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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 023911

Fog Cutter Capital Group Inc.
(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0001 per share

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.). Yes o    No ý

        The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as quoted on NASDAQ on June 30, 2003 was $33,831,985.

        As of February 29, 2004, there were 8,677,200 shares outstanding, not including options to purchase 992,000 shares of Fog Cutter Capital Group Inc.'s common stock and 3,045,900 treasury shares, par value $0.0001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

        See Item 15 for a list of exhibits incorporated by reference into this report.

FOG CUTTER CAPITAL GROUP INC.

FORM 10K

INDEX

FORWARD-LOOKING STATEMENTS

        CERTAIN STATEMENTS CONTAINED HEREIN AND CERTAIN STATEMENTS CONTAINED IN FUTURE FILINGS BY THE COMPANY WITH THE SEC MAY NOT BE BASED ON HISTORICAL FACTS AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FORWARD-LOOKING STATEMENTS WHICH ARE BASED ON VARIOUS ASSUMPTIONS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL) MAY BE IDENTIFIED BY REFERENCE TO A FUTURE PERIOD OR PERIODS, OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL," "BELIEVE," "EXPECT," "ANTICIPATE," "CONTINUE," OR SIMILAR TERMS OR VARIATIONS ON THOSE TERMS, OR THE NEGATIVE OF THOSE TERMS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN FORWARD-LOOKING STATEMENTS DUE TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE RELATED TO THE ECONOMIC ENVIRONMENT, PARTICULARLY IN THE MARKET AREAS IN WHICH THE COMPANY OPERATES, THE FINANCIAL AND SECURITIES MARKETS AND THE AVAILABILITY OF AND COSTS ASSOCIATED WITH SOURCES OF LIQUIDITY, COMPETITIVE PRODUCTS AND PRICING, THE REAL ESTATE MARKET, FISCAL AND MONETARY POLICIES OF THE U.S. GOVERNMENT, CHANGES IN PREVAILING INTEREST RATES, ACQUISITIONS AND THE INTEGRATION OF ACQUIRED BUSINESSES, CREDIT RISK MANAGEMENT, ASSET/LIABILITY MANAGEMENT AND LITIGATION AND GOVERNMENT INVESTIGATIONS. EXCEPT AS MAY BE REQUIRED BY LAW, THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.

Available Information

        Our website address is www.fccgi.com. We make our annual report on Form 10-K, as well as other reports filed with the Securities and Exchange Commission, available free of charge through our website as soon as reasonably practicable after they are filed. A copy of our annual report may also be obtained by writing to us at 1410 SW Jefferson Street, Portland, OR, 97201, Attn: Investor Reporting.

PART I

ITEM 1. BUSINESS

General

        Fog Cutter Capital Group Inc. ("FCCG" or the "Company") operates a restaurant business, conducts commercial mortgage lending and brokerage activities and makes real estate investments. The Company also seeks to acquire controlling interests in underperforming or undervalued operating businesses in which the Company's management skills and financial structuring can create value.

        The Company was originally incorporated as Wilshire Real Estate Investment Trust Inc. in the State of Maryland on October 24, 1997. However, we chose not to elect the tax status of a real estate investment trust ("REIT") and on January 25, 2001, we changed our name to Fog Cutter Capital Group Inc. to better reflect the diversified nature of our business. Our capital stock is quoted on the NASDAQ stock exchange under the ticker symbol "FCCG".

Business Strategy

        Our business strategy consists of developing, strengthening and expanding our restaurant and commercial real estate mortgage brokerage operations and continuing to identify and acquire real

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estate investments with favorable risk-adjusted returns. We also seek to identify and acquire controlling interests in other operating businesses in which we feel we can add value. Our operating segments consist of (i) restaurant operations conducted through our subsidiary, Fatburger Holdings, Inc. ("Fatburger"), (ii) commercial real estate mortgage brokerage activities conducted through our majority-owned subsidiary, George Elkins Mortgage Banking Company ("George Elkins") and (iii) real estate, merchant banking and financing activities. The following is a summary of each of the operating segments:

Restaurant Operations

        Fatburger operates or franchises over 50 hamburger restaurants located in California, Nevada, Arizona, Florida, Colorado and Washington. In August 2003, we provided an investment and financing package for Fatburger which involved our acquisition of the entire class of the Series A-1 Preferred and the Series D Preferred stock of Fatburger. Currently, we own approximately 83% of the voting control of Fatburger. Fatburger has plans to open additional restaurants including expansion into Oregon, Louisiana, Georgia, New York, Ohio, New Jersey, Texas, Missouri, Kansas, Pennsylvania, West Virginia, Virginia, North Carolina, South Carolina, and Michigan. Franchisees currently own and operate about half of the Fatburger locations.

Commercial Real Estate Mortgage Brokerage Operations

        In May 2002, we purchased a 51% ownership interest in George Elkins, a California mortgage banking operation, which provides brokerage services related to the production of over $600 million per year in commercial real estate mortgages. George Elkins is headquartered in Los Angeles, with satellite offices located throughout the southern California area and in Las Vegas. The mortgage brokerage operation also manages a commercial loan servicing portfolio in excess of $700 million for various investors.

Real Estate, Merchant Banking and Financing Operations

        We invest in or finance real estate, mortgage-backed securities and other real estate-related or finance-related assets. Our merchant banking and financing operations focus on the acquisition of controlling interests in businesses in the process of restructuring. This can take the form of assisting in a management buy-out, refinancing corporate debt or acquiring the "non-core" assets of a business.

Principal Assets

        We have set forth below information regarding our principal assets at December 31, 2003 and 2002:

(1)

Our mortgage-backed securities are secured primarily by residential mortgage loans.

(2)

Our loans are primarily secured by stock, commercial assets and real estate.

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        The following sections provide additional information on our principal assets and operations as of December 31, 2003.

Restaurant Operation

        Fatburger Holdings Inc.    On August 15, 2003, we acquired a controlling interest in Fatburger Holdings, Inc. ("Fatburger"). Fatburger operates or franchises over 50 hamburger restaurants located in California, Nevada, Arizona and Washington. Franchisees currently own and operate about half of the Fatburger locations. Fatburger has agreements for approximately 250 new franchise restaurants.

        Based upon the outstanding shares currently eligible to vote, we acquired approximately 83% of the voting control of Fatburger as part of a $5.4 million investment and financing package provided by the Company. Our investment consists of the purchase of convertible preferred stock and redeemable convertible preferred stock. The acquisition price for the two classes of preferred convertible stock was $5.4 million. Based upon the relative fair value of the stock, the Company allocated $1.2 million of the purchase price to the convertible preferred ("Series A-1 Preferred") and $4.2 million to the redeemable preferred ("Series D Preferred"). The Series D Preferred has a liquidation preference of $6.0 million. It accrues a preferred dividend equal to 20% per annum of the liquidation preference. The Series D Preferred may be redeemed by Fatburger at any time for $6.0 million, plus accrued dividends, and is scheduled to be redeemed by May 15, 2004. The due date for the scheduled redemption of the Series D Preferred may be extended for nine additional months if Fatburger has redeemed at least $2.25 million by May 15, 2004 and has paid all accrued dividends, including a special 10% extension dividend (not to exceed $225,000) on the portion of the Series D Preferred being extended. The Series D Preferred initially has voting rights equal to approximately 63% of the voting control of Fatburger. In the event Fatburger fails to redeem the Series D Preferred by the scheduled redemption date, we will be issued additional stock to bring our total ownership and control of Fatburger to 90%.

        The Series A-1 Preferred is convertible into a 20% ownership interest of the common stock of Fatburger on a fully diluted basis. If Fatburger extends the scheduled redemption period of the Series D Preferred, the conversion feature of the Series A-1 Preferred increases to fully diluted 35% ownership interest in the common stock of Fatburger. The Series A-1 Preferred initially has voting rights equal to 20% of the voting control of Fatburger.

        The primary reason for the acquisition was to finance a management led buy-out of Fatburger's majority shareholders. We expect to earn preferred dividends on the investment in the Series D Preferred and convert our Series A-1 Preferred into common stock in order to participate in potential future increases in the value of Fatburger. We own the entire class of the Series A-1 Preferred and the Series D Preferred. Our ability to transfer the Series A-1 Preferred and the Series D Preferred is subject to certain restrictions. The shares are also entitled to certain co-sale rights. As a result of our voting control, we began reporting the operations of Fatburger on a consolidated basis beginning August 15, 2003.

        On March 10 2004, with our approval, Fatburger amended the redemption terms of the Series D Preferred. Under the amended terms, Fatburger may extend the redemption date of the Series D Preferred to May 15, 2006 by making a cash payment to us of at least $2,500,000 on or before May 15, 2004, which will first be applied against cumulative dividends, then to an extension fee of $225,000 and then to redeem the number of outstanding shares of Series D Preferred at the stated redemption price per share. In addition, Fatburger may extend the redemption date by one additional year, to May 15, 2007, by making an additional payment to us of at least $1,250,000 on or before May 15, 2006, which will first be applied against cumulative dividends, and then to redeem the number of outstanding shares of Series D Preferred at the stated redemption price per share.

        The following supplemental pro forma information discloses the results of operations for the three years ended December 31, 2003, 2002 and 2001, as though the acquisition of Fatburger had been completed as of the beginning of the period being reported. The supplemental pro forma information

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is presented in accordance with accounting principles generally accepted in the United States, but should be read in conjunction with the accompanying consolidated financial statements.

(1)

Fatburger was organized on August 15, 2001. As a result, the pro forma information for 2001 only includes Fatburger operations subsequent to August 15, 2001.

        The purchase price was allocated to the portion of Fatburger's tangible and identifiable intangible assets acquired and liabilities assumed by the Company based on their estimated fair values at the acquisition date. The allocation of the purchase price was based, in part, on third-party valuations of the fair values of identifiable intangible assets and restaurant property, plant, and equipment. The excess of the purchase price over the fair values of the portion of assets and liabilities acquired amounted to $7.1 million and was allocated to goodwill. The carryover basis of minority interest in the transaction was not material.

        The following table summarizes the allocated basis of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

        The accompanying consolidated statements of financial condition include borrowings and notes payable of $7.8 million as of December 31, 2003 as a result of the consolidation of Fatburger. Of this amount, approximately $7.2 million is secured by substantially all of the assets of Fatburger, bears interest at fixed rates ranging from 8.0% to 9.5% and requires monthly payments of principal and interest, primarily through 2008. Fatburger's borrowing requires Fatburger to meet certain annual financial covenants, including maintaining a maximum funded debt to EBITDA ratio and a minimum

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fixed charge coverage ratio. These ratios are measured on an annual basis each June. Fatburger was not in compliance with certain of these covenants and obtained a waiver at June 29, 2003.

        As of December 31, 2003, borrowings and notes payable also include mandatory redeemable preferred stock (the "Series B Preferred") with a carrying value of $0.6 million which was issued by Fatburger to a third party on August 15, 2003. The Series B Preferred is redeemable by Fatburger for $1.5 million at any time, but must be redeemed by August 15, 2009. Under certain circumstances, the Series B Preferred shareholders may convert their shares into the common stock of Fatburger in an amount equal to the redemption price based upon the fair value of the common stock at the time of conversion. The Series B Preferred is entitled to dividends from Fatburger equal to 2.5% per annum of the redemption price. The Series B Preferred does not have voting rights.

Commercial Real Estate Mortgage Brokerage Operation

        George Elkins Mortgage Banking Company.    On May 15, 2002, we acquired a 51% ownership interest in George Elkins Mortgage Banking Company ("George Elkins"), a California mortgage banking operation, which provides brokerage services related to the production of over $600 million in commercial real estate loans annually. We began reporting the operations of George Elkins on a consolidated basis beginning May 15, 2002.

Mortgage-Backed Securities

        Mortgage-backed securities are interests in pools of mortgages that have been securitized and are usually issued in multiple classes ranging from the most senior to the most subordinate class. We have traditionally focused on the subordinated classes, which we believe offer higher risk-adjusted returns. However, during 2003 and 2002, we took advantage of market opportunities and sold the majority of our subordinated securities and partially replaced them with a FNMA "whole pool" certificate. As a result, at December 31, 2003, all of our mortgage-backed securities were not subordinated and were rated "AAA" or its equivalent except for approximately $2.2 million of remaining subordinated securities. On December 31, 2003, our portfolio of mortgage-backed securities consisted of 6 classes, representing interests in 5 securitizations from 5 different issuers. Other than the FNMA certificate, our remaining mortgage-backed securities are non-investment-grade classes of securitizations and provide credit enhancement to more senior classes by having a lower payment priority in the cash flow from the underlying mortgage loans and absorbing the first losses on the underlying mortgage loans. In "senior/subordinate" structures, each subordinated class has a principal face amount equal to the subordination level required for the classes, if any, which are senior to the respective subordinated class and the subordination level required at the respective rating (i.e., BBB, BB, B, NR). Our mortgage-backed securities consist of securities backed by loans that were originated and are being serviced by unaffiliated, non-governmental third parties.

        At December 31, 2003 and 2002, we valued our securities available for sale portfolio and recorded gross unrealized gains and losses thereon as follows:

(1)

The amortized cost of our securities is net of the market valuation losses and impairments discussed in "Item 7—Management's Discussion and Analysis of Financial Condition and Results

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of Operations." The gross unrealized losses represent market value changes that, unlike "market value loss and impairment," the Company believes are temporary.

        The portion of our mortgage-backed securities portfolio consisting of the FNMA certificate (approximately $33.4 million) is valued based on market quotes. The fair value of the remainder of our mortgage-backed securities portfolio, which consists of subordinated bonds, is determined by us at each reporting date by discounting the anticipated cash flows using certain estimates (e.g. prepayment speeds, default rates, severity of losses, and discount rate). We are responsible for developing these assumptions which include: (i) future rate of prepayment; (ii) discount rate used to calculate present value; and (iii) default rates and loss severity on loan pools underlying the mortgaged-backed securities. At December 31, 2003, we used an annual constant prepayment rate ranging from 25% to 50%, a discount rate ranging from 12% to 21%, and an annual constant default rate ranging from 0.7% to 0.8% with a loss severity of 50% in estimating the fair value of our interest in the subordinated mortgaged-backed securities. The future cash flows and the discount rate represent our best estimate; however, there can be no assurance that actual results will match these estimates. We review the fair value of our interest in the mortgage-backed securities by analyzing current interest rates, prepayment, discount rate and loss assumptions in relation to the actual experience and current rates of prepayment and loss prevalent in the underlying loan pools. Changes in these factors may lead to significant fluctuations in the fair value of our investment which may affect earnings, if the fair value decrease is determined by us to be of other-than-temporary nature.

        Declines in fair value are considered other-than-temporary when: (i) the carrying value of the beneficial interests exceeds the fair value of such beneficial interests using current assumptions and (ii) the timing and/or extent of cash flows expected to be received on the beneficial interests has adversely changed from the previous valuation date.

        Payments received on mortgage-backed securities are subject to a number of market factors, including, defaults on the underlying loans, the level of subordination of the mortgage-backed securities, changes in interest rates and the rate of prepayments on the underlying loans. To the extent that these and other factors change, the anticipated cash flow on our mortgage-backed securities may not be sufficient to cover our amortized cost. Also, if we sell one of these securities at a market price which is below its amortized cost, we will realize a loss attributable to that security.

        The following table provides information, as of December 31, 2003, regarding our mortgage-backed securities. The table sets forth the credit rating designated by the rating agency for each securitization structure. Classes designated "A" have a superior claim on payment to those rated "B", which are superior to those rated "C." Additionally, multiple letters have a superior claim to designations with fewer letters. Thus, for example, "BBB" is superior to "BB," which in turn is superior to "B." The lower class designations in any securitization will receive interest payments subsequent to senior classes and will experience losses prior to any senior class. The lowest potential class designation is not rated ("UNR") which, if included in a securitization, will generally receive interest last and experience losses first. The mortgage loans underlying the Company's mortgage-backed securities are primarily residential mortgage loans which generally may be prepaid at any time without penalty.

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FOG CUTTER CAPITAL GROUP INC.
2003 Mortgaged-Backed Securities Schedule (Dollars in Thousands)

(1)

UNR means the security is not rated.

(2)

Based on the amortized costs, which is the post-impairment basis (purchase price less amortization and impairment thereof) of the mortgage-backed securities. Includes $88,000 of accrued interest.

FOG CUTTER CAPITAL GROUP INC.
2003 Mortgaged-Backed Securities Schedule—Prepayment and other Information—(Dollars in Thousands)

N/A Not Available.

(1)

Data provided by trustees or services for the securities or other third-party sources. Delinquency data does not incorporate payment recency. For example, if a loan is 90 days delinquent at a pint in time, and from that point on makes each regular monthly payment, that loan would be current on a recency basis, but not on a contractual delinquency basis. Because, of this, for certain pools, delinquency rates may imply higher expected defaults than may actually occur. Cumulative losses include only those losses incurred on underlying mortgages since the inception date of the security.

(2)

Delinquency amounts do not include Foreclosure, Real Estate Owned, or Bankruptcy amounts included elsewhere in this table.

Real Estate

        We invest, both directly and indirectly, in commercial real estate. We currently hold indirect real estate investments through our 26% ownership interest in BEP (as defined below), which owns two

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shopping centers in England. The following table sets forth information regarding our direct investments in real estate at December 31, 2003:

N/A—Not applicable

        The following is a brief description of each of the properties set forth in the above table:

        Freestanding Retail Properties.    We own directly, or through capital leases, 56 freestanding retail buildings located throughout the United States. The buildings are approximately 4,500 square feet each and were originally developed during the 1970's and 1980's. The buildings are leased to a variety of tenants including convenience stores, video rental outlets, shoe stores and other small businesses. As of December 31, 2003, 10 of the buildings were vacant. We also control 47 similar retail locations through operating leases.

        Eugene Warehouse, 90005 Prairie Road, Eugene, Oregon.    This building is an 84,000-square-foot warehouse located on 4.5 acres with access to Interstate Route 5 via Belt Line Road and to the Eugene-Springfield metropolitan and Gateway areas. The property is within the West Eugene enterprise zone. This property is being marketed for lease or sale.

        Wilsonville Land.    This 10.9-acre parcel of undeveloped land is located in the city of Wilsonville, Oregon, and is being held for future development or sale.

        Indebtedness.    When it is beneficial to do so, our general strategy is to leverage our real estate investments by incurring borrowings secured by these investments. Set forth below is information regarding our indebtedness relating to our real estate as of December 31, 2003.

        The Wilsonville and Eugene properties are not currently subject to indebtedness.

Loans

        Our loans are primarily secured by stock, commercial assets and real estate. Our portfolio consists primarily of three loans with a total outstanding principal balance of $9.0 million. However, as a result of purchase discounts and other deferred income, the carrying value of these loans is $3.7 million. One of the loans, with a carrying value of $1.6 million is secured by substantially all of the common stock and assets of a corporation that develops and manufactures eyeglass lens production machinery. The remaining two loans are secured by commercial real estate. All of these loans mature in 2004. Based upon our carrying value, the effective interest rate on these loans at December 31, 2003 was 20%.

        During the fourth quarter of 2003, we wrote off our remaining investment in pools of commercial loans that had been purchased in non-performing status. These "charged-off" loans were purchased at

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a significant discount to the borrowers' total obligation. The amount of our impairment of these loans was approximately $0.3 million.

Other Subsidiaries and Investments

        We also invest in other finance related opportunities, including the debt or equity of corporations in the process of restructuring their operations:

        We have also acquired the following subsidiaries and made the following investments:

        Bourne End.    In December 2000, we organized and led a group of investors to purchase all of the outstanding capital stock of Bourne End Properties Plc ("Bourne End"), a specialist investor in retail property. BEP Acquisitions was incorporated in Jersey, Channel Islands for the purpose of acquiring Bourne End. BEP Acquisitions is a wholly-owned subsidiary of BEP Property Holdings Limited ("BEP"), which is 26% owned by us, 71% owned by Merrill Lynch (Jersey) Holdings Limited (a subsidiary of Merrill Lynch & Co., Inc.) and 3% owned by the asset manager, Greenbau Estuary Limited.

        At the time of the acquisition, Bourne End had approximately GBP 169.6 million of assets and GBP 123.1 million of debt. The real estate assets consisted of 1.7 million square feet in fifteen shopping centers located in the United Kingdom. Bourne End has sold thirteen of these properties since the acquisition, including four sales during 2003. The sales are consistent with the investor group's strategy to reposition each of the centers, including selected new capital expenditures on existing space and new development on excess or adjoining land, with the ultimate goal of reselling many of the properties.

        V Model Management.    On November 20, 2003, we invested approximately $0.2 million in a debt and equity financing package for V Model Management, a French modeling agency ("V Model"). Headquartered in Paris, V Model represents and promotes models for the fashion industry. Currently, V Model represents 90 male and 50 female models. Our investment included the acquisition of 51% of the outstanding common stock of V Model. As a result of our voting control, we began reporting the operations of V Model on a consolidated basis beginning November 20, 2003.

Funding Sources

        In order to maximize the return on our investments, we generally fund acquisitions with third-party debt and equity financing so that our invested capital represents a relatively small percentage of the purchase price. The principal sources for funding mortgage-backed securities have historically been repurchase agreements with major investment banks. Repurchase agreements are secured lending arrangements which involve the borrower selling an asset to a lender at a fixed price with the borrower having an obligation to repurchase the asset within a specified period (generally 30 days) at a higher price reflecting the interest cost of the loan. If the value of the underlying asset declines, as determined by the lender, the lender may request that the amount of the loan be reduced by cash payments from the borrower or additional collateral be provided by the borrower (generally known as "collateral calls"). Funding sources for real property assets generally involve capital leases or longer-term traditional mortgage financing with banks and other financial institutions. Our investments in corporate restructuring opportunities are often made without third-party leverage. We closely monitor rates and terms of competing sources of funds on a regular basis and generally seek to utilize the source which is

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the most cost effective. The following table sets forth information relating to our borrowings and other funding sources at December 31, 2003 and 2002.

        The following table sets forth certain information related to the Company's borrowings. During the reported periods, borrowings were comprised of repurchase agreements, notes payable by Fatburger and obligations under capital leases. Averages are determined by utilizing month-end balances.

Asset Quality

        Mortgage-Backed Securities.    A significant portion of our assets are mortgage-backed securities which represent beneficial interests in pools of residential mortgage loans. These loans are secured by residential one-to-four family real estate properties. Approximately 94% of the mortgage-backed securities portfolio consists of an AAA rated FNMA certificate for which market quotes are readily available.

        Real Estate.    Our real estate investments are carried at the lower of historical cost (net of depreciation) or estimated market value. Our estimate of market value is based upon comparable sales information for similar properties.

        Loans.    Our loans are secured by real estate, commercial assets and corporate stock. Our evaluation of the quality of our loans is based upon the underlying value of the collateral. We also give consideration to the credit performance of these loans.

Regulatory

        None.

Employees

        As of December 31, 2003, we had approximately 624 employees, which included approximately 36 employees of George Elkins and 575 employees of Fatburger.

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ITEM 2. PROPERTIES

        Our corporate headquarters are located in Portland, Oregon, where we lease approximately 5,000 square feet of office space under a lease expiring in December 2004. We also lease executive offices in New York, Los Angeles and London.

ITEM 3. LEGAL PROCEEDINGS

        As the Company has previously disclosed and as reported in the media, the Company's Chief Executive Officer, Andrew Wiederhorn, and former President, Lawrence Mendelsohn, received letters from the United States Attorney's Office for the District of Oregon ("USAODO") in March 2001 advising them that they were targets of a grand jury investigation (the "CCL Investigation") into the failure of Capital Consultants, L.L.C ("CCL"). CCL was a lender to Wilshire Credit Corporation ("WCC") and related and affiliated companies. WCC was a mortgage loan servicing company owned by Mr. Wiederhorn and Mr. Mendelsohn that provided mortgage loan servicing for Wilshire Financial Services Group Inc., a public company for which Mr. Wiederhorn acted as CEO and Mr. Mendelsohn acted as President and which was principally engaged in banking, loan pool purchasing, and investing in mortgage-backed securities. As a result of the liquidity crisis in the financial markets in the fall of 1998, Wilshire Financial Services Group Inc. experienced significant losses and filed for bankruptcy, which in turn had a significant impact on its affiliates, including WCC, which could not repay the amounts borrowed from CCL. At the time, Wilshire Financial Services Group Inc. owned approximately 8.6% of the Company's common stock and managed the Company's investments under a management agreement.

        In August 2002, Mr. Mendelsohn resigned as President and Director of the Company. In November 2003, Mr. Mendelsohn entered into an agreement with the USAODO pursuant to which he plead guilty to filing a false 1998 personal tax return and agreed to cooperate in the CCL Investigation. Mr. Mendelsohn is awaiting sentence.

        The Company believes that the CCL Investigation is nearing conclusion as to Mr. Wiederhorn. Although the Company believes that the CCL Investigation is unrelated to Mr. Wiederhorn's activities as CEO of the Company or the Company's activities, in the event an indictment is returned against him or he pleads guilty to one or more offenses pursuant to an agreement with the USAODO, one or more potential negative consequences to the Company could result, including, among other things (i) the strong possibility that Mr. Wiederhorn would be unable to continue as a director and officer of the Company, including the risk that incarceration would be required and that the Company would need to make sure an appropriate management team was in place, (ii) concerns on the part of shareholders, clients and employees that could adversely affect the Company's stock price, and (iii) inquiries by regulatory agencies, such as the NASD and the SEC.

        The Company has been aware for a long time that (as previously disclosed) Mr. Wiederhorn was a target of the CCL Investigation and therefore has had time to plan for the possibility that Government action against him might require alternative corporate leadership. The Company has in place a plan to deal with the possible need to replace Mr. Wiederhorn on a short or long term basis that minimizes the adverse effects that his departure may cause.

        The Company notes that it has a strong liquidity position. Its financial condition is set forth in its most recent financial statements. Messrs. Wiederhorn and Mendelsohn, pursuant to the terms of their respective employment agreements, may be entitled to indemnity from the Company for litigation expenses and personal losses in connection with these investigations and any related litigation. Messrs. Wiederhorn and Mendelsohn have notified the Company that they are reserving their rights to seek indemnity from the Company; however, they may be entitled to primary indemnification from other sources. At this time, it is not possible to determine the extent of liability, if any; the Company

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may face with regard to these potential indemnity claims. The Company has not agreed to any indemnity requests.

        On October 6, 2003, the Official Committee of Unsecured Creditors of Strouds Acquisition Corporation filed a lawsuit in the United States Bankruptcy Court (LA 03-23620-ER) which names the Company, among others, as defendants. The lawsuit was amended on November 10, 2003 and limits the complaint against the Company solely in its capacity as collateral agent for certain secured creditors of Strouds. The lawsuit, as it pertains to the Company, seeks reimbursement of the proceeds from approximately $3.0 million in funds received in October 2003, which the Company is holding as collateral agent for other secured creditors. The $3.0 million being held as collateral agent will continue to be held in trust, less reimbursements to the Company, from time-to-time, of the Company's related legal costs, until the bankruptcy court resolves the dispute regarding its distribution. As of December 31, 2003, the Company had been reimbursed for legal fees in the amount of $0.3 million from the collateral agent funds. The Committee of unsecured creditors is seeking the refund of those fees. The Company believes that it will prevail in this matter and has not established a reserve for reimbursement.

        The Company is involved in various other legal proceedings occurring in the ordinary course of business, which the Company believes will not have a material adverse effect on the consolidated financial condition or operations of the Company.

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

        None

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