SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

                                   (MARK ONE)
           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

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

                        COMMISSION FILE NUMBER: 001-16123

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

                         NEWTEK BUSINESS SERVICES, INC.

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

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                   NEW YORK                          11-3504638
       -------------------------------          ----------------------
       (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)           IDENTIFICATION NO.)

             100 QUENTIN ROOSEVELT BOULEVARD, GARDEN CITY, NY 11530
 -------------------------------------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 390-2260


CHECK WHETHER THE REGISTRANT HAS (1) FILED ALL DOCUMENTS AND REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT 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
NINETY DAYS.
                                    YES  NO
                                    [X]  [ ]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

                                    YES  NO
                                    [ ]  [X]

         AS OF MAY 12, 2004, 26,671,976 SHARES OF COMMON STOCK WERE ISSUED AND
OUTSTANDING.



                                    CONTENTS


PART I - FINANCIAL INFORMATION                                              PAGE


Item 1.  Financial Statements (Unaudited)

Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003         1

Consolidated Statements of Operations for the Three Month Periods
Ended March 31, 2004 and 2003                                                  2

Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 2004 and 2003                                          3

Notes to Unaudited Consolidated Financial Statements                           5

Item 2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                         15

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           20

Item 4.  Controls and Procedures                                              20

PART II - OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds and Issuer
Repurchase of Equity Securities                                               21

Item 6.  Exhibits and Reports on Form 8-K                                     21

Signatures                                                                    23

Certifications

Exhibits




ITEM 1.  FINANCIAL STATEMENTS

                NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003



                                                                                                  MARCH 31,       DECEMBER 31,
                                                                                                    2004             2003
                                                                                               -------------     -------------
           A S S E T S
                                                                                                           
Cash and cash equivalents                                                                      $  42,564,071     $  33,444,611
Restricted cash                                                                                    2,680,680         2,107,471
Credits in lieu of cash                                                                           68,497,004        71,294,083
SBA loans receivable, net of reserve for loan losses                                              52,473,931        52,050,725
Accounts receivable (net of allowance of $38,523 and $96,480, respectively)                          673,010           469,768
Receivable from bank                                                                               2,841,915         2,670,353
SBA loans held for sale                                                                            2,282,374         3,619,582
Accrued interest receivable                                                                          287,229           281,072
Investments in qualified businesses - equity method investments                                      300,000           300,000
Investments in qualified businesses - held to maturity investments                                 1,284,057         1,420,179
Structured insurance product                                                                       3,095,057         3,054,705
Prepaid insurance                                                                                 14,655,535        13,282,630
Prepaid expenses and other assets                                                                  2,388,590         1,907,132
Capitalized servicing asset (net of accumulated amortization of $89,550 and $24,545,
  respectively)                                                                                    1,163,436           754,064
Furniture, fixtures and equipment (net of accumulated depreciation of $464,875 and
  $390,011, respectively)                                                                            812,333           670,715
Customer merchant accounts (net of accumulated amortization of $419,832 and $269,380,
  respectively)                                                                                    2,889,295         3,024,298
Goodwill                                                                                           1,832,621         1,832,621
                                                                                               -------------     -------------
Total assets                                                                                   $ 200,721,138     $ 192,184,009
                                                                                               =============     =============
           LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Accounts payable and accrued expenses                                                       $   5,932,724     $   6,095,440
   Notes payable - certified investors                                                             3,826,421         3,829,973
   Notes payable - insurance                                                                       6,336,421         4,115,136
   Notes payable - other                                                                             880,000         1,000,000
   Bank notes payable                                                                             55,642,027        51,990,047
   Note payable in credits in lieu of cash                                                        69,726,477        65,697,050
   Deferred tax liability                                                                          9,631,616        10,815,790
                                                                                               -------------     -------------
      Total liabilities                                                                          151,975,686       143,543,436
                                                                                               -------------     -------------
   Minority interest                                                                               8,092,837         8,393,151
                                                                                               -------------     -------------
   Commitments and contingencies
   Shareholders' equity:
      Common stock (par value $0.02 per share; authorized 39,000,000 shares, issued and
        outstanding 26,651,976 and 26,209,211, not including 582,980 shares held in escrow)          533,040           524,184
      Additional paid-in capital                                                                  28,449,520        26,588,400
      Unearned compensation                                                                       (1,867,315)       (2,106,588)
      Retained earnings                                                                           13,537,370        15,241,426
                                                                                               -------------     -------------
      Total shareholders' equity                                                                  40,652,615        40,247,422
                                                                                               -------------     -------------
      Total liabilities and shareholders' equity                                               $ 200,721,138     $ 192,184,009
                                                                                               =============     =============


  See accompanying notes to these unaudited consolidated financial statements.


                                       1


                NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 2004, AND 2003



                                                              2004              2003
                                                          ------------     ------------
                                                                     
Revenue:
  Income from tax credits                                 $  2,023,525     $ 10,388,583
  Electronic payment processing                              3,232,504          847,804
  Servicing fee and premium income                           1,112,367          368,447
  Interest and dividend income                               1,028,948        1,059,169
  Other income                                                 473,149          255,441
                                                          ------------     ------------
     Total revenue                                           7,870,493       12,919,444
                                                          ------------     ------------
 Expenses:
  Interest                                                   3,764,774        3,717,852
  Payroll and consulting fees                                2,185,449        1,664,064
  Electronic payment processing costs                        2,100,986        1,119,942
  Professional fees                                            994,609          915,767
  Insurance                                                    714,962          573,293
  Other than temporary decline in value of investments              --        1,713,414
  Equity in net losses of affiliates                                --           54,974
  Provision for loan losses                                    104,681               --
   Other                                                     1,193,576          706,513
                                                          ------------     ------------
     Total expenses                                         11,059,037       10,465,819
                                                          ------------     ------------

(Loss) income before minority interest, provision
for income taxes and extraordinary items                    (3,188,544)       2,453,625

Minority interest in income                                    300,314          288,337
                                                          ------------     ------------

(Loss) income before provision for income taxes and
  extraordinary items                                       (2,888,230)       2,741,962
Benefit (provision) for income taxes                         1,184,174       (1,069,365)
                                                          ------------     ------------

(Loss) income before extraordinary items                    (1,704,056)       1,672,597

Extraordinary gain on acquisition of a business                     --          186,729
                                                          ------------     ------------

Net (loss) income                                         $ (1,704,056)    $  1,859,326
                                                          ------------     ------------

Weighted average common shares outstanding
  Basic                                                     26,471,248       25,409,868
  Diluted                                                   26,471,248       25,661,450
Net (loss) income per share
  Basic                                                   $       (.06)    $        .07
  Diluted                                                 $       (.06)    $        .07
  (Loss) income per share before extraordinary items
  Basic                                                   $       (.06)    $        .07
  Diluted                                                 $       (.06)    $        .07



See accompanying notes to these unaudited consolidated financial statements.


                                       2


                NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003



                                                                      2004            2003
                                                                  -----------     -----------
                                                                              
Cash flows from operating activities:
  Net (loss) income                                               $(1,704,056)      1,859,326
  Adjustments to reconcile net (loss) income to net cash used
    in operating activities:
    Other than temporary decline in value of investments, net
      of recoveries                                                        --       1,713,414
    Equity in losses of affiliates                                         --          54,974
    Extraordinary gain on acquisition of business                          --        (186,729)
    Income from tax credits                                        (2,023,525)    (10,388,583)
    Deferred income taxes                                          (1,184,174)      1,069,365
    Depreciation and amortization                                     290,321          45,027
    Provision for loan losses                                         104,681              --
    SBA loans originated for sale                                  (8,111,992)             --
    Proceeds from sale of SBA loans                                 9,449,200              --
    Accretion of interest income                                      (43,904)        (43,904)
    Accretion of interest expense                                   3,021,416       3,091,022
    Non-cash compensation                                             261,588         104,925
    Minority interest                                                (300,314)       (288,338)
    Changes in assets and liabilities, net of the effect of
      business acquisitions:
        Prepaid insurance                                            (122,312)        463,323
        Discount on loan originations, net                            256,269              --
        Prepaid expenses, accounts receivable and other assets     (1,336,796)         45,447
        Accounts payable and accrued expenses                        (162,715)        128,763
                                                                  -----------     -----------
                   Net cash used in operating activities           (1,606,313)     (2,331,968)
                                                                  -----------     -----------

Cash flows from investing activities:
  Investments in qualified businesses (consolidated entities)        (282,352)     (3,200,000)
  Return of investments - held to maturity                            136,122          58,052
  Return of investments - consolidated entities                     1,614,806       1,518,483
  Consolidation of majority owned entities                         (1,332,454)      1,408,890
  Purchase of furniture, fixtures and equipment                      (216,482)        (12,478)
  SBA Loans originated for investment                              (3,138,056)             --
  Payments received on SBA loans                                    2,353,900       2,307,414
  Other investments                                                   (15,449)             --
                                                                  -----------     -----------
                   Net cash (used in) provided by investing
                     activities                                      (879,965)      2,080,361
                                                                  -----------     -----------



See accompanying notes to these unaudited consolidated financial statements.


                                       3


                NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
         FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (CONTINUED)




                                                                                           
Cash flows from financing activities:

  Proceeds from issuance of notes payable to certified investors                $ 10,925,483     $         --

  Cash paid for Coverage A                                                        (3,347,461)              --
  Principal payments of note payable-insurance                                      (778,716)              --
  Repayments of note payable - bank and other                                       (120,000)      (1,016,847)
  Proceeds from sale of preferred stock of subsidiary                                     --        2,000,000
  Change in restricted cash                                                         (573,209)              --
  Proceeds from SBA bank notes payable                                             3,651,980               --
  Net proceeds from exercise of stock options                                        546,069
  Net proceeds from issuance of common stock                                       1,301,592          766,399
                                                                                ------------     ------------
                 Net cash provided by financing activities                        11,605,738        1,749,552
                                                                                ------------     ------------

Net  increase in cash and cash equivalents                                         9,119,460        1,497,945
Cash and cash equivalents - beginning of period                                   33,444,611       41,171,358
                                                                                ------------     ------------

Cash and cash equivalents - end of period                                       $ 42,564,071     $ 42,669,303
                                                                                ------------     ------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:

Reduction of credits in lieu of cash and notes payable in credits in lieu of
  cash balances due to delivery of tax
  credits to Certified Investors                                                $  4,820,604     $  3,908,666
                                                                                ------------     ------------

Issuance of notes in partial payment for insurance                              $  3,000,000     $         --
                                                                                ------------     ------------

Issuance of warrant in connection with purchase of Coverage A
Insurance                                                                       $    250,000     $         --
                                                                                ------------     ------------



                                       4


                 NEWTEK BUSINESS SERVICES, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

         BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

         The consolidated financial statements of Newtek Business Services, Inc.
and Subsidiaries (the "Company" or "Newtek") included herein have been prepared
by us pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and include all majority owned subsidiaries or those which
Newtek is considered to be the primary beneficiary of (as defined under FASB
Interpretation No. FIN 46 ("FIN 46"). All intercompany balances and transactions
have been eliminated in consolidation. The financial statements should be read
in conjunction with the consolidated financial statements and footnotes thereto
included in our Form 10-K for the fiscal year ended December 31, 2003, as
amended.

         The unaudited consolidated financial statements of Newtek, reflect, in
the opinion of management, all adjustments necessary to present fairly the
financial position of Newtek at March 31, 2004, the results of operations and
its cash flows for the three months ended March 31, 2004. Results of operations
for the interim periods may not be representative of results to be expected for
a full year. All adjustments are of a normal recurring nature.

          Newtek Business Services, Inc., is engaged in the business of
providing financial products and business services to small and medium-sized
businesses through ownership and/or operation of specific primary lines of
business as well as organizing certified capital companies ("capcos") and
investing funds made available under the capco programs in small businesses.

         The following is a summary of each Capco or Capco fund, state of
certification and date of certification:

          CAPCO            STATE OF CERTIFICATION       DATE OF CERTIFICATION
       ----------          ----------------------       ---------------------
          WA               New York                     May 1998
          WP               Florida                      December 1998
          WI               Wisconsin                    October 1999
          WLA              Louisiana                    October 1999
          WA II            New York                     April 2000
          WNY III          New York                     December 2000
          WC               Colorado                     October 2001
          WAP              Alabama                      February 2004

         The State of Louisiana has four "capco funds" which are all a part of
and consolidated with the WLA Capco (the first fund). The second, Wilshire
Louisiana Partners II, LLC (WLPII), and the third, Wilshire Louisiana Partners
III, LLC (WLPIII), were formed in October 2001, and October 2002, respectively.
The fourth, Wilshire Louisiana Partners IV, LLC (WLPIV) was formed in October
2003. In general, the Capcos issue debt and equity instruments, generally
warrants or shares of common stock ("Certified Capital"), to insurance company
investors ("Certified Investors"). The Capcos then make targeted investments
("Investments in Qualified Businesses", as defined under the respective state
statutes, or, "Qualified Businesses"), with the Certified Capital raised. Such
investments may be accounted for as either consolidated subsidiaries, under the
equity method or cost method of accounting, depending upon the nature of the
investment and the Company's and/or the Capco's ability to control or otherwise
exercise significant influence over the investee. Participation in each Capco
program legally


                                       5


NOTE 1- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

entitles the Capco to receive (or earn) tax credits from the state upon
satisfying quantified, defined investment percentage thresholds and time
requirements. In order for the Capcos to maintain their state-issued
certifications, the Capcos must make Investments in Qualified Businesses in
accordance with these requirements. These state requirements are mirrored in the
limitations agreed to by each Capco in its written agreements with its Certified
Investors and limit the activities of the Capcos to conducting the business of a
capco. Each Capco also has separate, legal contractual arrangements with the
Certified Investors obligating the Capco to refrain from unauthorized
activities, to use the proceeds from the notes only for Capco-authorized (i.e.,
"qualified") investments, to limit fees for professional services related to
making, buying or selling investments to $200,000 per Capco annually; and to pay
interest on the aforementioned debt instruments whether or not it meets the
statutory requirements for Investments in Qualified Businesses.

         The Capco can satisfy this interest payment, at the Capco's discretion,
by delivering tax credits in lieu of paying cash. The Capcos legally have the
right to deliver the tax credits to the Certified Investors. The Certified
Investors legally have the right to receive and use the tax credits and would,
in turn, use these tax credits to reduce their respective state tax liabilities
in an amount usually equal to 100% (WLA, WLPII, and WLPIII -110%) of their
certified investment. The tax credits can be utilized over a ten-year period at
a rate of 10% (WLA, WLPII, and WLPIII - 11%) per year and in some instances are
transferable and can be carried forward.

         During February 2004, Newtek closed on its twelfth capco, Wilshire
Alabama Partners LLC, for total certified capital of $11,111,111.

         CASH AND CASH EQUIVALENTS

         In the Company's Statement of Cash Flows, cash invested in consolidated
entities is presented as a cash outflow, and cash in those entities is presented
as an inflow, "Consolidation of majority owned entities."

         The Company recognizes income from tax credits as its capcos make
qualified investments and satisfy statutory investment percentage thresholds
within specified time requirements. Newtek believes that the presentation in the
statement of cash flows of gross investments made is appropriate since it
provides disclosure of the aggregate amount of investment activity during the
reporting period, thus providing the information relative to achieving the
Company's investment thresholds and the corresponding recognition of income from
tax credits.

         STOCK - BASED COMPENSATION

         The Company has elected to continue using Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
employee stock options. With regard to stock options, no stock-based employee
compensation cost is reflected in net (loss) income, as all options granted
under this plan had an exercise price equal to the market value of the
underlying common stock at the date of grant. Compensation expense on restricted
shares granted to employees is measured at the fair market value on the date of
grant and recognized in the consolidated statements of operations on a pro-rata
basis over the service period which approximates the vesting period.

         The following table summarizes the pro forma consolidated results of
operations of the Company as though the fair value based accounting method in
SFAS 148 "Accounting for Stock-based Compensation-Transition and Disclosure- an
amendment of SFAS 123" had been used in accounting for employee stock options.


                                       6


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):



                                                             THREE MONTHS ENDED  THREE MONTHS ENDED
                                                                MARCH 31, 2004     MARCH 31, 2003
                                                             ------------------  ------------------
                                                                           
As reported
   Net (loss)  income                                          $  (1,704,056)    $   1,859,326
    dd: Total stock based employee compensation expense
   A recognized, net of related tax effects                          143,101                --
                                                               -------------     -------------
   Deduct: Total  stock based employee compensation expense
   determined under fair value based method for all awards,
   net of related tax effects                                       (208,262)       (212,988))
                                                               -------------     -------------

   Pro forma net (loss) income                                 $  (1,769,217)    $   1,646,338
                                                               -------------     -------------

   Earnings per share:
      Basic - as reported                                      $       (0.06)    $         .07
                                                               -------------     -------------

      Basic - pro forma                                        $       (0.07)    $         .06
                                                               -------------     -------------

        Diluted - as reported                                  $       (0.06)    $         .07
                                                               -------------     -------------

        Diluted - pro forma                                    $       (0.07)    $         .06
                                                               -------------     -------------



                                       7


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         For the three months ended March 31, 2004 and 2003, the weighted
average fair value of each option granted is estimated on the date of grant
using the Black Scholes model with the following assumptions: expected
volatility ranging from 59-85%, risk-free interest rate ranging from 1.61% to
6.15%, respectively, expected dividends of $0 and expected terms ranging from
1-6 years.

         USE OF ESTIMATES

         The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expense during the
reporting period. The most significant estimates are with respect to valuation
of investments in qualified businesses, goodwill impairment valuation and loans
receivable. Actual results could differ from those estimates.

         NEW ACCOUNTING PRONOUNCEMENTS

         In March 2004, the Emerging Issues Task Force ("EITF" or the "Task
Force") reached a final consensus on Issue 03-6 "Participating Securities and
the Two- Class Method under FASB Statement No. 128, Earnings per Share" which
addresses a number of questions regarding the computation of earnings per share
("EPS") by companies that have issued securities other than common stock that
contractually entitle the holder to participate in dividends and earnings of the
company when, and if, it declares dividends on its common stock. The issue also
provides further guidance in applying the two-class method of calculating EPS.
It clarifies what constitutes a participating security and how to apply the
two-class method of computing EPS once it is determined that a security is
participating, including how to allocate undistributed earnings to such a
security. The Company does not anticipate that adoptions of this standard will
have a significant impact on the Company's financial position, results of
operations or cash flows.

         In March 2004, the EITF reached consensus on Issue No. 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" regarding disclosures about unrealized losses on available-for-sale
debt and equity securities accounted for under FASB Statements No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", and No. 124,
"Accounting for Certain Investments Held by Not-for-Profit Organizations". The
guidance for evaluating whether an investment is other-than-temporarily impaired
should be applied in such evaluations made in reporting periods beginning after
June 15, 2004. The disclosures are effective in annual financial statements for
fiscal years ending after December 15, 2003, for investments accounted for under
Statements 115 and 124. For all other investments within the scope of this
Issue, the disclosures are effective in annual financial statements for fiscal
years ending after June 15, 2004. The additional disclosures for cost method
investments are effective for fiscal years ending after June 15, 2004. We do not
expect that the implementation of EITF 03-1 will have a material effect on our
financial statements.

         RECLASSIFICATIONS

         Certain prior period amounts have been reclassified to conform to
current period presentation.


NOTE 2 - COMMON STOCK:

         In the first quarter of 2004, Newtek sold 201,273 shares of common
stock in private transactions, with proceeds totaling approximately $942,000.
During the same period there were 153,992 stock options exercised, with proceeds
totaling approximately $547,000. In connection with the funding of the Wilshire
Alabama capco, 85,500 shares of stock were issued for approximately $359,000. In
addition, 2,000 shares of common stock were issued in consideration for
consulting services rendered, valued at approximately $14,000.


                                       8


NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES:

         The following table is a summary of investments as of March 31, 2004,
shown separately between their debt and equity components, and all terms of each
are summarized. There are no expiration dates on any of the financial
instruments, unless disclosed.

         The various interests that the Company acquires in its qualified
investments are accounted for under three methods: consolidation, equity method
and cost method. The applicable accounting method is generally determined based
on the Company's voting interest, or the economics of the transaction if the
investee is determined to be a variable interest entity.

                                DEBT INVESTMENTS
                                ----------------


                               DIRECT        AUTOTASK       LOUISIANA BIDCO
INVESTEE                   CREATIONS, LLC     GROUP              LOANS             TOTAL
                           --------------    ----------     ----------------     -----------

                                                                       

INVESTMENT DATE (S)        EPT -01, NOV-01    OCT-02            VARIOUS

MATURITY DATE (S)             JUNE-04         SEPT-3            VARIOUS

INTEREST RATE             S    LIBOR          7.75%            PRIME +1%
------------------------  ----------------- ------------- --------------------   -----------

                        ---------------------------------------------------------------------
Principal outstanding
  at December 31, 2003   $         269,387   $   300,000       $     850,792    $  1,420,179
Return of principal -
  2004                            (62,495)             -            (73,627)       (136,122)
                        ------------------- -------------    ----------------  --------------
Principal outstanding
  at March 31, 2004      $         206,892    $  300,000       $     777,165    $  1,284,057
                        ------------------- -------------    ----------------  --------------


                               EQUITY INVESTMENTS
                               ------------------

                                                DISTRIBUTION
                                                VIDEO AND
INVESTEE                     BUY SEASONS, INC.  AUDIO CORP.           TOTAL
                            -----------------  -------------      --------------

INVESTMENT DATE (S)         JUN-01              JUN-00


TYPE OF INVESTMENT          COMMON STOCK        COMMON STOCK


OWNERSHIP INTERST AS
OF DECEMBER 31, 2002        <20.00%             <20.00%
-----------------------------------------   ------------------    --------------

Total equity investments
  at December 31, 2003      $ 100,000           $ 200,000         $ 300,000

Return of Capital                -                    -              -

Equity in income (losses)
  2004                           -                    -              -
Total Equity investments
  at March 31, 2004         $ 100,000           $ 200,000         $ 300,000
                           -------------    ------------------   ---------------

                                       9


NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (CONTINUED):

         The Company has not guaranteed any obligation of these investees, and
the Company is not otherwise committed to provide further financial support for
the investees. However, from time-to-time, the Company may decide to provide
such additional financial support which, as of March 31, 2004 was assessed at
zero. Should the Company determine that an impairment exists upon its periodic
review, and it is deemed to be other than temporary, the Company will write down
the recorded value of the asset to its estimated fair value and record a
corresponding charge in the Company's Consolidated Statement of Income.
         All companies in which the Company has made equity investments provide
the Company with unaudited financial statements. For each equity method
investment, Newtek management reviews the facts and circumstances that are
apparent to ascertain if an adjustment is necessary to the books of the investee
to make its financial statements materially correct.



NOTE 4 - LOANS RECEIVABLE (NON-CAPCO):


         Loans receivable are generated by Newtek Small Business Finance
("NSBF") and are primarily related to entities in the Northeast region of the
United States with concentrations in the restaurant and hotel and motel
industries.


         The unpaid principal amount of loans serviced for others of
approximately $127,768,000 and $123,832,000 at March 31, 2004 and December 31,
2003, respectively, is not included on the accompanying consolidated balance
sheets.


         Below is a summary of the activity of the SBA loan receivable account,
net of SBA loan loss reserves for the three months ended March 31, 2004:

         Balance at December 31, 2003                     $    52,050,725
         SBA Loans originated for investment                    3,138,056
         Payments received in 2004                             (2,353,900)
         Provision for SBA loan losses                           (104,681)
         Discount on loan originations, net                      (256,269)
                                                          ---------------
         Balance at March 31, 2004                        $    52,473,931
                                                          ===============


         Below is a summary of the activity of the reserve for loan losses
account for the three months ended March 31, 2004:

         Balance at December 31, 2003                     $     1,613,613
         SBA Loan loss provision charged in 2004                  104,681
         Recoveries                                                16,438
         Charge-offs                                                    -
                                                          ---------------
         Balance at March 31, 2004                        $     1,734,732
                                                          ===============


                                       10


NOTE 4 - LOANS RECEIVABLE (NON-CAPCO) (CONTINUED):


         Below is a summary of the SBA loans held for sale as of March 31, 2004:

         Balance at December 31, 2003                     $     3,619,582
         Loan originations for sale                             8,111,992
         Loans sold                                            (9,449,200)
                                                          ----------------
         Balance at March 31, 2004                        $     2,282,374
                                                          ===============

         Below is a summary of the SBA capitalized servicing assets as of March
31, 2004:

         Balance at December 31, 2003                     $       754,064
         Additions                                                474,377
         Amortization                                             (65,005)
                                                          ----------------
         Balance at March 31, 2004                        $     1,163,436
                                                          ===============


         As of March 31, 2004 and December 31, 2003, SBA loans that were on a
non-accrual basis amounted to approximately $3,181,000 and $3,201,000,
respectively. As of March 31, 2004 and December 31, 2003, SBA loans due after
one year that have adjustable interest rates amount to approximately $54,293,000
and $51,321,000, respectively.

         The Company originates loans to small businesses under the SBA program
that provides a guaranty from 50% to 85% on the total amount of the loan.
Although the legislation under which the SBA guaranty program operates has a
maximum loan amount of $2 million, the Agency administratively placed a
temporary loan maximum of $750,000 due to the lack of congressional budget
approval that was subsequently removed after March 31, 2004. The Company
typically sells the guaranteed portion of each loan to a third party and retains
the unguaranteed principal portion in its portfolio. Loan losses are shared pro
rata between the guaranteed and unguaranteed portions.

     The following is a summary of SBA loans receivable at:



                                                    MARCH 31,      DECEMBER 31,
                                                      2004            2003
                                                  --------------  -----------

                                                                  
     Due in one year or less                           $ 163,342        $ 168,292
     Due between one and five years
                                                       2,538,331        2,619,618
     Due after five years                             52,179,481       51,292,650
                                                 ----------------  ---------------
     Total                                            54,881,154       54,080,560
     Less: Allowance                                  (1,734,732)      (1,613,613)
     Less: Discount on loan originations, net           (672,491)        (416,222)
                                                 ----------------  ---------------

     Net Balance                                     $52,473,931      $52,050,725
                                                 ----------------  ---------------



                                       11


NOTE 5 - EARNINGS PER SHARE:

         Basic earnings per share is computed based on the weighted average
number of common shares outstanding during the period. The dilutive effect of
common stock equivalents is included in the calculation of diluted earnings per
share only when the effect of their inclusion would be dilutive.

         The calculations of Net (Loss) Income Per Share were:



                                                         THREE MONTHS      THREE MONTHS
                                                             ENDED            ENDED
                                                        MARCH 31, 2004    MARCH 31, 2003
                                                        --------------    --------------
                                                                     
Numerator:
    Numerator for basic and diluted EPS -
      income available to common stock holders          $   (1,704,056)    $ 1,859,326

    Numerator for basic and diluted EPS -
      extraordinary item                                            --         186,729
                                                        --------------     -----------

    Numerator for basic and diluted EPS -               $   (1,704,056)    $ 1,672,597
      income before extraordinary item
                                                        ==============     ===========

Denominator:
    Denominator for basic EPS -
      weighted average shares                               26,471,248      25,409,868

    Effect of dilutive securities (stock options and
restricted stock units)                                             --         251,582
                                                        --------------     -----------

    Denominator for diluted EPS -                           26,471,248      25,661,450
      weighted average shares
                                                        ==============     ===========

Net EPS:  Basic                                         $        (0.06)    $       .07

Net EPS:  Diluted                                       $        (0.06)    $       .07

Net EPS:  Basic before extraordinary gain               $        (0.06)    $       .07

Net EPS:  Diluted before extraordinary gain             $        (0.06)    $       .07



                                       12


NOTE 6 - SEGMENT REPORTING:

         Newtek's reportable segments are as follows: SBA lending, electronic
payment processing and Capcos and other.

         Operating segments are organized internally primarily by the type of
services provided, and in accordance with Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" the Company has aggregated similar operating segments into three
reportable segments, SBA lending, electronic payment processing and Capcos and
other.

         The SBA lending segment is NSBF, a licensed, Small Business
Administration (SBA) lender that originates, sells and services loans to
qualifying small businesses, which are partially guaranteed by the SBA.

         As an SBA lender, NSBF generates revenues from sales of loans,
servicing income for those loans retained to service by NSBF (included in
servicing fee and premium income on the consolidated statements of operations)
and interest income earned on available cash balances and the loans themselves.
The lender also generates expenses such as interest, professional fees, payroll
and consulting, and provision for loan losses, all of which are included in the
respective caption on the consolidated statements of operations. NSBF also has
expenses such as loan recovery expenses, loan processing costs, depreciation and
amortization, and other expenses that are all included in the other expense
caption on the consolidated statements of operations.

         The electronic payment processing segment is a processor of credit card
transactions, as well as a marketer of credit card and check approval services
to the small business market. Revenue generated from electronic payment
processing is included on the consolidated statements of operations as a
separate line item. Expenses include direct costs (included in a separate line
captioned electronic payment processing costs), professional fees, payroll and
consulting, and other expenses, all of which are included in the respective
caption on the consolidated statements of operations.

         The Capcos and other segment represents Newtek's activities in the
certified capital company market as described in Note 1, as well as investments
not included in the other two segments.

         Management has considered the following characteristics when making its
determination of its operating and reportable segments:

          o    the nature of the products and services,

          o    the type or class of customer for their products and services,

          o    the methods used to distribute their products or provide their
               services, and

          o    the nature of the regulatory environment.



                                       13


NOTE 6 - SEGMENT REPORTING (CONTINUED):

         The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.

                                            FOR THE THREE     FOR THE THREE
                                            MONTHS ENDED      MONTHS ENDED
                                              MARCH 31,          MARCH 31,
                                                 2004              2003
                                            -------------     -------------
Revenue
    SBA lending                             $   2,140,053     $   1,322,061
    Electronic payment processing               3,232,504           847,804
    Capco and other                             2,497,936        10,749,579
                                            -------------     -------------
    TOTAL                                   $   7,870,493     $  12,919,444
                                            -------------     -------------

(Loss) income before provision for
    income taxes and extraordinary items
    SBA lending                             $     288,761     $    (292,832)
    Electronic payment processing                  10,573          (375,091)
    Capco and other                            (3,187,564)        3,409,885
                                            -------------     -------------
    TOTAL                                   $  (2,888,230)    $   2,741,962
                                            -------------     -------------

Depreciation and amortization

    SBA lending                             $      79,204     $          --
    Electronic payment processing                 168,604            16,674
    Capco and other                                42,513            28,353
                                            -------------     -------------
    TOTAL                                   $     290,321     $      45,027
                                            -------------     -------------

  Intercompany Revenue eliminated
    above SBA lending                       $          --     $          --
    Electronic payment processing                 214,932            92,644
    Capco and other                               416,532           376,956
                                            -------------     -------------
    TOTAL                                   $     631,464     $     469,600
                                            -------------     -------------

  Intercompany Expenses eliminated
    above SBA lending                       $     158,113     $          --
    Electronic payment processing                 320,656           215,566
    Capco and other                               152,695           254,034
                                            -------------     -------------
    TOTAL                                   $     631,464     $     469,600
                                            -------------     -------------

   Identifiable Assets                       AT MARCH 31,     AT DECEMBER 31,
                                                 2004             2003
                                            -------------     -------------
   SBA lending                              $  68,293,531     $  64,738,750
   Electronic payment processing                7,213,673         7,308,940
   Capco and other                            125,213,934       120,136,319
                                              -----------       -----------
    TOTAL                                   $ 200,721,138     $ 192,184,009
                                            -------------     -------------


                                       14


NOTE 7 - SUBSEQUENT EVENT:

On April 28th 2004, Newtek signed an agreement to acquire CrystalTech Web
Hosting, Inc, one of the largest Microsoft Windows-only hosting companies in the
world, with 26,000 customers, 80 percent of which are small to medium-sized
businesses, and an impressive growth of approximately 1,100 new hosting accounts
per month. The agreement with CrystalTech is subject to a number of conditions,
primarily financing. This acquisition greatly enhances the ability of Newtek to
cross-market its menu of business and financial services to a large pre-existing
customer base.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION:

Readers are cautioned that certain statements contained herein are
forward-looking statements and should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements" below. The following
discussion should also be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's significant accounting policies are described in note 1
of the Notes to Consolidated Financial Statements included in its Form 10-K for
the fiscal year ended December 31, 2003. A discussion of the Company's critical
accounting policies, and the related estimates, are included in Management's
Discussion and Analysis of Results of Operations and Financial Position in its
Form 10-K for the fiscal year ended December 31, 2003. There have been no
significant changes in the Company's existing accounting policies or estimates
since its fiscal year ended December 31, 2003.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003

         Revenues decreased by approximately $5,049,000 to $7,870,000 for the
three months ended March 31, 2004, from $12,919,000 for the three months ended
March 31, 2003. Income from tax credits decreased by approximately $8,365,000
from $10,389,000 for the three months ended March 31, 2003, to $2,024,000 for
the three months ended March 31, 2004, due to Newtek's capcos achieving less
investment thresholds mandated by the various state capco statutes in 2004
compared to 2003. Electronic payment processing revenue increased by
approximately $2,385,000 to $3,233,000 for the three months ended March 31,
2004, from $848,000 for the three months ended March 31, 2003, due to the
Company's increase in electronic payment processing customers, as well as the
company's acquisition of Automated Merchant Services in August, 2003.

         Servicing fee and premium income increased by approximately $744,000 to
$1,112,000 for the three months ended March 31, 2004 from $368,000 for the three
months ended March 31, 2003 due to the fact that NSBF, the SBA lender,
experienced significant growth in the business.

         Interest and dividends are generated from SBA lending activities,
excess cash balances that are invested in low risk, highly liquid securities
(money market accounts, federal government backed mutual funds, etc.), non-cash
accretions of structured insurance product and on held to maturity investments.
The following table details the changes in these different forms of interest and
dividend income:



                                              2004                  2003              CHANGE
                                             ------                ------            --------

                                                                           
SBA lending activities                   $     925,003           $  915,176         $      9,827
Non-cash accretions                             43,904               43,904                   -
Qualified investments                           20,829               22,975               (2,146)
Low-risk highly liquid securities               39,212               77,114              (37,902)
                                         -------------           ----------         -------------
                                         $   1,028,948           $1,059,169         $    (30,221)
                                         =============           ==========         =============



                                       15


         The decrease in interest income generated on qualified investments and
low-risk highly liquid securities is attributable to a decline in the average
outstanding balances of held to maturity investments and reduced short term
interest rates on interest bearing cash accounts.

         Other income increased by approximately $218,000 to $473,000 for the
three months ended March 31, 2004 from $255,000 for the three months ended March
31, 2003. Other than electronic payment processing and NSBF, this increase is
due to the increased number of consolidating operating entities in the three
months ended March 31, 2004 as compared to the same period in 2003 coupled with
the increase in revenues from existing consolidated operating entities, as they
continue to transition from start up operations.

         Changes in interest expense are summarized as follows:



                                             2004                   2003              CHANGE
                                            ------                 ------            --------

                                                                           
Capco interest expense                   $   3,021,416           $  3,001,543       $     19,873
NSBF (SBA Lender) Interest Expense             501,873                504,586             (2,713)
Other interest                                 241,485                211,723             29,762
                                         -------------           ------------       ------------
                                         $   3,764,774           $  3,717,852       $     46,922
                                         =============           ============       ============


         The approximately $20,000 increase in Capco interest expense in the
three months ended 2004 was attributable to the new borrowings associated with
the new capco, Wilshire Alabama, funded in February 2004, as well as Wilshire
Louisiana Partners IV, funded in October 2003. The approximately $30,000
increase in other interest expense was attributable to the fact that there were
additional debt instruments associated with the financing of insurance coverage
purchased for the Wilshire Alabama Partners capco during the first quarter of
2004 and the acquisition of Automated Merchant Services during the third quarter
of 2003.

         Payroll and consulting fees increased by approximately $521,000 to
$2,185,000 for the three months ended March 31, 2004 from $1,664,000 for the
three months ended March 31, 2003. The increase was primarily due to the
increased number of operating entities consolidated into Newtek in the three
months ended March 31, 2004 versus the same period in 2003. Electronic payment
processing direct costs increased by approximately $981,000 to $2,101,000 for
the three months ended March 31, 2004 from $1,120,000 for the three months ended
March 31, 2003, due to the significant increase in the number of electronic
payment processing customers as well as the acquisition of Automated Merchant
Services in August 2003.

         Professional fees increased by approximately $79,000 to $995,000 for
the three months ended March 31, 2004 from $916,000 for the three months ended
March 31, 2003. This increase is primarily due to the increased legal and
accounting services provided due to the significant growth in the company in the
three months ended March 31, 2004 as compared to the three months ended March
31, 2003 . Insurance expense increased by approximately $142,000 to $715,000 for
the three months ended March 31, 2004 from $573,000 for the three months ended
March 31, 2003. This increase is due to the additional insurance relating to the
new capco funded in 2004, Wilshire Alabama Partners, and the new capco funded in
October 2003, Wilshire Louisiana Partners IV.

         Provision for loan losses increased to approximately $105,000 for the
three months ended March 31, 2004 from zero for the three months ended March 31,
2003. This is due to the fact that NSBF was acquired on December 31, 2002 and
there were no new loans during the comparable three months ended March 31, 2003.


                                       16


         Other expenses increased by approximately $487,000 to $1,194,000 for
the three months ended March 31, 2004 from $707,000 for the three months ended
March 31, 2003. The increase was due primarily to expenses incurred by
consolidated operating entities other than electronic payment processing as
described above. Specifically, the amortization of customer merchant accounts
which were acquired in August 2003 contributed approximately $132,000 to the
increase in other expenses in the three months ended 2004 compared to zero in
the same period in 2003.


         Other than temporary decline in value of investments decreased by
approximately $1,713,000 to zero for the three months ended March 31, 2004 from
$1,713,000 for the three months ended March 31, 2003, due to the Company's
determination that there were no other than temporary declines in the value of
investments for the period ended March 31, 2004. During the period ended March
31, 2003, the Company determined that there was an approximately $943,000 other
than temporary decline in the value of its investments for Merchant Data
Systems, Inc., $500,000 for 1-800 Gift Certificate and an approximately $270,000
other than temporary decline in the value of its investments for Direct
Creations, LLC.

         For the three months ended March 31, 2004, equity in net losses of
affiliates decreased by approximately $55,000 to $0. This decrease is due to the
fact that the investments accounted for under the equity method were written
down to $0 as of December 31, 2003.

         The Company's results of operations declined by approximately
$3,563,000 from net income of $1,859,000 for the three months ended March 31,
2003 to a net loss of $1,704,000 for the three months ended March 31, 2004, due
to the decreases in revenue of approximately $5,049,000 and the increases in
overall expenses of approximately $593,000 discussed above., offset by the
decrease in the taxes of approximately $2,254,000, and the decrease in
extraordinary gains of approximately $187,000.

CONSOLIDATED OPERATING ENTITIES

         At March 31, 2004, Newtek had nineteen majority-owned consolidated
operating entities, most of which were as a result of investments through the
capco programs. For the three months ended March 31, 2004, these companies
represented approximately $215,000 in losses that are consolidated in Newtek's
results (net of inter-company eliminations of $631,000 in revenues and $631,000
in expenses). For the three months ended March 31, 2004, revenues from
consolidating operating entities, net of inter-company eliminations, amounted to
$5,723,000 and were generated from the following sources: SBA lending
($2,140,000) electronic payment processing ($3,233,000), outsourced financial
information systems ($97,000), and other ($253,000). For the three months ended
March 31, 2004, expenses incurred by consolidating operating companies, net of
inter-company eliminations, amounted to $5,938,000 and were incurred by the
following sources: SBA lending ($1,851,000) electronic payment processing
($3,224,000), outsourced financial information systems ($156,000), and other
($707,000).

         At March 31, 2003, Newtek had fourteen majority-owned consolidated
operating entities, most of which were as a result of investments through the
capco programs. For the three months ended March 31, 2003, these companies
represented approximately $1,036,000 in losses that are consolidated in Newtek's
results (net of inter-company eliminations of $470,000 in revenues and $470,000
in expenses). For the three months ended March 31, 2003, revenues from
consolidating operating entities, net of inter-company eliminations, amounted to
$2,352,000 and were generated from the following sources: SBA lending
($1,322,000) electronic payment processing ($848,000), outsourced financial
information systems ($53,000), and other ($129,000). For the three months ended
March 31, 2003, expenses incurred by consolidating operating companies, net of
inter-company eliminations, amounted to $3,388,000 and were incurred by the
following sources: SBA lending ($1,615,000) electronic payment processing
($1,095,000), outsourced financial information systems ($180,000), and other
($498,000).


                                       17


LIQUIDITY AND CAPITAL RESOURCES

         Newtek has funded its operations primarily through the issuance of
notes to insurance companies through the capco programs. Through March 31, 2004,
Newtek has received approximately $184,637,000 in proceeds from the issuance of
long-term debt, Capco warrants, and Newtek common stock through the capco
programs. Newtek's principal capital requirements have been to fund the purchase
of Coverage A insurance related to the notes issued to the insurance companies
(approximately $102,381,000), the acquisition of Coverage B capco insurance
policies ($21,255,000), the acquisition of consolidated operating entity's
interests, identifying other capco-qualified investments, and working capital
needs resulting from operating and business development activities of its
consolidated operating entities.

         Net cash used in operating activities for the three months ended March
31, 2004 of approximately $1,606,000 resulted primarily from a net loss of
$1,704,000 adjusted for the non-cash interest expense of approximately
$3,021,000, proceeds from sale of SBA loans held for sale of approximately
$9,449,000, and other non cash charges for stock compensation, depreciation and
amortization, and provision for loan losses totaling approximately $657,000. It
was also affected by the approximately $1,184,000 of a deferred tax benefit,
$256,000 of discount on loan originations, approximately $300,000 of minority
interest, approximately $2,024,000 in non-cash income from tax credits, and
approximately $8,112,000 in SBA loans originated for sale. In addition, Newtek
had a net decrease in components of prepaid insurance, prepaid expenses,
accounts receivable and other assets, and accounts payable and accruals of
approximately $1,622,000.

         Net cash used in operating activities for the three months ended March
31, 2003 of approximately $2,332,000 resulted primarily from net income of
approximately $1,859,000, increased by the non-cash interest expense of
approximately $3,091,000. It was also affected by the approximately $1,713,000
in other than temporary decline in value of investments, approximately $288,000
in minority interest, the approximately $10,389,000 in income from tax credits,
and the deferred income tax provision of $1,069,000. In addition, the Company
had an increase in components of prepaid insurance, prepaid expenses, accounts
receivable and other assets, and accounts payable and accruals of approximately
$638,000.

         Net cash used in investing activities for the three months ended March
31, 2004 of approximately $880,000 resulted primarily from repayments on SBA
loans of approximately $2,354,000, and approximately $216,000 of purchase of
furniture, fixtures and equipment, offset by approximately $3,138,000 from SBA
loans originated for investment, $136,000 from returns of held to maturity
investments.

         Net cash provided by investing activities for the three months ended
March 31, 2003 of approximately $2,080,000 resulted primarily from returns of
principal of approximately $1,518,000, offset by approximately $3,200,000 in
additional qualified investments made in the period. We also received
approximately $2,307,000 in repayments on our loan receivable and we
consolidated approximately $1,409,000 of our investments.

         Net cash provided by financing activities for the three months ended
March 31, 2004 was approximately $11,606,000, primarily attributable to proceeds
from the issuance of long term debt of approximately $10,925,000, approximately
$1,848,000 from the private placement of common stock and exercise of stock
options, and proceeds from SBA bank notes of approximately $3,652,000. This was
offset by approximately $3,348,000 in payments for Coverage A insurance,
$779,000 in payments on notes payable-insurance, $120,000 in payments of notes
payable-other, and a change in restricted cash of approximately $573,000.


                                       18


         Net cash provided by financing activities for the three months ended
March 31, 2003 was approximately $1,750,000, primarily attributable to
approximately $766,000 from the private placement of common stock, offset by
approximately $1,017,000 in payments on loans payable, and $2,000,000 in
proceeds from the sale of preferred stock of a consolidated entity.

         During the three months ended March 31, 2004 we and our affiliated
companies generated cash flow primarily from the following sources:

          o    private placement of common stock and exercise of stock options,
               netting $1,848,000;

          o    proceeds from issuance of a long-term debt and warrants of
               $10,925,000;

          o    interest and dividend income of approximately $1,029,000;

          o    proceeds from sales of SBA loans of approximately $9,449,000;

          o    other income of approximately $473,000, which represents revenue
               from Newtek's consolidated operating entities;

          o    cash received from repayments of SBA loans receivable of
               approximately $2,354,000; and

          o    proceeds from SBA bank notes payable of approximately $3,652,000.

         The cash was primarily used to:

          o    originate approximately $11,250,000 in SBA loans held for
               investment and for sale;

          o    repay "note payable-insurance" of approximately $779,000; and

          o    purchase of Coverage A insurance of approximately $3,348,000.

         During the three months ended March 31, 2003 we generated cash flow
primarily from the following sources:

          o    private placement of common stock, netting $766,000;

          o    interest and dividend income of approximately $1,059,000;

          o    proceeds from the sale of subsidiary preferred stock of
               $2,000,000;

          o    other income of approximately $255,000, which represents revenue
               from consolidated operating entities; and

          o    cash received repayments on SBA loans of approximately
               $2,307,000.

         The cash was primarily used to:

          o    invest approximately $3,200,000 in small or early stage
               businesses; and

          o    repay a note payable-other of approximately $1,017,000.

FORWARD-LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by Newtek from
time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "seek," and "intend" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement is made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of income or loss, expenditures,
acquisitions, plans for future operations, financing needs or plans relating to
our services, as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements.


                                       19


         Newtek does not undertake, and specifically disclaims, any obligation
to publicly release the results of revisions which may be made to
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after such statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         All of our business activities contain elements of risk. We consider
the principal types of risk to be fluctuations in interest rates and loan
portfolio valuations. We consider the management of risk essential to conducting
our businesses. Accordingly, risk management systems and procedures are designed
to identify and analyze our risks, to set appropriate policies and limits and to
continually monitor these risks and limits by means of reliable administrative
and information systems and other policies and programs.

         We transact business with merchants exclusively in the United States
and receive payment for our services exclusively in United States dollars. As a
result, our financial results are unlikely to be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets.

         Our interest expense is sensitive to changes in the general level of
interest rates in the United States, because a majority of our indebtedness is
at variable rates. At March 31, 2004, $55.6 million of our outstanding
indebtedness was at variable interest rates based on the prime rate. A rise in
the prime rate of one percentage point would result in additional interest
expense of approximately $600,000. However, our interest income would also
increase by approximately the same amount, due to the variability of the
interest rates on our SBA loans receivable. Although management believes that
this measure is indicative of our sensitivity to interest rate changes, it does
not adjust for potential changes in credit quality, size and composition of the
assets on the balance sheet, and other business developments that could affect
net increase (decrease) in assets. Accordingly, no assurances can be given that
actual results would not differ materially from the potential outcome simulated
by this estimate.

         We do not hold derivative financial or commodity instruments, nor
engage in any foreign currency denominated transactions, and all of our cash and
cash equivalents are held in money market and checking funds.

ITEM 4.  CONTROLS AND PROCEDURES

         As of the three months ended March 31, 2004, Newtek Business Services,
Inc. carried out an evaluation, under the supervision and with the participation
of the Newtek's management, including the Newtek's Chief Executive Officer and
the Newtek's Chief Financial Officer, of the effectiveness of the design and
operation of Newtek's disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14. Based upon that evaluation, Newtek's Chief Executive Officer
and Newtek's Chief Financial Officer concluded that Newtek's disclosure controls
and procedures are effective in alerting them in a timely manner to material
information relating to Newtek (including its consolidated subsidiaries)
required to be included in Newtek's periodic SEC filings. There have been no
changes in Newtek's internal controls or in other factors that could
significantly affect these controls subsequent to the date Newtek conducted its
evaluation.

         Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed by Newtek under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Disclosure controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to Newtek's management, including the Chief Executive Officer and
the Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. Disclosure controls include internal controls that are


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designed to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or improper use and
transactions are properly recorded and reported.

         Any control system, no matter how well conceived and operated, can
provide only reasonable assurance that its objectives are achieved. The design
of a control system inherently has limitations, including the controls' cost
relative to their benefits. Additionally, controls can be circumvented. No
cost-effective control system can provide absolute assurance that all control
issues and instances of fraud, if any, will be detected.


PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         We entered into the following transactions during the three months
ended March 31, 2004 in connection with the sale of our common stock.

------------------------ ---------- --------- --------
Name                     Date       Shares    Price
------------------------ ---------- --------- --------
Vincent Negra            1/7/04     9,524     $5.25
------------------------ ---------- --------- --------
Thomas Festa             1/7/04     4,762     $5.25
------------------------ ---------- --------- --------
Bella Borg               1/15/04    50,000    $5.56
------------------------ ---------- --------- --------
Stephen Brenner          1/15/04    18,750    $5.60
------------------------ ---------- --------- --------
Brian Flax               2/3/04     500       $4.68
------------------------ ---------- --------- --------
Jon Schmidt              2/3/04     1,000     $4.68
------------------------ ---------- --------- --------
Josh Solomon             2/4/04     3,200     $4.68
------------------------ ---------- --------- --------
Robert Cohen             2/5/04     50,000    $4.75
------------------------ ---------- --------- --------
Christopher Payne        2/6/04     5,592     $4.47
------------------------ ---------- --------- --------
Robert Cohen             3/18/04    25,000    $4.00
------------------------ ---------- --------- --------
Jeffrey Cohen            3/18/04    25,000    $4.00
------------------------ ---------- --------- --------

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits attached to this Quarterly Report on Form 10-Q are:

         Exhibit 3(i).1, the Certificate of Incorporation of Newtek Business
         Services, Inc., as fully restated to incorporate all amendments through
         November 25, 2002.

         Exhibits 31.1 and 31.2, Certifications of the Chief Executive Officer
and the Chief Financial Officer.

         Exhibit 32.1, Certification pursuant to 18 USC ss.1350.

         (b) During the quarter ended March 31, 2004 we filed the following
             Current Reports on Form 8-K:

         On February 26, 2004, Newtek announced that it had entered into
marketing alliances for the distribution of one or more of its business products
and services with Merrill Lynch Financial Services and CBW Financial Services,
Inc. and announced its plans for the initiation of business by its newly formed
subsidiary, Newtek Insurance Agency.

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         On March 2, 2004, Newtek announced that it had entered into a marketing
alliance agreement with the Navy Federal Credit Union, one of the largest in the
country, for the provision of small business loans for the credit union's
members. Newtek also announced the results of its operations for the year ended
December 31, 2003.



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                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                 NEWTEK BUSINESS SERVICES, INC.



         Date:  May 14, 2004     /s/ Barry Sloane
                                 -----------------------------------------------
                                 Barry Sloane
                                 Chairman of the Board, Chief Executive Officer
                                 and Secretary



         Date:  May 14, 2004     /s/ Brian A. Wasserman
                                 -----------------------------------------------
                                 Brian A. Wasserman
                                 Treasurer, Chief Financial Officer and Director



         Date:  May 14, 2004     /s/ Giuseppe Soccodato
                                 -----------------------------------------------
                                 Giuseppe Soccodato
                                 Controller and Chief Accounting Officer



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