quarters (3/4) of the votes cast at a meeting of the
                  holders of Preference Shares duly called for that purpose.

            (b)   The formalities to be observed in respect of the giving of
                  notice of any meeting of the holders of Preference Shares
                  (including any meeting of the holders of any series of
                  Preference Shares) and the conduct of any such meeting shall
                  be those from time to time prescribed in the Articles of the
                  Company in respect of meetings of shareholders, and upon every
                  poll taken at any such meeting (or adjourned meeting) each
                  holder of Preference Shares (or any series of Preference
                  Shares, as the case may be) shall be entitled to one (1) vote
                  in respect of each Preference Share held by him; provided
                  that:

                  1. No such meeting shall be held upon less than twenty-one
                  (21) days' written notice thereof.

                  2. If at any such meeting the holders of less than fifty
                  percent (50%) of the outstanding Preference Shares, as the
                  case may be, are present or represented by proxy within half
                  an hour after the time fixed for such meeting, then the
                  meeting shall be adjourned to such date (being not more than
                  twenty-one (21) days later) and to such time and place as may
                  be fixed and announced by the Chairman of the meeting and at
                  least ten (10) days' written notice shall be given to such
                  adjourned meeting (which notice may but need not specify the
                  purpose for which the meeting was originally called); at such
                  adjourned meeting the holders of the Preference Shares (or
                  series of Preference Shares, as the case may be) present or
                  represented by proxy may transact the business for which the
                  meeting was originally called.

      (ix)  The Common Shares shall be subject to the foregoing preferences,
            rights, conditions, restrictions, limitations and prohibitions
            attaching to the Preference Shares and shall be subject to such
            further and additional preferences, rights, conditions,
            restrictions, limitations and prohibitions, as may be determined by
            the Directors of the Company for each series of Preference Shares
            prior to the issue thereof.

                             WORRALL SCOTT AND PAGE                           27


<PAGE>

      Full Name(s), Resident Address(es) and Occupation(s) of Subscriber(s)

            Signature: /s/ Elizabeth A. Watkins
                       ------------------------

            Name: ELIZABETH A. WATKINS

            Resident Address: 103 - 1470 Pennyfarthing Drive

                              Vancouver, B. C.

            Occupation : Barrister and Solicitor



            Signature:___________________________________________________

            Name:________________________________________________________

            Resident Address:____________________________________________

            _____________________________________________________________

            Occupation:__________________________________________________


      DATED the 24th day of July  ,1986.

                             WORRALL SCOTT AND PAGE

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>3
<FILENAME>g89766exv4.txt
<DESCRIPTION>EX-4 FORM OF COMMON STOCK CERTIFICATE
<TEXT>
<PAGE>
                                                                               .
                                                                               .
                                                                               .
                INCORPORATED IN THE PROVINCE OF BRITISH COLUMBIA

                                    (IMAGE)

<Table>
<S>                        <C>                                 <C>
NUMBER                     NICHOLAS FINANCIAL, INC.            SHARES

                                       CUSIP 65373J 20 9
</Table>

THIS CERTIFIES THAT

is the registered holder of

         FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE

in the Capital of the above named Company subject to the Memorandum and
Articles of the Company transferable on the books of the Company by the
registered holder in person or by Attorney duly authorized in writing upon
surrender of this certificate properly endorsed.

This certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Company.

IN WITNESS WHEREOF the Company has caused this certificate to be signed on its
behalf by the facsimile signatures of its duly authorized officers at
Vancouver, British Columbia.

                                          DATED

<Table>
<S>                              <C>                                          <C>
/s/ Peter L. Vosotas             COUNTERSIGNED AND REGISTERED
President                        COMPUTERSHARE TRUST COMPANY OF CANADA        VANCOUVER
                                 TRANSFER AGENT AND REGISTRAR

/s/ Ralph Finkenbrink                By SPECIMEN
                                    -----------------------------------
Secretary                                   Authorized Officer
</Table>

   The Shares represented by this certificate are transferable at the offices
           of Computershare Trust Company of Canada, Vancouver, B.C.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14
<SEQUENCE>4
<FILENAME>g89766exv14.txt
<DESCRIPTION>EX-14 CODE OF ETHICS
<TEXT>
<PAGE>
                                                                     Exhibit 14
                               CODE OF ETHICS

Nicholas Financial, Inc. (hereinafter referred to as "Nicholas Financial, Inc."
or the "Company") requires ethical conduct in the practice of financial
management in all aspects of business activities.


The Nicholas Financial, Inc. Code of Ethical Conduct for Financial Managers
applies to all senior officers serving in a financial role. The Chief Executive
Officer, Chief Financial Officer and Controller, as well as certain other senior
financial officers, hold an elevated role in corporate governance and are
expected to act in accordance with the highest standards of personal and
professional integrity, to comply with all applicable laws, rules, and
regulations, to preserve and protect shareholders' interests, and to abide by
the Nicholas Financial, Inc. Code of Business Conduct and Ethics and other
policies and procedures adopted by Nicholas Financial, Inc. that govern the
conduct of its employees. This Code of Ethical Conduct is intended to supplement
the Nicholas Financial, Inc. Code of Business Conduct and Ethics.

As the Chief Executive Officer, Chief Financial Officer, Controller, or other
senior financial officer, I certify to you that I adhere to and advocate the
following principles governing my professional and ethical conduct in the
fulfillment of my responsibilities. I agree to:

     a. Comply with the Company's internal policies and procedures;

     b. Act at all times in accordance with the Company's Code of Business
        Conduct and Ethics which has been provided to me and with which I will
        comply;

     c. Engage in and promote honesty, integrity and ethical conduct, including
        the ethical handling of actual or apparent conflicts of interest between
        personal and professional relationships;

     d. Provide accurate, complete, objective, timely and understandable
        financial disclosures in regards to internal reports as well as
        documents filed or submitted to the Securities and Exchange Commission,
        any governmental, private or public regulatory agency, or used in public
        communications;

     e. Comply with applicable federal, state, provincial, and/or local
        governmental laws, rules and regulations, as well as appropriate private
        and public regulatory agencies;

     f. Respect the confidentiality of information acquired in the course of
        performing my work responsibilities except when authorized or otherwise
        legally obligated to disclose such information;

     g. Act in good faith, responsibly, with due care, competence and diligence,
        without misrepresenting or omitting material facts or allowing my
        independent judgment to be compromised;

     h. Avoid using confidential information acquired in the course of
        performing my job responsibilities for personal advantage;

     i. Use and control assets and other resources employed or entrusted to my
        supervision in a responsible manner;

     j. Keep abreast of emerging financial issues and/or skills relevant to
        shareholders and other constituents and share such knowledge with my
        peers;

     k. Promptly report any possible violation of this Code to the Nominating
        and Corporate Governance Committee of the Nicholas Financial, Inc. Corp.
        Board of Directors;

     l. Proactively promote ethical behavior as a responsible partner among
        peers in my work environment and community.


By signing this statement, I acknowledge that I have read, understand, and agree
to adhere to this Code of Ethical Conduct. Violation of this Code may be
grounds for termination from the Company.
Printed Name:
Signature:
Date:
________________________________________________________________________________

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>g89766exv21.txt
<DESCRIPTION>EX-21 SUBSIDIARIES OF NICHOLAS FINANCIAL, INC.
<TEXT>
<PAGE>
EX-21 Subsidiaries of the registrant Nicholas Financial, Inc.

State or Province of Incorporation Subsidiary Ownership % or Organization

Nicholas Financial, Inc. Florida 100%
Nicholas Data Services, Inc. Florida 100%

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>g89766exv23w1.txt
<DESCRIPTION>EX-23.1 CONSENT OF DIXON HUGHES PLLC
<TEXT>
<PAGE>

                                                                    Exhibit 23.1


            Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the Registration Statement on
Forms S-8 (No. 333-81961 and No. 333-81967) pertaining to the Nicholas
Financial, Inc. Employee Stock Option Plan of Nicholas Financial, Inc. of our
report dated May 21, 2004, (except for note 13 as to which the date is
June 8, 2004) with respect to the consolidated financial statements of Nicholas
Financial, Inc. and subsidiaries included in its Annual Report (Form 10-KSB)
for the year ended March 31, 2004, filed with the Securities and
Exchange Commission.


                                 /s/ Dixon Hughes PLLC

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>g89766exv23w2.txt
<DESCRIPTION>EX-23.2 CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
                        CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-81961 and Form S-8 No. 333-81967) pertaining to the Nicholas
Financial, Inc. Employee Stock Option Plan and the Nicholas Financial, Inc.
Non-Employee Director Stock Option Plan of our report dated June 9, 2003, with
respect to the consolidated financial statements of Nicholas Financial, Inc.
and subsidiaries included in its Annual Report (Form 10-KSB) for the year ended
March 31, 2004.

                                                  /s/ Ernst & Young LLP
Atlanta, Georgia
June 25, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>g89766exv31w1.txt
<DESCRIPTION>EX-31.1 302 CERTIFICATION OF PRESIDENT & CEO
<TEXT>
<PAGE>

                                                                    Exhibit 31.1

                                  CERTIFICATION

I, Peter L. Vosotas, certify that:

      1.    I have reviewed this annual report on Form 10-KSB of Nicholas
            Financial, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  a)    Designed such disclosure controls and procedures, or
                        caused such controls and procedures to be designed under
                        our supervision, to ensure that material information
                        relating to the registrant, including its consolidated
                        subsidiaries, is made known to us by others within those
                        entities, particularly during the period in which this
                        report is being prepared;

                  b)    Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures and presented in this
                        report our conclusions about the effectiveness of the
                        disclosure controls and procedures, as of the end of the
                        period covered by this report based on such evaluation;
                        and

                  c)    Disclosed in this report any change in the registrant's
                        internal control over financial reporting that occurred
                        during the registrant's most recent fiscal quarter that
                        has materially affected, or is reasonably likely to
                        materially affect, the registrant's internal control
                        over financial reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of registrant's board of directors (or persons performing
            the equivalent functions):

                  a)    all significant deficiencies in the design or operation
                        of internal control over financial reporting which are
                        reasonably likely to adversely affect the registrant's
                        ability to record, process, summarize and report
                        financial information; and

                  b)    any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal control over financial
                        reporting.

                  Date: June 29, 2004       /s/ Peter L. Vosotas
                                            ________________________________
                                            Peter L. Vosotas
                                            President & CEO

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>g89766exv31w2.txt
<DESCRIPTION>EX-31.2 302 CERTIFICATION OF CFO
<TEXT>
<PAGE>

                                                                    Exhibit 31.2

                                  CERTIFICATION

I, Ralph T. Finkenbrink certify that:

      1.    I have reviewed this annual report on Form 10-KSB of Nicholas
            Financial, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  a)    Designed such disclosure controls and procedures, or
                        caused such controls and procedures to be designed under
                        our supervision, to ensure that material information
                        relating to the registrant, including its consolidated
                        subsidiaries, is made known to us by others within those
                        entities, particularly during the period in which this
                        report is being prepared;

                  b)    Evaluated the effectiveness of the registrant's
                        disclosure controls and procedures and presented in this
                        report our conclusions about the effectiveness of the
                        disclosure controls and procedures, as of the end of the
                        period covered by this report based on such evaluation;
                        and

                  c)    Disclosed in this report any change in the registrant's
                        internal control over financial reporting that occurred
                        during the registrant's most recent fiscal quarter that
                        has materially affected, or is reasonably likely to
                        materially affect, the registrant's internal control
                        over financial reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of registrant's board of directors (or persons performing
            the equivalent functions):

                  a)    all significant deficiencies in the design or operation
                        of internal control over financial reporting which are
                        reasonably likely to adversely affect the registrant's
                        ability to record, process, summarize and report
                        financial information; and

                  b)    any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the registrant's internal control over financial
                        reporting.

                  Date: June 29, 2004       /s/ Ralph T. Finkenbrink
                                            ________________________________
                                            Ralph T. Finkenbrink
                                            Senior Vice President

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>g89766exv32w1.txt
<DESCRIPTION>EX-32.1 906 CERTIFICATION OF PRESIDENT & CEO
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.1

                WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER
                         PURSUANT TO 18 U.S.C. SECTION 1350

      Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Executive Officer of Nicholas Financial, Inc. (the "Company"),
hereby certify, based on my knowledge, that the Annual Report on Form 10-KSB of
the Company for the year ended March 31, 2004 (the "Report") fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

/s/ Peter L. Vosotas
__________________________________
Peter L. Vosotas
Chief Executive Officer
June 29, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>11
<FILENAME>g89766exv32w2.txt
<DESCRIPTION>EX-32.2 906 CERTIFICATION OF CFO
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.2

                WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER
                         PURSUANT TO 18 U.S.C. SECTION 1350

      Solely for the purposes of complying with 19 U.S.C. Section 1350, I, the
undersigned Chief Financial Officer of Nicholas Financial, Inc. (the "Company"),
hereby certify, based on my knowledge, that the Annual Report on Form 10-KSB of
the Company for the year ended March 31, 2004 (the "Report") fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

/s/ Ralph T. Finkenbrink
______________________________________
Ralph T. Finkenbrink
Chief Financial Officer
June 29, 2004

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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