<PAGE>   1

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

                                   FORM 10-KSB


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

                  For the fiscal year ended December 31, 2000

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

                  For the transition period from _____________ to _____________

                         Commission file number 0-17771
                                                -------

                     FRANKLIN CREDIT MANAGEMENT CORPORATION
        (Exact name of small business issuer as specified in its charter)

<TABLE>
<S>                                                                      <C>
                         Delaware                                                    75-2243266
(State or other jurisdiction of incorporation or organization)           (I.R.S. Employer identification No.)
</TABLE>

                               Six Harrison Street
                            New York, New York 10013
                                 (212) 925-8745
          (Address of principal executive offices, including zip code,
                   and telephone number, including area code)

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

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value.

     Check whether the issuer (1) filed all reports required to be filed by
     Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
     (or for such shorter period that the registrant was required to file such
     reports), and (2) has been subject to such filing requirements for the past
     90 days. Yes X No .

     Check if there is no disclosure of delinquent filers pursuant to Item 405
     of Regulation S-B contained in this form, and no disclosure will be
     contained, to the best of registrant's knowledge, in definitive proxy or
     information statements incorporated by reference in Part III of this Form
     10-KSB or any amendment to this Form 10-KSB. []

     Issuer's revenues for its most recent fiscal year: $ 29,047,390

     As of March 15, 2001 the issuer had 5,916,527 of shares of Common Stock,
     par value $0.01 per share, outstanding. On that date, the aggregate market
     value of the voting stock held by persons other than those who may be
     deemed affiliates of the issuer was $1,952,454 (based on the average of the
     reported closing bid and ask price on such date).

     Check whether the issuer has filed all documents and reports required to be
     filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
     of securities under a plan confirmed by a court. Yes X No .

     Transitional Small Business Disclosure Format: Yes         No  X

     Portions of the registrant's definitive proxy statement, which will be
     filed within 120 days of December 31, 2000, are incorporated by reference
     into Part III.
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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     BUSINESS OF REGISTRANT. Franklin Credit Management Corporation ("FCMC", and
     together with its wholly-owned subsidiaries, the "Company") is a specialty
     consumer finance and asset management company primarily engaged in the
     acquisition, servicing and resolution of performing, sub-performing and
     non-performing residential mortgage loans and residential real estate. The
     Company's portfolio consists primarily of non-conforming subprime assets.
     Mortgage loans are purchased at a discount relative to the aggregate unpaid
     principal balance of the loans and real estate is acquired in foreclosure
     or otherwise at a discount relative to the appraised value of the asset.

     During 2000, the Company took advantage of market opportunities to increase
     its volume of loan acquisitions and pursued its strategy of acquiring
     primarily higher coupon, non-investment grade performing loans. As a
     result, the proportion of its portfolio comprised of such loans increased
     during 2000. The Company expects to continue this strategy, as well as
     increase both the pace and amount of acquisitions, during 2001.

     The Company believes it has built a servicing infrastructure and developed
     a servicing expertise, which permits the expansion of the Company's
     portfolio with a minimal increase in incremental costs. In addition, the
     Company believes that its ability to service and rehabilitate loans reduces
     its reliance on secondary marketing of portfolios and may provide an
     advantage as compared to competitors that rely on the secondary market as
     their primary strategy.

     In January 1997, the Company formed a wholly owned subsidiary, Tribeca
     Lending Corp. ("Tribeca"), to originate primarily subprime residential
     mortgage loans made to individuals whose credit histories, income and other
     factors cause them to be classified as non-conforming borrowers. Management
     believes that lower credit quality borrowers present an opportunity for the
     Company to earn superior returns for the risks assumed. Tribeca provides
     first and second mortgages that are originated on a retail basis through
     marketing efforts that include utilization of the FCMC database. Tribeca is
     currently licensed as a mortgage banker in Alabama, California, Colorado,
     Connecticut, District of Columbia, Florida, Georgia, Kentucky, Illinois,
     Maryland, Massachusetts, Michigan, Missouri, New York, New Jersey, North
     Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia,
     Washington State, and West Virginia and is a Department of Housing and
     Urban Development FHA Title I and Title II approved lender. Tribeca
     originated loans are typically expected to be sold in the secondary market
     through whole-loan, servicing-released sales. Tribeca anticipates holding
     certain of its mortgages in its portfolio when it believes that the return
     from holding the mortgage, on a risk-adjusted basis, outweighs the return
     from selling the mortgage in the secondary market.

     Since commencing operations in 1990, the Company has purchased, in
     aggregate, approximately 19,854 loans with a face value of approximately
     $554 million. Approximately $175 million, or 32%, of these loans were
     purchased from the Resolution Trust Company ("RTC") and, when the RTC
     ceased to function, the FDIC. The remaining $379 million of these loans
     were purchased from private institutions. The Company seeks to develop
     relationships with mortgage bankers, banks, and other specialty finance
     companies which may, through on-going purchase arrangements, provide
     additional sources of mortgage portfolios, individual mortgage assets and
     real estate assets.

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     During the year ended December 31, 2000, the Company purchased 2,907 loans
     with an aggregate face value of $113 million at an aggregate purchase price
     of $96 million or 85% of face value. As of December 31, 2000, the Company's
     portfolio included approximately 8,129 loans with an aggregate face value
     of $255 million. An allowance for loan losses of approximately $24 million
     has been recorded against this face value. At December 31, 2000,
     approximately 88% of the Company's loan portfolio consisted of first
     mortgages, home equity/home improvement and second mortgages collateralized
     by real estate, 9% consisted of loans collateralized by other assets, and
     3% consisted of unsecured loans. Although the Company attempts to collect
     on all loans in its portfolio, it is unlikely that the Company will be
     successful in collecting the full amount due for each loan in its
     portfolio. In addition, significant administrative and litigation expenses
     are often incurred in its collection efforts. See "Item 6. Management's
     Discussion and Analysis of Financial Condition and Results of Operations"
     and "Item 7. Financial Statements".

     Occasionally, the Company sells portfolios of performing and reperforming
     loans on a whole loan basis. During 2000, the Company sold 94 performing
     loans with an aggregate face value of $8 million, and 39 non-performing
     loans with an aggregate face value of $5 million. During 1999 the Company
     sold 130 performing loans with a face value of $5 million. The Company
     expects to continue this strategy, if favorable opportunities to do so
     continue to present themselves.

     As of December 31, 2000, the Company owed an aggregate of $231 million
     ("Senior Debt") to a bank (the "Senior Debt Lender"), which was incurred in
     connection with the purchase of, and is secured by, the Company's loan and
     OREO (Other Real Estate Owned) portfolios. In March 2000, in connection
     with continuing increases in the availability extended to the Company, the
     Company's Senior Debt agreement was amended to provide that interest on
     Senior Debt accrues at variable rates between 0% and 2.00% over a fixed
     rate of 8.75%. At December 31, 2000, the weighted average interest rate on
     Senior Debt was 9.16%. The Senior Debt Lender has advised the Company that
     as of December 31, 2000, there was $23 million of Senior Debt available to
     be used by the Company to purchase additional portfolios of mortgage loans.
     The continued willingness of the Senior Debt Lender to provide funding is a
     critical component of the Company's acquisition strategy, although there
     can be no assurance that such willingness will continue.

     The Company employs standardized in-house servicing procedures in the
     acquisition, origination, and collection of loans. The Company is divided
     into five operating departments, which are described below:

     Acquisition Department. The Acquisition Department divided into a bulk
     purchase unit, which is responsible for acquisitions in excess of $1
     million and a flow facility, which is responsible for acquisitions less
     than $1 million. The Acquisition Department identifies opportunities to
     purchase portfolios of mortgage loans, performs due diligence, and assists
     in the integration of the acquired assets into the Company's existing
     portfolio. The due diligence process, with respect to loan purchases,
     includes an analysis of the majority of loans in a portfolio, evaluating,
     among other things, lien position and value of collateral, debt-to-income
     ratios, the borrower's creditworthiness, employment stability, years of
     home ownership, education, credit bureau reports and mortgage payment
     history. The Acquisition Department generally conducts on-sight reviews of
     the loan files comprising the portfolio, and where appropriate performs an
     on-site evaluation of the seller's loan servicing department. This process
     often provides the Company additional information critical to properly
     evaluating the portfolio. The information derived from due diligence is
     compared to the Company's historical statistical data base, and coupled
     with the Company's cumulative knowledge of the sub-prime mortgage industry
     enables the Acquisition Department to project a collection strategy and
     estimate the collectibility and timing of cash flows with respect to each
     loan. Based upon this information, the Acquisition Department prepares a
     bid,

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     which meets the Company's established pricing and yield guidelines. When
     loans are acquired the Acquisition Department, with the assistance of the
     Management Information Systems staff ("MIS"), monitors the electronic
     transfer of loan data into the Company's data management system.

     Service Department. The Service Department manages the Company's performing
     loans and seeks to provide quality service to customers and secure full
     payment of the total face value and accrued charges, by monitoring monthly
     cash receipts, maintaining customer relations and, where appropriate,
     entering into extension and modification agreements. The Service Department
     is responsible for the maintenance of real estate tax and insurance escrow
     accounts. Service Department members continuously review and monitor the
     status of collections and individual loan payments in order to proactively
     identify and solve potential collection problems as well as identify
     potential loans for sale to third parties or refinance though Tribeca. Upon
     acquisition of loan portfolios, the Service Department, in conjunction with
     MIS: (i) issues introductory letters with information regarding the change
     of ownership of the loan, payment information and a toll-free Company
     information telephone number; (ii) conducts internal audits of newly
     acquired loans to identify and address any disputes or problems relating to
     the accounting for these loans; and (iii) issues an audit letter advising
     the borrower of the outstanding balance, last payment date and remaining
     term of the loan. As of December 31, 2000, the Service Department managed
     approximately 6,667 loan accounts, with a total principal outstanding
     balance of approximately $212 million.

     Legal Department. The Legal Department manages and monitors the progress of
     defaulted loans requiring a legal action or other loss mitigation strategy.
     These loans are identified and referred by the Acquisition or Service
     Departments to the Legal Department, which prepares an analysis of each
     loan to determine a litigation or collection strategy to maximize the size
     and speed of recovery and minimize costs. This strategy is based upon the
     individual borrowers' past payment history, ability to pay, collateral lien
     position and current value of the collateral. The Legal Department sets the
     collection strategy, negotiates settlements, modification and forbearance
     agreements, and when appropriate retains outside counsel, manages their
     costs, and monitors ensuing litigation to insure the optimal recovery of
     the remaining principal and interest balance. The Legal Department monitors
     each defaulted loan through the foreclosure process, recovery of a money
     judgment or other settlement, and continues to monitor recovery of
     deficiency balances after a foreclosure has been completed. As of December
     31, 2000, the Legal Department managed approximately 1,462 loans, with a
     total principal outstanding balance of approximately $ 43 million.

     Real Estate Department. The Real Estate Department manages all properties
     in order to preserve their value, realize rental income and insure that
     maximum returns are realized upon sale. The Real Estate Department is
     responsible for both the sale of OREO as well as for OREO that are held as
     rental properties until such time as an economically beneficial sale can be
     arranged. As Of December 31, 2000, the Real Estate Department managed
     approximately 104 OREO properties, of which 47 were rental properties. The
     Company seeks to rent those properties for which it believes it can realize
     a higher return from such rental than from the value expected to be
     realized in the sale of the property.

     Subprime Residential Lending. Tribeca provides first and second mortgages
     to individuals interested in refinancing performing loans in the Company's
     existing database. Tribeca focuses on developing an array of niche products
     to fulfill needs such as rehabilitation, high loan to value ("LTV"),
     sub-prime, non-conforming and second mortgages. Loans are originated by a
     retail sales force, which utilizes telemarketers to generate leads from the
     Company's database of serviced loans. The majority of loans are expected to
     be warehoused until the inventory reaches the critical mass needed to
     maximize profits through bulk sales in the secondary market. Tribeca's
     staff processes, underwrites and closes all loans in its own name.

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     During 2000, Tribeca originated 118 mortgages with an aggregate principal
     balance of $8.2 million. During 1999, Tribeca originated 31 mortgages with
     an aggregate principal balance of $2.5 million.

     Tribeca Loan Origination Volume for 2000

<TABLE>
<CAPTION>
                        FHA        1st Mortgage      2nd Mortgage      Total
<S>                     <C>        <C>               <C>               <C>
     Face Value         0          $6,720,887        $1,571,367        $8,292,254
     Loans              0          79                39                118
</TABLE>

     FORMATION OF THE COMPANY. The Company was organized in Delaware in 1990, by
     Thomas J. Axon, and Frank B. Evans, Jr., for the purpose of acquiring
     consumer loan portfolios from the RTC and the FDIC. In March 1993, the
     Company completed the private placement of $2,000,000 of 15% Debentures
     (the "15% Debentures") and warrants for the purchase of the Company's
     Common Stock, the proceeds of which were used to acquire interests in loan
     portfolios and for operations. In December 1994, the Company merged with
     Miramar Resources, Inc., a public oil and gas company organized in Delaware
     that had emerged from bankruptcy proceedings on December 6, 1993. In
     January 1995, the Company completed the private placement of $705,000 of
     12% Debentures (the "12% Debentures"), the proceeds of which were used to
     fund the acquisition of a loan portfolio, including amounts advanced by
     stockholders, service existing debt obligations and for general working
     capital. Additionally, in late 1995, the Company completed the private
     placement of $555,000 of 12% Debentures (the "Harrison 1st Debentures"),
     the proceeds of which were used to fund the acquisition of an additional
     loan portfolio. Prior to 1995 the Company purchased all portfolios through
     funds raised through limited partnerships. In 1995, nearly all of the
     remaining limited partnership interests were purchased by the Company.

     COMPETITION. The Company faces significant competition in the acquisition
     of loan portfolios. Many of the Company's competitors have financial
     resources, acquisition departments and servicing capacity considerably
     larger than the Company's. Among the Company's largest competitors are EMC
     Mortgage Corporation and Bayview Financial Trading Group. Competition for
     acquisitions is generally based on price, reputation of the purchaser,
     funding capacity and timing. See "Item 6. Management's Discussion and
     Analysis of Financial Condition and Results of Operations: General - Cost
     of Funds".

     The market for subprime loan origination is also highly competitive.
     Tribeca competes with savings banks, mortgage brokers, and wholesale
     originators for the origination of mortgages. Among the largest of these
     competitors are First Union, NationsBank, FHB, Household Financial Service
     and Champion Mortgage. Many of Tribeca's competitors possess greater
     financial resources, longer operating histories, and lower costs of capital
     than Tribeca. Competition for mortgage originations is based upon marketing
     efforts, loan processing capabilities, funding capacity, loan product
     desirability and the ability to sell the loans for a premium in the
     secondary market.

     The Company also experiences competition from mortgage and finance
     companies in the sale of reperforming and newly originated loan portfolios.
     The continued tightening of credit requirements in the capital markets has
     decreased both the demand for pools of performing mortgages which may later
     be packaged in a securitization, as well as the prices paid for portfolios
     offered for sale. Important characteristics which impact competition in
     this market are price, loan-to-value, size of pools and the

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     integrity of portfolio data. The Company faces intense competition from
     numerous companies seeking to re-sell mortgage portfolios in the
     marketplace. Nearly all of the Company's competitors have greater
     experience and volume to supply to buyers. The Company believes that its
     management information system and its continuous review and monitoring of
     accounts, along with asset availability from new portfolio acquisitions and
     originations should position the Company to compete efficiently in the sale
     of loan portfolios.

     CUSTOMERS. The Company's revenue is derived from interest and purchase
     discount recognized from the collection of loans, origination fees, rental
     income, gains recorded from the bulk sale of performing, non-performing and
     originated loans to banks and other financial institutions, and the result
     recorded from the sale of OREO. The Company's borrowers are a diverse
     population and no single borrower represents a significant portion of the
     Company's loans. The Company will sell bulk portfolios of performing and
     non-performing loans, when such sales are economically beneficial to the
     Company. As of March 30, 2001, there has been two bulk sales of loans
     during 2001 for an aggregate face value of $6.5 million. While the Company
     has previously been successful in marketing loan portfolios, which it has
     sold, and believes there are sufficient buyers for its products, there can
     be no assurance that the Company will be able to successfully market loan
     portfolios in the future.

     Suppliers. The Company acquires its loans through a variety of sources
     including private and public auctions, negotiated sales, ongoing purchase
     agreements, and joint-bids with other institutions. The supply of assets
     available for purchase by the Company is influenced by a number of factors
     including knowledge by the seller of the Company's interest in purchasing
     assets, the general economic climate, financial industry regulation, and
     new loan origination volume. While the Company continues to pursue
     additional sources for purchasing assets, there can be no assurance that
     existing and future sources will provide sufficient opportunities for the
     Company to purchase assets at favorable prices. Prior to 1996 the RTC, and
     the FDIC, represented the source of the majority of the Company's loan
     purchases. During the past year, two institutions supplied the Company with
     44% all of its portfolio acquisitions, as measured by purchase price. The
     Company's sources of loan acquisition have varied from year to year and the
     Company expects that this will continue to be the case. During the year the
     Company created a niche for itself purchasing small individual loans from
     various sources. During the year the Company created a niche for itself
     purchasing individual assets, or pools of assets under a million dollars
     from various sources. The Company believes that this market is under served
     and may open up additional opportunities to establish relationships with a
     continuous supply of loans that would not be available through periodic
     bulk purchases.

     Regulation. The Company's lending activities are subject to the Federal
     Truth-in-Lending Act ("TILA") and Regulation Z (including the Home
     Ownership and Equity Protection Act of 1994), the Equal Credit Opportunity
     Act of 1974, as amended ("ECOA") and Regulation B, the Fair Credit
     Reporting Act of 1970, as amended, the Real Estate Settlement Procedures
     Act of 1974, as amended ("RESPA") and Regulation X, the Home Mortgage
     Disclosure Act ("HMDA") and Regulation C, the Federal Debt Collection
     Practices Act and the Fair Housing Act, as well as other federal and state
     statutes and regulations affecting the Company's activities. Failure to
     comply with these requirements can lead to loss of approved status, demands
     for indemnification or mortgage loan repurchases, certain rights of
     recision for mortgage loans, class action lawsuits and administrative
     enforcement actions.

     The Company is subject to the rules and regulations of, and examinations
     by, the Department of Housing and Urban Development ("HUD"), the Federal
     Housing Administration and other federal and state regulatory authorities
     with respect to originating, underwriting, funding, acquiring, selling and
     servicing mortgage loans. In addition, there are other federal and state
     statutes and regulations affecting such

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     activities. These rules and regulations, among other things, impose
     licensing obligations on the Company, establish eligibility criteria for
     loans, prohibit discrimination, provide for inspection and appraisals of
     properties, require credit reports on prospective borrowers, regulate
     payment features and, in some cases, fix maximum interest rates, fees and
     loan amounts. The Company is required to submit annual audited financial
     statements to various governmental regulatory agencies that require the
     maintenance of specified net worth levels.

     TILA requires a written statement showing an annual percentage rate of
     finance charges and requires that other information be presented to debtors
     when consumer credit contracts are executed. RESPA requires written
     disclosure concerning settlement fees and charges, mortgage-servicing
     transfer practices and escrow or impound account practices. It also
     prohibits the payment or receipt of "kickbacks" or referral fees in
     connection with the performance of settlement services. The Fair Credit
     Reporting Act requires certain disclosures to applicants concerning
     information that is used as a basis for denial of credit. HMDA requires
     collection and reporting of statistical data concerning the loan
     transaction. ECOA prohibits discrimination against applicants with respect
     to any aspect of a credit transaction on the basis of sex, marital status,
     race, color, religion, national origin, age, derivation of income from
     public assistance programs, or the good faith exercise of a right under the
     Federal Consumer Credit Protection Act. The Fair Housing Act prohibits
     discrimination in mortgage lending on the basis of race, color, religion,
     sex, handicap, familial status or national origin.

     The interest rates which the Company may charge on its loans are subject to
     state usury laws, which specify the maximum rate, which may be charged to
     consumers. In addition, both federal and state truth-in-lending regulations
     require that the Company disclose to its borrowers prior to execution of
     the loans all material terms and conditions of the financing, including the
     payment schedule and total obligation under the loans. The Company believes
     that it is in compliance in all-material respects with such regulations.

     Failure to comply with any of the foregoing federal and state laws and
     regulations could result in the imposition of civil and criminal penalties
     on the Company, class action lawsuits and administrative enforcement
     actions. The Company does not expend material amounts of financial
     resources complying with federal, state or local laws and regulations.

     Environmental Matters. In the course of its business the Company has
     acquired, and may acquire in the future, properties securing loans that are
     in default. It is possible that hazardous substances or waste,
     contamination, pollutants or sources thereof could be discovered on such
     properties after acquisition by the Company. In such event, the Company may
     be required by law to remove such substances from the affected properties
     at its sole cost and expense. There can be no assurance that (i) the cost
     of such removal would not substantially exceed the value of the affected
     properties or the loans secured by the properties, (ii) the Company would
     have adequate remedies against the prior owner or other responsible
     parties, or (iii) the Company would not find it difficult or impossible to
     sell the affected properties either prior to or following such removal.

     Employees. As of December 31, 2000, the Company had 78 full-time employees,
     including 7 in the Acquisitions Department, 26 in the Service Department, 8
     in the Legal Department, 3 in the Real Estate Department, 5 in the
     Accounting Department, 4 in the MIS Department, 7 clerical employees, 8
     managerial employees, and 10 employees in Tribeca.

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     The Company has never experienced a material work stoppage or slowdown due
     to labor disagreements. The Company believes that its relations with all
     employees are satisfactory. None of the Company's employees are covered by
     a collective bargaining agreement.

     Business Segments. The Company has two reportable segments (i) portfolio
     asset acquisition and resolution, and (ii) mortgage banking. The portfolio
     asset acquisition and resolution segment acquires nonperforming,
     nonconforming and subperforming notes receivable and promissory notes from
     financial institutions, mortgage and finance companies and services and
     collects such notes receivable through enforcement of terms of original
     note, modification of original terms and, if necessary, liquidation of the
     underlying collateral. The mortgage-banking segment, conducted through
     Tribeca, originates residential mortgage loans for individuals whose credit
     histories, income and other factors cause them to be classified as
     non-conforming borrowers.

ITEM 2.  DESCRIPTION OF PROPERTIES

     Properties. The Company owns a 6,600 square foot office condominium unit
     located on the Sixth Floor of Six Harrison Street, New York, New York,
     which houses its principal offices. See "Item 12. Certain Relationships and
     Related Transactions." In addition, the Company leases approximately 6,400
     square feet of office space at 99 Hudson Street, New York, New York, which
     houses the Service Department as well as the Accounting Department. The
     lease expires on January 31, 2009 and is at an average approximate annual
     rent of $123,000. In November of 2000 the Company sub-leased additional
     office space located on the Fifth Floor of Six Harrison Street, New York,
     which now houses Tribeca Lending. The lease expires on September 1, 2004
     and is at an average approximate annual rent of $48,300.

     OREO Properties. The Company owns OREO in various parts of the country that
     were acquired through acquisition or foreclosure. The vast majority of
     these properties are coops and condos, with the remainder being comprised
     of single-family homes and commercial property. The Company acquires or
     forecloses on property primarily with the intent to sell such property at a
     profit, or rents the property until an economically beneficial sale can be
     made. If such a decision is made then a further investment in the property,
     in the form of repairs and improvements, may be necessary. Any improvements
     to OREO property are evaluated independently and decisions are made based
     on whether the additional investment would generate an additional return.

ITEM 3.  LEGAL PROCEEDINGS

     Asset Purchase Agreement Dispute. On August 19, 1997, the Company commenced
     a civil action in the United States District Court for the Southern
     District of New York against Preferred Credit Corporation ("PCC") and
     certain individuals alleging fraud, breach of contract, and unjust
     enrichment in connection with the purchase by the Company of $3.7 million
     in face value of notes receivable from PCC for $1.8 million. Through the
     Complaint, the Company sought rescission of the asset purchase agreement or
     damages incurred in connection with the purchase.

     By an order dated September 22, 1999, the Court dismissed one of the
     Company's fraud claims against PCC and all of the Company's claims against
     the individual Defendants. On October 22, 1998, PCC filed an answer and
     counterclaim alleging a breach of the purchase agreement and seeking its
     costs and fees incurred in connection with the proceeding.

     Trial in this matter was held on the remaining claims during January 2000.
     At the conclusion of the trial, the Court orally ruled in favor of the
     Company and against PCC. On February 10, 2000, the Court

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     entered judgment in favor of the Company and against PCC in the amount of
     $1.7 million plus interest from May 7, 1997. With interest, the amount due
     under the judgment is approximately $2 million as of February 10, 2000. The
     Company is currently in the process of attempting to collect the amount due
     under the judgment. The Company does not presently known if PCC has
     sufficient assets to satisfy the judgment. The Company has collected $
     60,000 towards this receivable, as of December 31, 2000 the current value
     of these loans is not currently known.

     Legal Fee Dispute. On October 28, 1997, Rosen, Dainow & Jacobs ("Rosen")
     filed a civil action against the Company in the Supreme Court of the State
     of New York, County of New York alleging failure by the Company to pay
     legal fees allegedly due Rosen. Rosen, now dissolved, had represented the
     Company in a federal trademark action that is no longer pending. Rosen
     withdrew from representation of the Company when James Jacobs, the lead
     attorney for the Company in the trademark action, joined a firm that was
     representing the Company's adversary in other matters. The complaint seeks
     $145,000 in damages. Trial in this matter commenced on October 22, 2000.
     During the course of the trial, the Company agreed to pay $55,000 to Rosen
     in full settlement of the matter and the case was dismissed. Pursuant to
     the settlement, the payment to Rosen was made on November 24, 2000.

     Other Legal Actions. Since July, 1991, the Company has been a plaintiff in
     various actions ("Miramar Litigation") and party to settlements, with the
     former directors and officers of Miramar Resources, Inc. ("Miramar"), a
     company which the Company merged with in 1994, based upon allegations
     relating to certain premerger events. Information regarding the Miramar
     Litigation, as well as certain settlements (the "Schultz Settlements"), and
     the legal status of the Company's collection efforts is incorporated herein
     by reference to "Item 3. Legal Proceedings" included in the Company's Form
     10-KSB for the year ended December 31, 1994, filed with the SEC on March
     31, 1995 and included in the Company's 10-KSB for the year ended December
     31, 1996, filed with the SEC on March 31, 1997.

     During 1997 the Company initiated efforts to foreclose on its Deed of Trust
     on a 4,000-acre ranch owned by the parties to the original Shultz
     Settlement. Trial in this matter was held in November of 1999 and the
     Company obtained a judgment of $600,000. In connection with this judgment,
     the parties entered into a Settlement Agreement pursuant to which certain
     additional collateral was provided to the Company to secure the payment of
     the judgment amount.

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

         None.

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                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Market Information. The Company's Common Stock is quoted on the National
     Association of Securities Dealers, Inc. Automated Quotation System
     ("Nasdaq") under the symbol "FCSC" since December 26, 1996 and "FCMC"
     from December 30,1994 until such date.

     The following table sets forth the bid prices for the common stock on
     Nasdaq Bulletin Board, for the periods indicated trading during these
     periods was limited and sporadic. Therefore, the following quotes may not
     accurately reflect the true market value of the securities. Such prices
     reflect inter-dealer prices without retail markup or markdown or
     commissions and may not represent actual transactions. Information for 2000
     and 1999 was compiled from information representing the daily inter-dealer
     bid activity during the period.

<TABLE>
<CAPTION>
                              2000 Bid                   1999 Bid
                              --------                   --------
                          High          Low           High       Low
                          ----          ---           ----       ---
<S>                      <C>         <C>            <C>        <C>
First Quarter            $0.75       $ 0.55         $1.125     $0.75
Second Quarter           $0.75       $ 0.75         $ 1.75     $0.75
Third Quarter            $0.45       $0.375         $ 1.75     $0.55
Fourth Quarter           $0.50       $0.375         $ 1.00     $0.55
</TABLE>

     As of March 30, 2001, there were approximately 525 record holders of the
     Company's Common Stock.

     Dividend Policy. The Company intends to retain any future earnings that may
     be generated from operations to help finance the operations and expansion
     of the Company and accordingly does not plan to pay cash dividends to
     holders of the Common Stock during the reasonably foreseeable future. Any
     decisions as to the future payment of dividends will depend on the earnings
     and financial position of the Company and such factors as the Company's
     Board of Directors deem relevant.

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


GENERAL

     Forward-Looking Statements. When used in this report, press releases and
     elsewhere by the Company from time to time, the words "believes",
     "anticipates", and "expects" and similar expressions are intended to
     identify forward-looking statements that involve certain risks and
     uncertainties. Additionally, certain statements contained in this
     discussion and the Form 10-KSB, may be deemed forward-looking statements
     that involve a number of risks and uncertainties. Among the factors that
     could cause actual results to differ materially are the following:
     unanticipated changes in the U.S. economy, business conditions and interest
     rates and the level of growth in the finance and housing markets, the
     availability for purchases of additional loans, the status of relations
     between the Company and its Senior Debt Lender, the status of relations
     between the Company and its primary sources for loan purchases,
     unanticipated difficulties in collections under loans in the Company's
     portfolio and other risks detailed from time to time in the Company's SEC
     reports. Readers are cautioned not to place undue reliance on these
     forward-looking statements, which speak only as of the date thereof. The
     Company undertakes no obligation to

                                       10
<PAGE>   11
     release publicly the results on any events or circumstances after the date
     hereof or to reflect the occurrence of unanticipated events.

     Loan and OREO Acquisitions. During the year ended December 31, 2000
     ("fiscal 2000") the Company purchased 2,907 loans consisting primarily of
     second mortgages, with an aggregate face value of $113 million at an
     aggregate purchase price of $96 million or 85% of the face value compared
     with the purchase during the year ended December 31, 1999 ("fiscal 1999")
     of 2,368 loans consisting primarily of second mortgages, with an aggregate
     face value of $96 million at an aggregate purchase price of $88 million or
     92% of the face value. Acquisition of these portfolios was fully funded
     through Senior Debt in the amount equal to the purchase price plus a 1%
     loan origination fee.

     The Company believes these acquisitions of high yielding coupon loans will
     result in substantial increases in the level of interest income during
     future periods. Payment streams are generated once the loans are
     incorporated into the Company's loan tracking system.

     Management intends to continue to expand the Company's earning asset base
     through the acquisition of additional portfolios including performing and
     non-performing real estate secured loans. The Company believes that its
     current infrastructure is adequate to service additional loans without any
     material increases in expenses.

     Cost of Funds. The increases in the prime rate during 2000, from 8.5% to
     8.75%, and 9.00% in February and March respectively, increased the
     benchmark rate for the costs of funds on Senior Debt used to fund loan
     portfolio acquisitions. As of December 31, 2000, the Company had Senior
     Debt outstanding under 94 loans with an aggregate principal balance of $231
     million. References herein to the Company's Senior Debt Lender or lending
     arrangements refer to such lender. Additionally the Company has financing
     agreements, which had an outstanding balance of $2,021,334 at December 31,
     2000.

     The majority of the loans purchased by the Company bear interest at a fixed
     rate, while the Senior Debt is at a variable rate. Consequently, changes in
     market interest rate conditions have caused direct corresponding changes in
     interest expense. The Company and its Senior Debt Lender agreed to a fixed
     base rate on Senior Debt of 8.75% with a premium of between 0% and 2.00%
     over the fixed rate on all Senior Debt for the 12-month period April 1,
     2000 through March 31, 2001. Increases, during this period in the prime
     rate did not negatively impact the net income of the Company. The weighted
     average interest rate on borrowed funds for the Senior Debt based on the
     balances as of December 31, 2000 and December 31, 1999 was 9.16% and 9.0%,
     respectively.

     The impact of inflation on the Company's operations during both fiscal 2000
     and 1999 was immaterial.

RESULTS OF OPERATIONS


YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Total revenue, comprised of interest income, purchase discount earned,
     gains recognized on the bulk sale of notes, gain on sale of repossessed
     collateral, gain on sale of OREO, gain on sale of loans originated, rental
     income and other income, increased by $6,595,730 or 29%, to $29,047,390
     during fiscal 2000, from $22,451,660 during fiscal 1999.

                                       11
<PAGE>   12
     Total revenue as a percentage of notes receivable in the Company's
     portfolio as of the last day of the fiscal year, net of allowance for loan
     losses and joint venture participation during fiscal 2000 was 12.6% as
     compared with 12.2% during fiscal 1999. Interest income on notes receivable
     increased by $5,383,891 or 35%, to $20,873,504 during fiscal 2000 from
     $15,489,613 during fiscal 1999. The Company recognizes interest income on
     notes included in its portfolio based upon three factors: (i) interest on
     performing notes, (ii) interest received with settlement payments on
     non-performing notes and (iii) the balance of settlements in excess of the
     carried face value. This increase resulted primarily from the purchase of
     $113 million of performing loans during 2000, which increased the size of
     the Company's outstanding portfolio of notes receivable by 24%. The
     increase in the growth in size of the Company's portfolio lagged behind the
     increase in interest income primarily due to prepayments and principal
     collections.

     Purchase discount earned decreased by $480,309 or 11%, to $3,788,034 during
     fiscal 2000 from $4,268,343 during fiscal 1999. The decrease in purchase
     discount earned reflected a maturing of the Company's portfolio, the
     increased purchase price to purchase primarily performing loans, reserve
     increases, and foreclosures of loans in the Company's portfolio, which
     converts the purchase discount into potential gain or loss on sale of OREO
     when the property is sold. The Company believes that the aggregate sales
     proceeds on its OREO portfolio will exceed the lower of cost or market
     value at which it is recorded resulting in a gain on sale.

     Gains from the bulk sale of loans increased by $1,055,499 or 170%, to
     $1,675,107 during fiscal 2000 from $619,608 during fiscal 1999. This
     increase reflected the sale of $8 million in performing loans purchased
     from a single source, which did not meet the Company's yield criteria and
     which sale generated a gain of approximately $800,000. The Company sold
     approximately $13.0 million in face value notes receivable during 2000 as
     compared to $5.0 million during 1999.

     Gain on sale of originated notes by Tribeca increased by $120,741 or 77%,
     to $276,911 during 2000 from $156,170 during fiscal 1999. This increase is
     due to higher quality loans sold for a greater margin during 2000 as
     compared to 1999. Tribeca had loan sales of $5.3 million during 2000 as
     compared to $7.0 millions of loans during 1999.

     Gain on sale of OREO increased by $388,939 or 125% to $700,939 during
     fiscal 2000 from $ 312,000 during fiscal 1999. The increase resulted from
     the appreciation in value in the Company's rental portfolio, as well as the
     increase in value in the real estate in our portfolio. The Company sold 90
     OREO properties during 2000 as compared to 121 OREO properties during 1999.

     Rental income decreased by $92,804 or 12% to $672,748 during fiscal 2000,
     from $765,552 during fiscal 1999. This decrease reflected a decrease in the
     number of OREO rental properties held at December 31, 2000 to 47 from 94 at
     December 31, 1999.

     Other income increased by $219,774 or 26%, to $1,060,147 during fiscal 2000
     from $840,374 during fiscal 1999. The increase was due primarily to
     increases in prepayment penalties and late charges resulting from the 24%
     growth in the size of the portfolio and increased loan fees from
     originations by Tribeca.

     Total operating expenses increased by $6,156,915 or 28% to $28,476,727
     during fiscal 2000 from $22,319,812 during fiscal 1999. Total operating
     expenses include interest expense, collection, general and administrative
     expenses, provisions for loan losses, service fees, amortization of loan
     commitment fees and depreciation expense.

                                       12
<PAGE>   13
     Interest expense increased by $4,969,386 or 36%, to $18,781,532 during
     fiscal 2000 from $13,812,146 during fiscal 2000. This increase resulted
     primarily from the increase in debt reflecting the Company's 25% increase
     of notes receivable. Total debt increased by $47 million or 25%, to $233
     million as of December 31, 2000 as compared with $186 million as of
     December 31, 1999. Total debt includes Senior Debt, debentures, financing
     agreements and loans from affiliates.

     Collection, general and administrative expenses increased by $816,807 or
     11% to $8,514,742 during fiscal 2000 from $7,697,934 during fiscal 1999.
     The primary components of collection, general and administrative expense
     are personnel expense, OREO related expense, litigation expense, office
     expense, and collection expense.

     Personnel expenses increased by $1,045,384 or 35%, to $4,028,669 during
     fiscal 2000 from $2,983,285 during fiscal 1999. This increase resulted from
     growth in the size of the Company's legal and servicing staff, changes in
     key upper-management positions along with increases in commission expense
     due to an increase in originations in Tribeca. OREO related expenses
     decreased by $4,371 to $1,262,506 during fiscal 2000 from $1,262,506 during
     fiscal 1999. Litigation expenses decreased by $390,303 or 36%, to $704,611
     during fiscal 2000 from $1,094,914 during fiscal 1999. This decrease was
     due primarily to decreased expenses for corporate litigation (see Item 3.
     Legal Proceedings), and increased efforts to recover asset protection legal
     fees through legal settlement. Office expenses increased by $55,817 or 12%,
     to $ 531,631 during fiscal 2000 from $475,814 due to an increase in office
     space for Tribeca on the fifth floor of 6 Harrison Street. Other general
     and administrative expenses increased $110,280 or 6% to $1,987,324 during
     fiscal 2000 from $1,877,044 during fiscal 1999. This increase resulted
     primarily from increased travel for marketing, due diligence, increased
     audit and tax preparation fees due to the increase in the number of
     subsidiary companies.

     Provisions for loan losses increased by $272,302 or 196%, to $411,005
     during fiscal 2000 from $138,703 during fiscal 1999. This increase was
     primarily due to reserve increases and new REO's in portfolio's, which no
     longer have purchase discount left to be earned. Bad debt expense expressed
     as a percentage of face value of notes receivable as of the last day of
     such years for fiscal 2000 and fiscal 1999 were approximately 0.16% and
     0.07%, respectively. Provisions for loan losses are incurred as soon as the
     valuation of the asset diminishes and there is no unamortized discount
     remaining associated with that asset.

     Amortization of deferred financing costs increased by $94,827 or 18%, to
     $619,892 during fiscal 2000 from $525,065 during fiscal 1999. This increase
     resulted primarily from the growth in size of the portfolio, increased
     prepayments, collections, and an increase in the number and dollar amount
     of assets and sold, which sales generally accelerate the amortization of
     financing costs. On December 31, 2000 and December 31, 1999, deferred
     financing costs, as a percentage of Senior Debt outstanding was 1.05 % and
     1.09%, respectively.

     Depreciation expense increased by $3,592 or 2%, to $149,556 during fiscal
     2000 from $145,964 during fiscal 1999. This increase resulted primarily
     from the construction of new Tribeca office space, and the purchase of
     computer equipment.

     The Company's operating income increased by $438,815 to $570,663 during
     fiscal 2000 from $131,848 during fiscal 1999 for the reasons set forth
     above.

     During 2000, and 1999 there was no provision for income taxes due to loss
     carryforwards.

                                       13
<PAGE>   14
LIQUIDITY AND CAPITAL RESOURCES

     General. During fiscal 2000 the Company purchased 2,907 loans with an
     aggregate face value of $113 million at an aggregate purchase price of $96
     million or 85% of the face value. During fiscal 1999, the Company purchased
     2,368 loans with an aggregate face value of $96 million at an aggregate
     purchase price of $88 million or 92% of face value. This increase reflected
     the Company's focus of acquiring high yielding coupon loans, and the
     increased activity to cultivate additional business.

     Liquidity. The Company's portfolio of notes receivable at December 31,
     2000, had a face value of $255 million and included net notes receivable of
     approximately $208 million. Net notes receivable are stated at the amount
     of unpaid principal, reduced by purchase discount and allowance for loan
     losses. The Company has the ability and intent to hold its notes until
     maturity, payoff or liquidation of collateral or sale if it is economically
     advantageous to do so.

     During fiscal 2000, the Company used cash in the amount of $10.3 million in
     its operating activities primarily for interest expense, overhead, ordinary
     litigation expense incidental to its collections and for the foreclosure
     and improvement of OREO. The Company used $35.5 million in its investing
     activities, which reflected primarily the use of $95.7 million for the
     purchase of note receivable offset by principal collections of its notes
     receivable of $43.6 million and proceeds from sales of OREO of $7.5
     million. Net cash provided by financing activities of $47 million was
     primarily from an increase in Senior Debt of $98 million. The above
     activities resulted in a net increase in cash at December 31, 2000 over
     December 31, 1999 of $1,196,779.

     In the ordinary course of its business, the Company accelerates its
     foreclosures of real estate securing non-performing notes receivable
     included in its portfolio. As a result of such foreclosures and selective
     direct purchases of OREO, at December 31, 2000 and 1999, the Company held
     OREO recorded in the financial statements at $5.3 million and $7.7 million,
     respectively. OREO is recorded on the financial statements of the Company
     at the lower of cost or fair market value. The Company believes that the
     OREO inventory held at December 31, 2000 has a net realizable value (market
     value less estimated commissions and legal expenses associated with the
     disposition of the asset) of approximately $5.9 million based on market
     analyses of the individual properties less the estimated closing costs. The
     Company generally holds OREO as rental property or sells such OREO in the
     ordinary course of business when it is economically beneficial to do so.

     Operating Expenses of Tribeca. During 2000, Tribeca incurred a reduced
     operating loss of $166,000. This loss stemmed from a lack of sufficient
     closing and loans sales to cover overhead cost. The Company funded the
     start-up of Tribeca with $1.1 million of proceeds from the refinancing of
     two loan portfolios through its Senior Debt Lender. Additionally, such
     lender has provided Tribeca with a warehouse financing agreement of $2
     million. Tribeca began originating mortgages on September 1, 1997. There
     can be no assurances that Tribeca will earn a profit in the future,
     however, management believes that Tribeca's existing cash balances, credit
     lines, and anticipated cash flow from operations will provide sufficient
     working capital resources for Tribeca's anticipated operating needs. During
     the year Tribeca negotiated with it's Warehouse lender to allow Tribeca to
     roll its financing agreements into senior debt once the financing agreement
     balance hit a critical mass of $2 million dollars. This has allowed Tribeca
     to hold its loans longer and possibly maximize profits through bulk sales
     in the secondary market.

                                       14
<PAGE>   15
CASH FLOW FROM OPERATING AND INVESTING ACTIVITIES

     Substantially all of the assets of the Company are invested in its
     portfolios of notes receivable. The Company's primary source of cash flow
     for operating and investing activities is collections on notes receivable
     and gains on sale notes and OREO properties.

     At December 31, 2000, the Company had unrestricted cash, cash equivalents
     and marketable securities of $7.2 million. A portion of the Company's
     available funds may be applied to fund acquisitions of companies or assets
     of companies in complementary or related fields. Although the Company from
     time to time engages in discussions and negotiations, it currently has no
     agreements with respect to any particular acquisition. This may cause the
     Company to incur additional capital expenditures, outside the acquisitions
     of additional notes receivable.

CASH FLOW FROM FINANCING ACTIVITIES

     Senior Debt. As of December 31, 2000, the Company owed an aggregate of $231
     million to the Senior Debt Lender, under 94 loans.

     The Senior Debt is collateralized by first liens on the respective loan
     portfolios for the purchase of which the debt was incurred and is
     guaranteed by the Company. The monthly payments on the Senior Debt have
     been, and the Company intends for such payments to continue to be, met by
     the collections from the respective loan portfolios. The loan agreements
     for the Senior Debt call for contractual interest and principal payments
     each month and accelerated payments based upon the collection of the notes
     receivable securing the debt during the preceding month. The Senior Debt
     accrues interest at a fixed rate of 8.75% with a premium of between 0% and
     2.00% over the base rate. The accelerated payment provisions are generally
     of two types: the first requires that all collections from notes
     receivable, other than a fixed monthly allowance for servicing operations,
     be applied to reduce the Senior Debt, and the second requires a further
     amount to be applied toward additional principal reduction from available
     cash after scheduled principal and interest payments have been made. As a
     result of the accelerated payment provisions, the Company is repaying the
     amounts due on the Senior Debt at a rate faster than the contractual
     scheduled payments. While the Senior Debt remains outstanding, these
     accelerated payment provisions may limit the cash flow, which is available
     to the Company.

     In February 2001, the Company negotiated with its Senior Debt Lender a
     modification to the Senior Debt obligation, pursuant to which the Senior
     Debt Lender has provided the Company with a cash advance of $825,000 per
     month for the year. Management believes that this modification may reduce
     irregular periods of cash flow shortages arising from operations.
     Management believes that sufficient cash flow from the collection of notes
     receivable will be available to repay the Company's secured obligations and
     that sufficient additional cash flows will exist, through collections of
     notes receivable, the bulk sale of performing loan portfolios, sales and
     rental of OREO, continued modifications to the secured debt credit
     agreements or additional borrowing, to repay the current liabilities
     arising from operations and to repay the long term indebtedness of the
     Company.

     Certain of the Senior Debt credit agreements required establishment of
     restricted cash accounts, funded by an initial deposit at the loan closing
     and additional deposits based upon monthly collections up to a specified
     dollar limit. The restricted cash is maintained in an interest bearing
     account, with the Company's Senior Debt Lender. Restricted cash may be
     accessed by the Senior Debt Lender only upon the Company's failure to meet
     the contractual monthly payment due if collections from notes receivable
     securing the loan are insufficient to satisfy the installment due.
     Historically, the Company has not called

                                       15
<PAGE>   16
     upon these reserves. The aggregate balance of restricted cash in such
     accounts was $932,574 on December 31, 2000 and $387,972 on December 31,
     1999. The increase in restricted cash at December 31, 2000 was due to cash
     deposits returned to restricted cash during 2000 that were previously used
     in December 1999 as deposits on portfolio bids.

     Total Senior Debt funding capacity was $250 million at March 29, 2001 of
     which approximately $231 million had been drawn down as of such date.
     Additionally the Senior Debt Lender has verbally informed the Company that
     it will not deem approximately $4 million of Senior Debt that it had
     syndicated to other banks as of such date as outstanding for purposes of
     determining availability under the Senior Debt Facility. As a result, the
     Company has approximately $23 million available to purchase additional
     portfolios of notes receivable.

     In April 2000, the Company's Senior Debt agreement was amended to provide
     that the interest rate on Senior Debt incurred to finance portfolio
     acquisitions between after April 1,2000 and March 31, 2001 will be 8.75%.
     At December 31, 2000, the weighted average interest rate on Senior Debt was
     9.16%.

     The Company's Senior Debt Lender has provided Tribeca with a warehouse
     financing agreement of $2 million. At December 31, 2000, Tribeca had drawn
     down $1.8 million on the line.

     Harrison First Corporation 12% Debentures. In connection with the
     acquisition of a loan portfolio during 1995, the Company offered to
     investors $800,000 of subordinated debentures of which $555,000 were
     issued. As of December 31, 2000 and 1999, $72,525 and $332,976,
     respectively, of these debentures were outstanding. The Harrison 1st 12%
     Debentures bear interest at the rate of 12% per annum and were payable in
     quarterly installments. The principal was repaid over three years in ten
     equal quarterly installments of $22,200 which payments commenced on
     September 30, 1997 with the remaining balloon payment of $333,000 due June
     30, 2000. On June 30, 2000 the Company made a balloon payment of $232,952
     funded (through the incurrence of Senior Debt) and agreed with the holders
     of $97,048 of 12% Debentures to the extension of payment of such principal
     amount to December 31, 2001. The Harrison 1st 12% Debentures are secured by
     a lien on the Company's interest in certain notes receivable and are
     subordinated to the Senior Debt encumbering the loan portfolio.

     Financing Agreement. The Company has a financing agreement with the Senior
     Debt Lender permitting it to borrow a maximum of approximately $1,500,000
     at a rate equal to the bank's prime rate plus two percent per annum.
     Principal repayment of the line is due six months from the date of each
     cash advance and interest is payable monthly. The total amounts outstanding
     under the financing agreement as of December 31, 2000 and December 31,
     1999, were $117,600 and $615,720 respectively. Advances made under the
     financing agreement were used to satisfy senior lien positions and fund
     capital improvements on certain real estate assets owned by the Company.
     Management believes the ultimate sale of these properties will satisfy the
     related outstanding financing agreement. Management has reached an
     agreement in principal with its Senior Debt Lender to increase the
     availability under this credit facility to cover additional properties
     foreclosed upon by the Company, which the Company may be required to hold
     as rental property to maximize its return.

                                       16
<PAGE>   17
ITEM 7.  FINANCIAL STATEMENTS


     See the financial statements and notes related thereto, beginning on page
     F-1, included elsewhere in this report.

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

         Not Applicable.


                                       17
<PAGE>   18
PART III

INFORMATION WITH RESPECT TO ITEMS 9, 10, 11, 12 AND ON FORM 10KSB IS SET FORTH
IN THE DEFINITIVE PROXY STATEMENT, WHICH WILL BE FILED WITHIN 120 DAYS OF
DECEMBER 31, 2000, THE COMPANY'S MOST RECENT FISCAL YEAR. SUCH INFORMATION IS
INCORPORATED HEREIN BY REFERENCE.

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

ITEM 10.  EXECUTIVE COMPENSATION


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTION


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

                                       18
<PAGE>   19
PART IV

       (a)           EXHIBIT TABLE

       EXHIBIT
       NO.           DESCRIPTION
       ---           -----------

       3(a)          Restated Certificate of Incorporation. Previously filed
                     with, and incorporated herein by reference to, the
                     Company's 10-KSB, filed with the Commission on December 31,
                     1994.

       (b)           Bylaws of the Company. Previously filed with, and
                     incorporated herein by reference to, the Company's
                     Registration Statement on Form S-4, No. 33-81948, filed
                     with the Commission on November 24, 1994.

       4(a)          15% Convertible Subordinate Debentures. Previously filed
                     with, and incorporated herein by reference to, the
                     Company's Registration Statement on Form S-4, No. 33-81948,
                     filed with the Commission on November 24, 1994.

       (b)           Warrants associated with principal repayment of the 15%
                     Convertible Subordinated Debentures. Previously filed with,
                     and incorporated herein by reference to, the Company's
                     Registration Statement on Form S-4, No. 33-81948, filed
                     with the Commission on November 24, 1994.

       10(d)         Employment Agreement dated December 4, 1996, between the
                     Company and Joseph Caiazzo. Previously filed with, and
                     incorporated herein by reference to, the Company 10KSB,
                     filed with the Commission on March 31,1997.

       10(e)         Agreement dated March 29, 1997 between the Company and the
                     Citizens Banking Company. Filed with the Commission.
                     Previously filed with, and incorporated herein by reference
                     to, the Company 10QSB, filed with the Commission on May
                     15,1997.

       10(f)         Loan and Real Estate Purchase Agreement dated September
                     17,1998 by and among Franklin credit Management Corporation
                     and Home Gold Financial Inc. f/k/a Emergent Mortgage Corp.
                     Previously filed with, and incorporated herein by reference
                     to, the Company's 8-K, filed with the Commission on
                     November 23, 1998.

       10(g)         Form of Subscription Agreement and Investor Representation,
                     dated as of September 8,1998 between the Company and
                     certain subscribers. Filed with the Commission. Previously
                     filed with, and incorporated herein by reference to, the
                     Company's 8-K, filed with the Commission on November 23,
                     1998.

       10(h)         Loan Purchase Agreement dated December 31,1998 between the
                     Company and Thomas Axon, corporate General Partner.
                     Previously filed with, and incorporated herein by reference
                     to, the Company's 10-KSB, filed with the Commission on
                     April 14, 1999.

       10(i)         Promissory Note between Thomas J. Axon and the Company
                     dated December 31,1998. Previously filed with, and
                     incorporated herein by reference to, the Company's 10-KSB,
                     filed with the Commission on April 14, 1999.

       10(j)         Promissory Note between Steve Leftkowitz, board member, and
                     the Company dated March 31,1999. Previously filed with, and
                     incorporated herein by reference to, the Company's 10-KSB,
                     filed with the Commission on March 30, 2000.

       10(k)         Loan Purchase Agreement dated March 31,1999 between the
                     Company and Steve Leftkowitz, board member. Previously
                     filed with, and incorporated herein by reference to, the
                     Company's 10-KSB, filed with the Commission on March 30,
                     2000.

       10(l)         Employment Agreement dated July 17, 2000 between the
                     Company and Seth Cohen. Filed herewith.

       11            Earnings per Share. Filed herewith.


                                       19
<PAGE>   20

                                   SIGNATURES


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

March 30, 2001              FRANKLIN CREDIT MANAGEMENT
                                   CORPORATION



                                   By:      THOMAS J. AXON
                                      ------------------------------------
                                            Thomas J. Axon
                                            Chairman


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

<TABLE>
<CAPTION>
Signature                           Title                                               Date
<S>                                 <C>                                             <C>

SETH COHEN                          President, Chief Executive Officer              March 30, 2001
---------------                                                                     ---------------
Seth Cohen
(Principal executive officer)


JOSEPH CAIAZZO                      Executive Vice President, Chief Operating       March 30, 2001
--------------                                                                      --------------
Joseph Caiazzo                      Officer, Secretary and Director
(Secretary)


KIMBERLEY SHAW                      Vice President, Chief Financial Officer         March 30, 2001
--------------                                                                      --------------
Kimberley Shaw                      (Principal financial and accounting officer)
</TABLE>

                                       20
<PAGE>   21
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                      PAGE

<S>                                                                <C>
INDEPENDENT AUDITORS' REPORT                                           F-1

FINANCIAL STATEMENTS FOR THE YEARS ENDED
   DECEMBER 31, 2000 AND 1999:

   Consolidated Balance Sheets                                         F-2

   Consolidated Statements of Income                                   F-3

   Consolidated Statements of Stockholders' Equity                     F-4

   Consolidated Statements of Cash Flows                               F-5

   Notes to Consolidated Financial Statements                      F-6 - F-23
</TABLE>
<PAGE>   22
INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Franklin Credit Management Corporation and Subsidiaries

We have audited the consolidated balance sheets of Franklin Credit Management
Corp. and Subsidiaries (the "Company") as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2000
and 1999, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.



March 23, 2001
<PAGE>   23
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
ASSETS                                                                  2000                1999

<S>                                                                <C>                 <C>
CASH AND CASH EQUIVALENTS                                          $   7,212,346       $   6,015,567

RESTRICTED CASH                                                          932,574             387,972

NOTES RECEIVABLE:
  Principal                                                          255,055,677         206,262,651
  Purchase discount                                                  (23,392,400)        (18,449,141)
  Allowance for loan losses                                          (24,086,322)        (22,185,945)
                                                                   -------------       -------------

           Net notes receivable                                      207,576,955         165,627,565

LOANS HELD FOR SALE                                                    8,670,691           3,288,568

ACCRUED INTEREST RECEIVABLE                                            3,396,405           2,425,358

OTHER REAL ESTATE OWNED                                                5,290,053           7,699,468

OTHER RECEIVABLES                                                      1,934,443           2,827,301

DEFERRED TAX ASSET                                                     3,481,002           3,408,903

OTHER ASSETS                                                           1,442,687           1,155,097

BUILDING, FURNITURE AND FIXTURES  - Net                                  868,471             884,903

DEFERRED FINANCING COSTS- Net                                          2,429,661           2,016,394
                                                                   -------------       -------------

TOTAL ASSETS                                                       $ 243,235,288       $ 195,737,096
                                                                   =============       =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Accounts payable and accrued expenses                            $   2,932,611       $   3,098,648
  Financing agreements                                                 2,021,334             791,075
  Notes payable                                                      231,050,485         185,019,806
  203(k) rehabilitation escrows payable                                    2,186              18,691
  Subordinated debentures                                                 72,525             332,976
  Notes payable, affiliates and stockholders                             146,835             109,350
  Deferred tax liability                                               3,561,061           3,488,962
                                                                   -------------       -------------

           Total liabilities                                         239,787,037         192,859,508
                                                                   -------------       -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 10,000,000 authorized shares;
    issued and outstanding: 5,916,527                                     59,167              59,167
  Additional paid-in capital                                           6,985,968           6,985,968
  Accumulated deficit                                                 (3,596,884)         (4,167,547)
                                                                   -------------       -------------

           Total stockholders' equity                                  3,448,251           2,877,588
                                                                   -------------       -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 243,235,288       $ 195,737,096
                                                                   =============       =============
</TABLE>

See notes to consolidated financial statements.

                                     F - 2
<PAGE>   24
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999


<TABLE>
<CAPTION>
                                                    2000            1999
<S>                                             <C>              <C>
REVENUES:
  Interest income                               $20,873,504      $15,489,613
  Purchase discount earned                        3,788,034        4,268,343
  Gain on sale of notes receivable                1,675,107          619,608
  Gain on sale of notes originated                  276,911          156,170
  Gain on sale of other real estate owned           700,939          312,000
  Rental income                                     672,748          765,552
  Other                                           1,060,147          840,374
                                                -----------      -----------

                                                 29,047,390       22,451,660
                                                -----------      -----------
OPERATING EXPENSES:
  Interest expense                               18,781,532       13,812,146
  Collection, general and administrative          8,514,742        7,697,934
  Provision for loan losses                         411,005          138,703
  Amortization of deferred financing costs          619,892          525,065
  Depreciation                                      149,556          145,964
                                                -----------      -----------

                                                 28,476,727       22,319,812
                                                -----------      -----------

NET INCOME                                      $   570,663      $   131,848
                                                ===========      ===========

NET INCOME  PER COMMON SHARE:
  Basic                                         $      0.10      $      0.02
                                                ===========      ===========

  Dilutive                                      $      0.10      $      0.02
                                                ===========      ===========

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                     5,916,527        5,916,527
                                                ===========      ===========
</TABLE>

See notes to consolidated financial statements.

                                     F - 3
<PAGE>   25
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                             ADDITIONAL
                                      COMMON STOCK            PAID-IN        ACCUMULATED
                                      ------------
                                  SHARES        AMOUNT        CAPITAL          DEFICIT           TOTAL
<S>                             <C>            <C>           <C>             <C>               <C>
BALANCE, JANUARY 1, 1999        5,916,527      $ 59,167      $6,985,968      $(4,299,395)      $2,745,740


  Net Income                                                                     131,848          131,848
                                ---------      --------      ----------      -----------       ----------

BALANCE, DECEMBER 31, 1999      5,916,527        59,167       6,985,968       (4,167,547)       2,877,588


  Net Income                                                                     570,663          570,663
                                ---------      --------      ----------      -----------       ----------

BALANCE, DECEMBER 31, 2000      5,916,527      $ 59,167      $6,985,968      $(3,596,884)      $3,448,251
                                =========      ========      ==========      ===========       ==========
</TABLE>


See notes to consolidated financial statements.

                                     F - 4
<PAGE>   26
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                 2000               1999
<S>                                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                 $    570,663       $    131,848
  Adjustments to reconcile income (loss) to net cash used in
    operating activities:
    Gain on sale of notes receivable                                           (1,675,107)          (619,608)
    Gain on sale of other real estate owned                                      (700,939)          (312,000)
    Depreciation                                                                  149,556            145,964
    Amortization of deferred financing costs                                      619,892            525,065
    Purchase discount earned                                                   (3,788,034)        (4,268,343)
    Provision for loan losses                                                     411,005            138,703
    Changes in assets and liabilities:
      (Increase)  in accrued interest receivable                                 (971,047)          (500,757)
      Decrease (increase) in other receivables                                    892,858         (1,595,634)
      (Increase) decrease in other assets                                        (287,590)           298,061
      (Increase) decrease in loans held for sale                               (5,382,123)         2,411,009
      (Increase) decrease in accounts payable and accrued expenses               (166,037)           152,577
      Increase (decrease) in notes payable, affiliates and stockholders            37,485            (71,779)
      (Decrease) in 203(k) rehabilitation escrows payable                         (16,505)           (53,695)
                                                                             ------------       ------------

           Net cash used in operating activities                              (10,305,923)        (3,618,589)
                                                                             ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Increase) decrease in restricted cash                                         (544,602)           715,474
  Purchase of notes receivable                                                (95,738,251)       (88,461,011)
  Principal collections on notes receivable                                    43,610,229         36,954,321
  Joint venture participation                                                          --            260,473
  Acquisition and loan fees                                                    (1,405,446)        (1,045,180)
  Foreclosures on real estate                                                  (4,776,609)        (4,272,222)
  Reclassification of notes receivable for foreclosures                         4,993,298          2,297,823
  Proceeds from sale of other real estate owned                                 7,522,394          6,900,502
  Proceeds from sale of notes receivable                                       10,974,326          4,322,678
  Purchase of building, furniture and fixtures                                   (133,125)          (279,355)
                                                                             ------------       ------------

           Net cash used in investing activities                              (35,497,786)       (42,606,497)
                                                                             ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                                  98,024,623         92,706,737
  Principal payments of notes payable                                         (51,993,943)       (39,914,188)
  Proceeds from financing agreements                                            8,296,532          2,696,043
  Payments on financing agreements                                             (7,066,273)        (8,102,771)
  Principal payments of subordinated debentures                                  (260,451)          (265,074)
                                                                             ------------       ------------

           Net cash provided by financing activities                           47,000,488         47,120,747
                                                                             ------------       ------------

NET INCREASE IN CASH                                                            1,196,779            895,661
CASH, BEGINNING OF YEAR                                                         6,015,567          5,119,906
                                                                             ------------       ------------

CASH, END OF YEAR                                                            $  7,212,346       $  6,015,567
                                                                             ============       ============
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash payments for interest                                                 $ 18,116,762       $ 12,518,563
                                                                             ============       ============
  Cash  payments (receipts) for taxes                                        $     43,584       $     65,563
                                                                             ============       ============
</TABLE>

See notes to consolidated financial statements.

F - 5
<PAGE>   27
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999


1.    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS - Franklin Credit Management Corporation (the
      "Company"), incorporated under the laws of the State of Delaware, acquires
      performing, nonperforming, nonconforming and subperforming notes
      receivable and promissory notes from financial institutions, and mortgage
      and finance companies. The Company services and collects such notes
      receivable through enforcement of terms of original note, modification of
      original note terms and, if necessary, liquidation of the underlying
      collateral.

      In January 1997, a wholly owned subsidiary was formed, to originate or
      purchase, sub prime residential mortgage loans to individuals whose credit
      histories, income and other factors cause them to be classified as
      nonconforming borrowers.

      A summary of the Company's significant accounting policies follows.

      BASIS OF CONSOLIDATION - The consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries. All significant
      intercompany accounts and transactions have been eliminated in
      consolidation.

      ESTIMATES - The preparation of 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 disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenue and
      expenses during the period. Actual results could differ from those
      estimates.

      CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all cash
      accounts, with the exception of restricted cash, and money market funds.
      The Company maintains amounts due from banks, which at times may exceed
      federally insured limits. The Company has not experienced any losses from
      such concentrations.

      NOTES RECEIVABLE AND INCOME RECOGNITION - The notes receivable portfolio
      consists primarily of secured real estate mortgage loans purchased from
      financial institutions, and mortgage and finance companies. Such notes
      receivable are generally nonperforming or underperforming at the time of
      purchase and, accordingly, are usually purchased at a discount from the
      principal balance remaining.

      Notes receivable are stated at the amount of unpaid principal, reduced by
      purchase discount and an allowance for loan losses. The Company has the
      ability and intent to hold its notes until maturity, payoff or liquidation
      of collateral. Impaired notes are measured based on the present value of
      expected future cash flows discounted at the note's effective interest
      rate or, as a practical expedient, at the observable market price of the
      note receivable or the fair value of the collateral if the note is
      collateral dependent. A note receivable is impaired when it is probable
      the Company will be unable to collect all contractual principal and
      interest payments due in accordance with the terms of the note agreement.

                                      F-6
<PAGE>   28

      In general, interest on the notes receivable is calculated based on
      contractual interest rates applied to daily balances of the collectible
      principal amount outstanding using the simple-interest method.

      Accrual of interest on notes receivable, including impaired notes
      receivable, is discontinued when management believes, after considering
      economic and business conditions and collection efforts, that the
      borrowers' financial condition is such that collection of interest is
      doubtful. When interest accrual is discontinued, all unpaid accrued
      interest is reversed. Subsequent recognition of income occurs only to the
      extent payment is received subject to management's assessment of the
      collectibility of the remaining interest and principal. A nonaccrual note
      is restored to an accrual status when it is no longer delinquent and
      collectibility of interest and principal is no longer in doubt and past
      due interest is recognized at that time.

      Loan purchase discount is amortized to income using the interest method
      over the period to maturity. The interest method recognizes income by
      applying the effective yield on the net investment in the loans to the
      projected cash flows of the loans. Discounts are amortized if the
      projected payments are probable of collection and the timing of such
      collections is reasonably estimable. The projection of cash flows for
      purposes of amortizing purchase loan discount is a material estimate,
      which could change significantly, in the near term. Changes in the
      projected payments are accounted for as a change in estimate and the
      periodic amortization is prospectively adjusted over the remaining life of
      the loans. Should projected payments not exceed the carrying value of the
      loan, the periodic amortization is suspended and either the loan is
      written down or an allowance for uncollectibility is recognized.

      ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses, a material
      estimate which could change significantly in the near-term, is initially
      established by an allocation of the purchase loan discount based on the
      management's assessment of the portion of purchase discount that
      represents uncollectable principal. Subsequently, increases to the
      allowance are made through a provision for loan losses charged to expense
      and the allowance is maintained at a level that management considers
      adequate to absorb potential losses in the loan portfolio.

      Management's judgment in determining the adequacy of the allowance is
      based on the evaluation of individual loans within the portfolios, the
      known and inherent risk characteristics and size of the note receivable
      portfolio, the assessment of current economic and real estate market
      conditions, estimates of the current value of underlying collateral, past
      loan loss experience and other relevant factors. Notes receivable,
      including impaired notes receivable, are charged against the allowance for
      loan losses when management believes that the collectibility of principal
      is unlikely based on a note-by-note review. Any subsequent recoveries are
      credited to the allowance for loan losses when received. In connection
      with the determination of the allowance for loan losses, management
      obtains independent appraisals for significant properties, when considered
      necessary.

      The Company's real estate notes receivable are collateralized by real
      estate located throughout the United States with a concentration in the
      Northeast. Accordingly, the collateral value of a substantial portion of
      the Company's real estate notes receivable and real estate acquired
      through foreclosure is susceptible to changes in market conditions.

      Management believes that the allowance for loan losses is adequate. While
      management uses available information to recognize losses on notes
      receivable, future additions to the allowance or write-downs may be
      necessary based on changes in economic conditions.

                                      F-7
<PAGE>   29

      OTHER REAL ESTATE OWNED - Other real estate owned consisting of properties
      acquired through, or in lieu of, foreclosure or other proceedings are held
      for sale and are carried at the lower of cost or fair value less estimated
      costs of disposal. Any write-down to fair value, less cost to sell, at the
      time of acquisition is charged to the allowance for loan losses.
      Subsequent write-downs are charged to operations based upon management's
      continuing assessment of the fair value of the underlying collateral.
      Property is evaluated regularly to ensure that the recorded amount is
      supported by current fair values and valuation allowances are recorded as
      necessary to reduce the carrying amount to fair value less estimated cost
      to dispose. Revenue and expenses from the operation of other real estate
      owned and changes in the valuation allowance are included in operations.
      Costs relating to the development and improvement of the property are
      capitalized, subject to the limit of fair value of the collateral, while
      costs relating to holding the property are expensed. Gains or losses are
      included in operations upon disposal.

      BUILDING, FURNITURE AND FIXTURES - Building, furniture and fixtures are
      recorded at cost net of accumulated depreciation. Depreciation is computed
      using the straight-line method over the estimated useful lives of the
      assets, which range from 3 to 40 years. Gains and losses on dispositions
      are recognized upon realization. Maintenance and repairs are expensed as
      incurred.

      DEFERRED FINANCING COSTS - Debt financing costs, which include loan
      origination fees incurred by the Company in connection with obtaining
      financing, are deferred and are amortized based on the principal reduction
      of the related loan.

      MORTGAGE SERVICING RIGHTS - The Company allocates the total cost of the
      mortgage loans purchased or originated, proportionately, to the mortgage
      servicing rights and the loans based on the relative fair value. The
      servicing rights capitalized are amortized in proportion to and over the
      period of, estimated net servicing income including prepayment assumptions
      based upon the characteristics of the underlying loans. Capitalized
      servicing rights are periodically assessed for impairment based on the
      fair value of the rights with any impairment recognized through a
      valuation allowance.

      RETIREMENT PLAN - The Company has a defined contribution retirement plan
      (the "Plan") covering all full-time employees who have completed one month
      of service. Contributions to the Plan are made in the form of payroll
      deductions based on employees' pretax wages. Currently, the Company offers
      a company match of 50% of the first 3% of the employees' contribution.

      INCOME TAXES - The Company recognizes income taxes under an asset and
      liability method. Under this method, deferred tax assets are recognized
      for deductible temporary differences and operating loss or tax credit
      carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between
      the financial statement carrying amounts of existing assets and
      liabilities and their respective basis. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which those temporary differences are
      expected to be recovered or settled. Deferred tax assets are reduced by a
      valuation allowance when management determines that it is more likely than
      not that, some portion or all of the deferred tax assets will not be
      realized. Deferred tax assets and liabilities are adjusted for the effects
      of changes in tax laws and rates on the date of the enactment.

      FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
      Standards No. 107, Disclosures About Fair Value of Financial Instruments,
      requires disclosure of fair value information about financial instruments,
      whether or not recognized in the balance sheet for which it is practicable
      to estimate that value. In cases where quoted market prices are not
      available, fair values are based on estimates using present value or other
      valuation techniques. Those techniques are significantly affected

                                      F-8
<PAGE>   30
      by the assumptions used, including the discount rate and estimates of
      future cash flows. In that regard, the derived fair value estimates cannot
      be substantiated by comparison to independent markets and, in many cases,
      could not be realized in immediate settlement of the instruments.
      Statement No. 107 excludes certain financial instruments and all
      nonfinancial assets and liabilities from its disclosure requirements.
      Accordingly, the aggregate fair value amounts do not represent the
      underlying value of the Company.

      The following methods and assumptions were used by the Company in
      estimating the fair value of its financial instruments:

a.         CASH, RESTRICTED CASH, ACCRUED INTEREST RECEIVABLE, OTHER RECEIVABLE
           AND ACCRUED INTEREST PAYABLE - The carrying values reported in the
           balance sheet are a reasonable estimate of fair value.

b.         NOTES RECEIVABLE - Fair value of the net note receivable portfolio is
           estimated by discounting the future cash flows using the interest
           method. The carrying amounts of the notes receivable approximate fair
           value.

c.         SHORT-TERM BORROWINGS - The carrying amounts of the financing
           agreement and other short-term borrowings approximate their fair
           value.

d.         LONG-TERM DEBT - Fair value of the Company's long-term debt
           (including notes payable, subordinated debentures and notes payable,
           affiliate) is estimated using discounted cash flow analysis based on
           the Company's current incremental borrowing rates for similar types
           of borrowing arrangements. The carrying amounts reported in the
           balance sheet approximate their fair value.

      COMPREHENSIVE INCOME - SFAS No. 130, Reporting Comprehensive Income
      defines comprehensive income as the change in equity of a business
      enterprise during a period from transactions and other events and
      circumstances, excluding those resulting from investments by and
      distributions to stockholders. The Company had no items of other
      comprehensive income in 2000 and 1999, therefore net income (loss) was the
      same as its comprehensive income (loss).

      RECENT PRONOUNCEMENTS - Statement of Financial Accounting Standards (SFAS)
      No. 133, Accounting for Derivative Instruments and Hedging Activities, is
      effective for all fiscal years beginning after June 15, 2000. SFAS 133, as
      amended, establishes accounting and reporting standards for derivative
      instruments, including certain derivative instruments embedded in other
      contracts and for hedging activities. Under SFAS 133, certain contracts
      that were not formerly considered derivatives may now meet the definition
      of a derivative. The Company adopted SFAS 133 effective January 1, 2001.
      The adoption of SFAS 133 did not have a significant impact on the
      financial position, results of operations, or cash flows of the Company.

                                      F-9
<PAGE>   31

2.    NOTES RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

      Notes receivable consists principally of real estate mortgage as of
      December 31, 2000 and 1999 and are classified as follows:
<TABLE>
<CAPTION>

                                    2000               1999

<S>                             <C>                <C>
Real estate secured             $ 239,860,880      $ 183,501,093
Consumer unsecured                  7,171,016          9,463,179
Mobile homes                        5,601,175         11,327,459
Other                               2,422,606          1,970,920
                                =============      =============
                                  255,055,677        206,262,651

Less:
  Purchase discount               (23,392,400)       (18,449,141)
  Allowance for loan losses       (24,086,322)       (22,185,945)
                                -------------      -------------
                                $ 207,576,955      $ 165,627,565
                                =============      =============
</TABLE>

      As of December 31, 2000, contractual maturities of classified notes
      receivables net of the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDING                                                   AMOUNT
DECEMBER 31,
<S>                                                        <C>
      2001                                                 $ 37,323,641
      2002                                                   33,239,010
      2003                                                   29,651,223
      2004                                                   16,835,220
      2005                                                   14,049,329
Thereafter                                                   82,971,875
                                                           ------------
                                                           $214,070,298
                                                           ============
</TABLE>


      Excluded from the contractual maturities reflected above are the notes
      receivable acquired during the last two weeks of 2000 with $23,400,000 of
      aggregate principal balances, net of allowance for loan losses. Management
      is in the process of performing the analyses to determine the final
      discount allocation and the initial determination of the allowance for
      loan losses associated with these purchases that are necessary to develop
      the related contractual maturities of the underlying notes receivable.

      It is the Company's experience that a portion of the notes receivable
      portfolio may be renewed or repaid before contractual maturity dates. The
      above tabulation, therefore, is not to be regarded as a forecast of future
      cash collections. During the years ended December 31, 2000 and 1999, cash
      collections of principal amounts totaled approximately $43,600,000 and
      $36,950,000, respectively, and the ratios of these cash collections to
      average principal balances were approximately 18.8% and 19.5%,
      respectively.

                                      F-10
<PAGE>   32

      Changes in the allowance of loan losses for the years ended December 31,
      2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                            2000              1999
<S>                                                    <C>               <C>
Balance, beginning                                     $ 22,185,945      $ 22,168,345
Initial allowance allocated on purchased portfolio        2,264,703         1,929,165
Loans charged to allowance                                 (775,331)       (2,050,268)
Provision for loan losses                                   411,005           138,703
                                                       ------------      ------------
Balance, ending                                        $ 24,086,322      $ 22,185,945
                                                       ============      ============
</TABLE>
      At December 31, 2000 and 1999, principal amounts of notes receivable
      included approximately $56,000,000 and $60,000,000, respectively, of notes
      for which there was no accrual of interest income. At December 31, 2000,
      approximately $23,400,000 of such notes at principal amounts relates to
      recent portfolio acquisitions whose performance and collection
      classification by management was in the process of being determined.

      The following information relates to impaired notes receivable which
      include all nonaccrual loans as of and for the year ended December 31,
      2000 and 1999:

<TABLE>
<CAPTION>

                                                     2000            1999
<S>                                               <C>             <C>
Total impaired notes receivable                   $56,069,711     $60,383,787
                                                  ===========     ===========
Allowance for loan losses related to impaired
  notes receivable                                $20,117,598     $19,225,925
                                                  ===========     ===========
Average balance of impaired notes receivable
  during the year                                 $56,997,519     $59,496,713
                                                  ===========     ===========
Interest income recognized                        $ 1,801,068     $ 1,502,136
                                                  ===========     ===========
</TABLE>

      In the normal course of business, the Company restructures or modifies
      terms of notes receivable to enhance the collectibility of certain notes
      that were impaired at the date of acquisition and were included in certain
      portfolio purchases.

                                      F-11
<PAGE>   33

3.    BUILDING, FURNITURE AND FIXTURES

      At December 31, 2000 and 1999, building and improvements, and furniture
and equipment consisted of the following:

<TABLE>
<CAPTION>
                                     2000           1999

<S>                               <C>            <C>
Building and improvements         $  907,890     $  874,238
Furniture and equipment              603,336        503,864
                                  ----------     ----------
                                   1,511,226      1,378,102
Less accumulated depreciation        642,755        493,199
                                  ----------     ----------
                                  $  868,471     $  884,903
                                  ==========     ==========
</TABLE>

4.    NOTES PAYABLE

      Notes payable consists primarily of loans made to the Company from a bank
      ("Senior Debt Lender") to acquire portfolios of notes receivable. The
      Company has a credit facility with the Senior Debt Lender. The facility
      provides the Company with the ability to borrow up to an aggregate of
      $250,000,000 at rates ranging from prime to prime plus 2.00% per annum. As
      a result, the Company has approximately $23 million available to purchase
      additional portfolios of notes receivable. All notes payable are secured
      by a security interest in the notes receivable, payments to be received
      under the notes and the underlying collateral securing the notes. As of
      December 31, 2000 and 1999, the Company had 94 and 73 loans outstanding to
      its Senior Debt Lender with an aggregate principal balance of $230,760,549
      and $184,713,345, respectively. The loans accrue interest at various
      interest rates. The principal balances and interest rates are as follows:

<TABLE>
<CAPTION>
                                                                                     2000               1999

<S>                                    <C>                                      <C>                 <C>
8.75% Fixed 2000 and Prime 1999        (2000: 8.75% and 1999: 8.50% )           $ 121,054,427       $ 62,538,304
0.50% over fixed and over prime        (2000: 9.00% and 1999: 9.00% )               2,426,260         85,315,787
1.00% over fixed and prime             (2000: 9.75% and 1999: 9.50% )              83,561,379          4,297,986
1.75% over fixed and prime             (2000: 10.50% and 1999: 10.25%)             23,153,762         31,886,316
2.00% over fixed and prime             (2000: 10.75% and 1999:10.50%)                 564,721            674,952
                                                                                -------------      -------------
                                                                                $ 230,760,549      $ 184,713,345
                                                                                =============      =============
</TABLE>

       The above financing agreements also provide for additional monthly
       principal reduction based on cash collections received by the Company.

       The remaining note payable consists of a bank loan made to the Company to
       acquire its principal offices. The note payable is secured by the
       principal offices. As of December 31, 2000 and 1999, the Company had a
       note payable of $289,937 and $306,461, respectively, which accrues
       interest at 8.93%.

       Certain agreements require that a non-interest bearing cash account be
       established at the closing of the loan and may require additional
       deposits based on a percentage of monthly collections up to a specified
       dollar limit. The aggregate balance of restricted cash at December 31,
       2000 and 1999 was $932,574 and $387,972, respectively.

                                      F-12
<PAGE>   34
       Substantially all of the Company's outstanding financing with respect to
       its notes receivable portfolio acquisition activities is provided by the
       Senior Debt Lender.

       Aggregate maturities of all long-term debt at currently effective
       principal payment requirements, including subordinated debentures (Note
       6), financing agreements (Note 8) and notes payable, affiliates and
       stockholders (Note 7), at December 31, 2000 are as follows:


<TABLE>
<CAPTION>
                                                                                       NOTES
         YEAR ENDING               NOTES            SUBORDINATED       FINANCING      PAYABLE,
         DECEMBER 31,             PAYABLE           DEBENTURES        AGREEMENTS     AFFILIATE               TOTAL
<S>                           <C>                 <C>                <C>             <C>             <C>
         2001                 $   15,975,595      $     72,525       $ 2,021,334     $ 146,835       $    18,216,289
         2002                     16,172,125            -            -               -                    16,172,125
         2003                     75,501,551            -            -               -                    75,501,551
         2004                     76,257,417            -            -               -                    76,257,417
         2005                     28,542,539            -            -               -                    28,542,539
         Thereafter               18,601,258            -            -               -                    18,601,258

                              ---------------     ------------       -----------     ---------       ----------------
                             $   231,050,485     $      72,525      $ 2,021,334      $ 146,835       $    233,291,179
                              ===============     ============       ===========     =========       ================
</TABLE>

5.    CONVERTIBLE SUBORDINATED DEBENTURES AND WARRANTS

       During 1993, the Company issued $2,000,000 of 15% convertible
       subordinated debentures and, during 1995, the Company fully repaid the
       remaining outstanding obligation of $526,600. The debentures were
       convertible into common stock of the Company at the rate of $2.00 per
       share. Warrants, exercisable to the extent that conversion rights have
       not been exercised, to purchase common stock at the rate of $2.00 per
       share, were issued on principal repayment dates and were due to expire
       one year thereafter. In December 1997, the Company extended the warrants
       provision, due to expire on December 31, 1997, through December 31, 1998.
       These warrants expired during 1999.

6.    SUBORDINATED DEBENTURES

       In connection with the acquisition of a notes receivable portfolio during
       1995, the Company offered $800,000 in subordinated debentures. The
       debentures bear interest at a rate of 12% per annum payable in quarterly
       installments. The principal was payable over 3 years in 10 equal
       quarterly installments of $22,200 commencing September 30, 1997 with the
       remaining balance of $310,800 payable on June 30, 2000. On June 30, 2000,
       the Company made a balloon payment of $232,952 funded (through the
       incurrence of senior debt) and agreed with the holder of $97,048 of 12%
       debentures to the extension of payment of such principal amount to
       December 31, 2001, at December 31, 2000 $72,525 of the extended debenture
       remains payable.

       The debentures are secured by a lien on the Company's interest in certain
       notes receivable and are subordinate to a note payable with a December
       31, 2000 balance of $3,141,276 encumbering the notes receivable
       portfolio.

                                      F-13
<PAGE>   35

7.    NOTES PAYABLE, AFFILIATES AND STOCKHOLDERS

       Notes payable, affiliates and stockholders consist of the following at
December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                    2000        1999
<S>                                                               <C>          <C>
Note payable to a company affiliated through certain common
  ownership due on demand, with interest payable monthly at a
  rate of 8.5% per annum                                          $  8,772     $109,350

Note payable to a company affiliated through certain common
  ownership due on demand, with interest payable monthly at a
  rate of 8.5% per annum                                           138,063         --
                                                                  --------     --------
                                                                  $146,835     $109,350
                                                                  ========     ========
</TABLE>

8.    FINANCING AGREEMENTS

       The Company has a financing agreement with a bank. The agreement provides
       the Company with the ability to borrow a maximum of $1,500,000 at a rate
       equal to the bank's prime rate plus two percent per annum. The credit
       facility is to be utilized through a series of loans made to purchase the
       underlying collateral of certain nonperforming real estate secured loans.
       Principal repayment of each resulting loan is due six months from the
       date of each advance and interest is payable monthly. As of December 31,
       2000 and 1999, $117,600 and $615,721, respectively, are outstanding on
       this credit facility.

       The financing agreement is secured by a first priority security interest
       in the notes receivable, the individual real estate that may be
       purchased, payments to be received under the notes receivable, an
       unconditional suretyship by one of the stockholders of the Company, and
       collateral securing the notes of certain loan portfolios.

       Further, in 1998, the Company opened a financing agreement with a bank.
       The agreement provides the Company with the ability to borrow a maximum
       of $150,000 at a rate equal to the bank's prime rate plus one percent per
       annum. As of December 31, 2000, and 1999, $127,014 and $136,134,
       respectively, are outstanding on the financing agreement.

       The Company also has a warehouse financing agreement with another bank.
       It provides the Company with the ability to borrow a maximum of
       $2,000,000 at a rate equal to the bank's prime rate plus 2.00%. This
       credit facility is to be utilized for the purpose of originating mortgage
       loans. As of December 31, 2000 and 1999, $1,776,720 and $39,220,
       respectively, are outstanding on the financing agreement.

                                      F-14
<PAGE>   36

9.    INCOME TAX MATTERS

       The components of income tax provision (benefit) for the years ended
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                        2000            1999
                                        ----            ----
<S>                                  <C>               <C>
Current provision:
  Federal                            $      --         $    --
  State and local                           --              --
                                     ---------         -------

                                            --              --
                                     ---------         -------
Deferred provision (benefit):
  Federal                              216,899              --
  State and local                       68,480              --
                                     ---------         -------
                                       285,379
                                     ---------
Valuation allowance                   (285,379)             --
                                     ---------         -------
Provision (benefit)                  $      --         $    --
                                     =========         =======
</TABLE>


       A reconciliation of the anticipated income tax expense (computed by
       applying the Federal statutory income tax rate of 35% to income before
       income tax expense) to the provision for income taxes in the statements
       of income for the years ended December 31, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                                                 2000               1999
                                                                 ----               ----
<S>                                                           <C>               <C>
Tax (benefit) determined by applying U.S. statutory rate
  to income (loss)                                            $ 194,025         $  46,147
Increase (decrease) in taxes resulting from:
  State and local income taxes, net of Federal benefit           68,480            11,741
Meals and Entertainment (net of adjustments)                     22,874            (4,736)
Valuation allowance                                            (285,379)          (51,017)
Other items, net                                                     --            (2,135)
                                                              ---------         ---------
                                                              $      --         $      --
                                                              =========         =========
</TABLE>


                                      F-15
<PAGE>   37


       A valuation allowance has been established for a portion of the deferred
       tax asset because management could not assert that it is more likely than
       not that, the total benefit of the deferred tax asset will be realized.
       The tax effects of temporary differences that give rise to significant
       components of deferred tax assets and deferred tax liabilities at
       December 31, 2000 and 1999 are presented below:


<TABLE>
<CAPTION>
                                                                       2000               1999
                                                                       ----               ----
<S>                                                                <C>                 <C>
Deferred liabilities:
  Purchase discount                                                $ 3,561,061         $ 3,488,963
  Joint venture participation                                               --                  --
                                                                   -----------         -----------

           Gross deferred tax liabilities                          $ 3,561,061         $ 3,488,963
                                                                   ===========         ===========

Deferred tax assets:
  Inventory, repossessed collateral                                $    84,881         $   402,261
  Special charge on purchased loans                                    598,205             649,847
  Net operating loss carryforward                                    2,643,234           3,632,296
  Bad Debt Reserve                                                   1,195,104           1,249,426
                                                                   -----------         -----------

           Gross deferred tax assets                                 4,521,424           5,933,830

  Less valuation allowance                                          (1,040,422)         (2,524,927)
                                                                   -----------         -----------

           Deferred tax assets - net of valuation allowance        $ 3,481,002         $ 3,408,903
                                                                   ===========         ===========
</TABLE>

         The Company has net operating loss carryforwards of approximately
$5,623,902 for Federal income tax purposes, available to reduce future taxable
income. Such net operating loss carryforwards begin to expire in 2001.

10.   STOCK OPTION PLAN

       During 1996, the Company adopted an incentive stock option plan (the
       "Plan") for certain of its officers and directors. Under the terms of the
       Plan, options to purchase an aggregate of up to 800,000 shares of the
       Company's common stock may be granted. Each option has an exercise price
       at least equal to the fair market value of the shares of common stock at
       the time the option is granted. Options become exercisable at various
       times after the date granted and expire ten years after the date granted.

       During 1999, the Company granted 25,000 options to the Vice President of
       Loan Administration. During 2000, the Company granted 532,500 options to
       six members of the Company's Board of Directors and 532,500 options to
       various management employees within the Company. Also during 2000,
       140,000 options were forfeited by the Company's prior Chief Financial
       Officer.

       The Company applies APB Opinion 25 and related interpretations in
       accounting for stock options; accordingly, no compensation cost has been
       recognized. Had compensation cost been determined upon the fair value of
       the stock options at the grant date consistent with the method of FAS
       123, the Company's 2000 and 1999 net income (loss) and earnings (loss)
       per share would have been reduced to the pro forma amounts indicated in
       the table that follows. The following pro forma effect on net income
       (loss) 2000 and 1999 is not representative of the pro forma effect on net
       income (loss) in future years


                                      F-16
<PAGE>   38

       because it does not take into consideration pro forma compensation
       expense related to grants made prior to 1997.

<TABLE>
<CAPTION>
                                                                        2000               1999
                                                                        ----               ----
<S>                                                                <C>                <C>
Net income (loss) - as reported                                    $   570,663        $   131,848
Net income (loss) - proforma                                           426,847            120,028

Net income (loss) per common share - basic - as reported                  0.10               0.02
Net income (loss) per common share - basic - pro forma                    0.07               0.01
Net income (loss) per common share - dilutive - as reported               0.10               0.02
Net income (loss) per common share - dilutive - pro forma                 0.07               0.01
</TABLE>

       The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2000:

<TABLE>
<S>                                    <C>
Dividend yield                             0 %
Volatility                               241 %
Risk-free interest rate                   3.62
Weighted average expected lives        3 years
</TABLE>

       Transactions in stock options under the Plan are summarized as follows:


                                      F-17
<PAGE>   39


<TABLE>
<CAPTION>
                                                                WEIGHTED
                                                                AVERAGE
                                                                EXERCISE
                                                  SHARES         PRICE
<S>                                             <C>             <C>
Options outstanding at January 1, 1999           306,000         $1.56

Granted                                           25,000         $1.56
Exercised                                             --            --
Expired                                          (11,000)           --
                                                --------         -----

Options outstanding at December 31, 1999         320,000         $1.56

Granted                                          532,500         $0.75
Exercised                                             --            --
Forfeitured                                     (140,000)        $1.56
Expired                                               --            --
                                                --------         -----

Options outstanding at December 31, 2000         712,500         $1.00
                                                ========         =====
</TABLE>

       As of December 31, 2000 and 1999, 712,500 and 320,000 options are
exercisable.

11.   SALE OF NOTES RECEIVABLE WITH RECOURSE

       In June 1996, the Company sold notes receivable with a net carrying value
       of approximately $5,400,000 for approximately $6,400,000 to the Company's
       primary lender and retained the servicing rights. Such loans were sold
       with recourse. The recourse provision amounted to approximately $600,000
       and provides that the Company either buy back or replace a note with a
       note that is approximately equivalent to the outstanding principal and
       accrued interest should the note receivable become sixty days past due.
       At December 31, 2000 and 1999, the remaining obligation under the
       recourse provision is approximately $425,000. In addition, the buyer of
       the notes has the right to proceed to foreclose on the delinquent note
       and, after sale of the collateral, require the Company to pay any
       deficiency balance on the note.

       In June 1997, the Company sold notes receivable with a net carrying value
       of approximately $3,900,000 for approximately $4,900,000 to the Company's
       primary lender and retained the servicing rights. Such loans were sold
       with recourse. The recourse provision amounted to approximately $500,000
       and provides that the Company either buy back or replace a note with a
       note that is approximately equivalent to the outstanding principal and
       accrued interest should the note receivable become sixty days past due.
       At December 31, 2000 and 1999, the remaining obligation under the
       recourse provision was approximately $48,183 and $262,000, respectively.
       In addition, the buyer of the notes has the right to proceed to foreclose
       on the delinquent note and, after sale of the collateral, require the
       Company to pay any deficiency balance on the note. The Company recognized
       a gain of approximately $920,000 on this sale.

       As of December 31, 2000 and 1999, unpaid balances of mortgage loans
       serviced for others were $3,580,347 and $5,175,000, respectively.
       Mortgage loans serviced for others are not included in the Company's
       consolidated balance sheet.


                                      F-18
<PAGE>   40


12.    BUSINESS SEGMENTS

       The Company has two reportable operating segments: (i) portfolio asset
       acquisition and resolution; and (ii) mortgage banking. The portfolio
       asset acquisition and resolution segment acquires performing,
       nonperforming, nonconforming and subperforming notes receivable and
       promissory notes from financial institutions, mortgage and finance
       companies, and services and collects such notes receivable through
       enforcement of terms of original note, modification of original note
       terms and, if necessary, liquidation of the underlying collateral. The
       mortgage-banking segment originates or purchases, sub prime residential
       mortgage loans for individuals whose credit histories, income and other
       factors cause them to be classified as nonconforming borrowers.

       The Company's management evaluates the performance of each segment based
       on profit or loss from operations before unusual and extraordinary items
       and income taxes. The accounting policies of the segments are the same as
       those described in the summary of significant accounting policies (see
       Note 1).

PORTFOLIO ASSET ACQUISITION AND RESOLUTION

<TABLE>
<CAPTION>
                                                      2000               1999
                                                      ----               ----
<S>                                               <C>                <C>
REVENUES:
  Interest income                                 $20,292,305        $15,163,658
  Purchase discount earned                          3,788,034          4,268,343
  Gain on sale of notes receivable                  1,675,107            619,608
  Gain on sale of other real estate owned             700,939            312,000
  Rental income                                       672,748            765,552
  Other                                             1,039,037            828,585
                                                  -----------        -----------

                                                   28,168,170         21,957,746
                                                  -----------        -----------

OPERATING EXPENSES:
  Interest expense                                 18,489,548         13,519,865
  Collection, general and administrative            7,859,020          7,108,484
  Provision for loan losses                           370,674            113,191
  Amortization of deferred financing costs            593,624            496,182
  Depreciation                                        118,901             96,597
                                                  -----------        -----------

                                                   27,431,767         21,334,319
                                                  -----------        -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
  TAXES AND NET INCOME (LOSS)                     $   736,403        $   623,427
                                                  ===========        ===========
</TABLE>


                                      F-19
<PAGE>   41

MORTGAGE BANKING

<TABLE>
<CAPTION>
                                                                  2000                  1999
                                                                  ----                  ----
<S>                                                         <C>                   <C>
REVENUES:
  Interest income                                           $     581,199         $     325,955
  Gain on sale of notes originated                                276,911               156,170
  Other                                                            21,110                11,789
                                                            -------------         -------------
                                                                  879,220               493,914
                                                            -------------         -------------

OPERATING EXPENSES:
  Interest expense                                                291,984               292,281
  Collection, general and administrative                          655,722               589,450
  Provision for Loan Loss                                          40,331                25,512
  Amortization of deferred financing costs                         26,268                28,883
  Depreciation                                                     30,655                49,367
                                                            -------------         -------------
                                                                1,044,960               985,493
                                                            -------------         -------------

LOSS BEFORE PROVISION FOR INCOME
  TAXES AND NET LOSS                                        $    (165,740)        $    (491,579)
                                                            =============         =============

CONSOLIDATED ASSETS:
  Portfolio asset acquisition and resolution assets         $ 233,728,060         $ 192,140,894
  Mortgage banking assets - Tribeca                             9,507,228             3,596,202
                                                            -------------         -------------

Consolidated assets                                         $ 243,235,288         $ 195,737,096
                                                            =============         =============

TOTAL ADDITIONS TO BULIDING, FURNITURE
AND FIXTURES:
   Portfolio asset acquisition and resolution assets        $      68,419         $     257,738
   Mortgage banking assets                                         64,706                21,617
                                                            -------------         -------------
Consolidated additions to building,
   furniture and fixtures                                   $     133,125         $     279,355
                                                            =============         =============

CONSOLIDATED REVENUE:
   Portfolio asset acquisition and resolution assets        $  28,168,170         $  21,957,746
   Mortgage banking assets                                        879,220               493,914
                                                            -------------         -------------
   Consolidated Revenue                                     $  29,047,390         $  22,451,660
                                                            =============         =============

CONSOLIDATED NET INCOME (LOSS):
    Portfolio asset acquisition and resolution asset        $     736,403         $     623,427
    Mortgage banking assets                                      (165,740)             (491,579)
                                                            -------------         -------------
    Consolidated Net Income (Loss)                          $     570,663         $     131,848
                                                            =============         =============
</TABLE>


                                      F-20
<PAGE>   42


13.   CERTAIN CONCENTRATIONS

       Geographic Concentrations of Notes Receivable - Approximately 25% of the
       Company's secured consumer real estate notes receivable are with
       customers in the northeastern region of the U.S. Such real estate notes
       receivable are collateralized by real estate with a concentration in this
       region. Accordingly, the collateral value of a substantial portion of the
       Company's real estate notes receivable and real estate acquired through
       foreclosure is susceptible to changes in market conditions. In the event
       of sustained adverse economic conditions, it is possible that the Company
       could experience a negative impact in its ability to collect on existing
       loans, or liquidate foreclosed assets in this region which could impact
       the Company's related loan loss estimates.

       Financing - Substantially all of the Company's existing debt and
       available credit facilities are with one financial institution. The
       Company's purchases of new portfolios is contingent upon the continued
       availability of these credit facilities.

14.   COMMITMENTS AND CONTINGENCIES

       Employment Agreement - Effective March 25, 1996, the Company entered into
       a five-year employment agreement with its Chief Operating Officer. The
       agreement provides for, among other things, a stipulated base salary, and
       a bonus of up to 3.5% of the Company's net income in excess of $500,000.

       Effective July 17, 2000, the Company entered into a three-year employment
       agreement with its Chief Executive Officer. The agreement provides for,
       among other things, a stipulated base salary, and a bonus of up to 10% of
       the Company's net income in excess of $500,000.

       Operating Leases - Certain secondary office and file space is leased
       under an operating lease. The lease commenced on December 1, 1998 and
       expires on November 30, 2007. New office space leased during 2000 is
       leased under an operating lease. The lease commenced on September 30,
       2000 and expires on September 1, 2004. The combined future minimum lease
       payments for are as follows:

<TABLE>
<S>                                        <C>
                               2001        $  193,124
                               2002           196,020
                               2003           198,974
                               2004           198,974
                         Thereafter           457,019
                                           ----------
                                           $1,244,111
                                           ==========
</TABLE>

       Other Legal Actions - The Company is also involved in legal proceedings
       and litigation arising in the ordinary course of business. In the opinion
       of management, the outcome of such proceedings and litigation currently
       pending will not materially affect the Company's financial statements.

15.   RELATED PARTY TRANSACTIONS

       On March 31, 1999, Mr. Steven W. Leftkowitz, a board member and
       stockholder, purchased from the Company without recourse a note held by
       the Company. The consideration given included a note for $270,000 of
       indebtedness to the Company. In addition, the Company recognized a gain
       of $72,566.


                                      F-21
<PAGE>   43

       The note bears interest at a rate of 8% per annum payable monthly and is
       secured by a mortgage on real estate and is due May 31, 2001, but can be
       extended at his option to November 30, 2001. The Company believes that
       the terms of the sale of the note were similar to those available to the
       Company in arm's-length transactions.

       During 1999, Mr. Axon provided the Company's Senior Debt Lender with a
       $350,000 personal guarantee in connection with the financing of the
       acquisition by the Company of certain high LTV loans. Mr. Axon is being
       compensated on the outstanding balance of this guarantee at the rate of
       -1/4% per annum which the Company believes is no greater than would be
       payable to an outside guarantor.

       During 2000, Mr. Axon, the Company's Chairman purchased from the Company
       a New York condominium held by the Company in its OREO inventory
       available for sale. The consideration included the issuance by Mr. Axon
       of a note to the Company in the amount of $165,000. The note bears
       interest at a rate of 8% per annum, is secured by the condominium
       property, and is due together with all accrued interest and other charges
       on January 30, 2001 the note was extended by Mr. Axon for one year. The
       Company believes that the terms of the sale were at least as advantageous
       to the Company as those available from an arm's-length purchaser.

16.   SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

       The table below sets forth selected unaudited financial information for
       each quarter of the last two years.[OBJECT OMITTED]


                                      F-22
<PAGE>   44

<TABLE>
<CAPTION>
                                           1ST QUARTER         2ND QUARTER        3RD QUARTER         4TH QUARTER
                                           -----------         -----------        -----------         -----------
<S>                                        <C>                 <C>                <C>                 <C>
2000

Revenue                                    $ 6,498,458         $ 6,669,756        $ 6,707,978         $ 9,171,198
Operating expenses                           6,619,278           6,645,831          7,112,337           8,099,281
                                           -----------         -----------        -----------         -----------

Income (Loss) before benefit for
 income taxes and net income (loss)        $  (120,820)        $    23,925        $  (404,359)        $ 1,071,917
                                           ===========         ===========        ===========         ===========

Income (Loss)  per common share
     Basic                                 $     (0.02)        $      0.00        $     (0.07)        $      0.18
                                           ===========         ===========        ===========         ===========
     Diluted                               $     (0.02)        $      0.00        $     (0.07)        $      0.18
                                           ===========         ===========        ===========         ===========

1999

Revenue                                    $ 5,156,188         $ 5,385,172        $ 5,690,252         $ 6,220,048
Operating expenses                           4,938,348           5,141,833          5,816,751           6,422,880
                                           -----------         -----------        -----------         -----------

(Loss) income before benefit
for income income taxes and
net (loss) income                          $   217,840         $   243,339        $  (126,499)        $  (202,832)
                                           ===========         ===========        ===========         ===========

   (Loss) income per common share
     Basic                                 $      0.04         $      0.04        $     (0.02)        $     (0.03)
                                           ===========         ===========        ===========         ===========
     Diluted                               $      0.04         $      0.04        $     (0.02)        $     (0.03)
                                           ===========         ===========        ===========         ===========
</TABLE>


17.   SUBSEQUENT EVENTS

       Subsequent to year-end, the Company has purchased approximately
$13,900,000 in notes receivable at a cost of approximately $11,800,000.

                                     ******



                                      F-23