<PAGE>


                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, 2001

[ ]  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)

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

                               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: $37,963,358

As of March 27, 2002 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 $1,676,499 (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, 2001, are incorporated by reference into Part
III.



<PAGE>





                                     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, origination, 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 2001, the Company took advantage of market opportunities to increase
     its volume of loan acquisitions, pursuing a strategy of acquiring primarily
     higher coupon non-investment grade performing loans. Based on acquisition
     volume the Company's portfolio grew 36% to $360 million at December 31,
     2001 as compared to $264 million at December 31, 2000. The Company expects
     to continue this strategy, as well as increase both the pace and amount of
     acquisitions, during 2002.

     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, Mississippi, New York, New
     Jersey, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, 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 23,453 loans with a face value of approximately
     $738 million from primarily 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.

     During the year ended December 31, 2001, the Company purchased 3,599 loans
     with an aggregate face value of $184 million at an aggregate purchase price
     of $162 million or 88% of face value. As of December 31, 2001, the
     Company's portfolio included approximately 9,899 loans with an aggregate
     face


                                       2
<PAGE>



     value of $332 million. An allowance for loan losses of approximately
     $34 million has been recorded against this face value. At December 31,
     2001, approximately 94% of the Company's loan portfolio consisted of first
     mortgages, home equity/home improvement and second mortgages collateralized
     by real estate, 4% consisted of loans collateralized by other assets, and
     2% 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".

     The Company sells portfolios of performing, reperforming and nonperforming
     loans on a whole loan basis. During 2001, the Company sold 125 performing
     loans with an aggregate face value of $12.3 million, and 154 non-performing
     loans with an aggregate face value of $11.9 million. During 2000 the
     Company sold 94 performing loans with a face value of $8 million, and 39
     non-performing loans with an aggregate face value of $5 million. The
     Company expects to continue this strategy when the sale of assets generates
     a greater cash flow than the risk adjusted net present value of cash flows
     from holding the assets. The Company does not generally retain the
     servicing rights on loans it sells.

      As of December 31, 2001, the Company owed an aggregate of $314 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 December 2001, the Company's
     Senior Debt agreement was amended. Under the amendment interest on Senior
     Debt accrues at variable rates based on the Federal Home Loan Bank of
     Cincinnati (FHLB) thirty (30) day advance rate plus an additional spread of
     3.25%. For all other Senior Debt, acquired prior to March 1, 2000, interest
     will be based on the Prime Rate plus a margin of between 0% and 1.75%;
     approximately $68 million of total senior debt falls into this category. At
     December 31, 2001, the weighted average interest rate on Senior Debt was
     5.25%. The Senior Debt Lender has advised the Company that as of December
     31, 2001, there was $190 million of Senior Debt available to be used by the
     Company to purchase additional portfolios of mortgage loans.

     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 is divided into the Bulk
     purchase unit, which is responsible for acquisitions in excess of $1
     million and a Flow Unit, 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, 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 conducts
     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 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, which meets the Company's
     established pricing and yield guidelines. When loans are acquired the
     Acquisition Department, with the assistance of the Management


                                       3
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     Information Systems staff ("MIS"), monitors the electronic transfer of
     loan data into the Company's data management system.

     SERVICING DEPARTMENT. The Servicing Department manages the Company's
     performing loans and seeks to provide quality customer service 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
     Servicing Department is responsible for the maintenance of real estate tax
     and insurance escrow accounts. Servicing 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 Servicing
     Department: (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, 2001, the Servicing
     Department managed approximately 7,392 accounts, with a total principal
     outstanding balance of approximately $286 million.

     LEGAL DEPARTMENT. The Legal Department manages and monitors the progress of
     defaulted loans requiring a legal action and the loss mitigation area,
     which negotiates legal settlement strategies. 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 amount and speed of
     recovery and minimize costs. This strategy is based upon the individual
     borrowers' past payment history, current ability to pay, collateral lien
     position and current collateral value. 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, 2001, the Legal Department managed approximately 2,469 loans, with a
     total principal outstanding balance of approximately $74 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 the management of OREO
     that are held as rental properties until such time as an economically
     beneficial sale can be arranged. As Of December 31, 2001, the Real Estate
     Department managed approximately 77 OREO properties, of which 16 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.

     TRIBECA LENDING. Tribeca provides first and second mortgages to individuals
     interested in purchasing or refinancing performing loans in the Company's
     existing database. Tribeca focuses on developing an array of niche products
     to fulfill needs such as high loan to value ("LTV"), sub-prime,
     non-conforming and loss mitigation second mortgages. Loans are originated
     by a retail sales force generates leads from the Company's database of
     serviced loans, and external sources. 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.



                                       4
<PAGE>

     During 2001, Tribeca originated 386 mortgages with an aggregate principal
     balance of $41.5 million. During 2000, Tribeca originated 118 mortgages
     with an aggregate principal balance of $8.2 million.

     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.

     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
     Residential Funding 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 mortgage bankers
     for the origination of mortgages. Among the largest of these competitors
     are Greenthal Realty Partner, New Century Mortgage, Amquest Mortgage, and
     Household Financial Service. 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.
     Important characteristics which impact competition in this market are
     price, loan-to-value, size of pools and the integrity of portfolio data.

     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 sells bulk portfolios of performing and
     non-performing loans, when such sales are economically beneficial to the
     Company. While the Company has previously been successful in marketing loan
     portfolios, which it has sold, and believes there are sufficient buyers for
     its products 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, several institutions supplied the Company
     with its portfolio acquisitions, as measured by


                                       5
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     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 continued to grow it's niche of
     purchasing small individual assets, or pools of assets under a million
     dollars from various sources. The Company believes that this market is
     under served and will 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
     Trade Commission 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, State and
     City statutes and regulations affecting such 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.

     Regulation Z 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 borrower
     demographics. 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
     Federal and 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.


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<PAGE>


     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
     would seek to have such loans repurchased by the prior seller, as this
     discovery would constitute a breach of contract. In rare cases, the Company
     may retain the property 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, 2001, the Company had 97 full-time employees,
     including 7 in the Acquisitions Department, 23 in the Service Department, 8
     in the Legal Department, 2 in the Real Estate Department, 7 in the
     Accounting Department, 5 in the MIS Department, and 3 in the Marketing
     Department, 6 clerical employees, 11 managerial employees, and 25 employees
     in Tribeca.

     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.

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 Loan Servicing Department. The lease expires on January 31, 2009
     and is at an approximate annual rent of $126,000. 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's sales
     force. The lease expires on September 1, 2004 and is at an approximate
     annual rent of $49,300. In November 2001 the Company leased office space on
     two floors located at 185 Franklin Street for its Accounting and Tribeca
     Operations departments. The lease expires in November 2003 and is at an
     average approximate annual rent of $120,000.

     OREO Properties. The Company owns OREO in various parts of the country that
     were acquired through acquisition, foreclosure or a deed in lieu. These
     properties are 1-4 family residences, coops, condos, 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. From time to time OREO properties
     may be in need of repair or improvements. The OREO property is then
     evaluated independently and a decision is made on whether the additional
     investment would generate an additional return.


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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.
     On February 10, 2000, the Court 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 has collected in excess of
     $70,000 from a bank account maintained by PCC and has also obtained an
     order allowing the Company to attach PCC interest in mortgage loans
     originated by PCC which have a face value in excess of $200,000.

     After FCMC commenced its action against PCC, NJK Holdings, Inc. ("NJK")
     purchased all of PCC's issued and outstanding stock and all option rights
     to acquire any of PCC's stock. Prior to the time FCMC obtained the
     Judgment, NJK apparently decided to terminate the business operations of
     PCC and began to liquidate the assets of PCC.

     As part of FCMC's collection activities, FCMC obtained evidence that
     suggested that NJK was converting to its own use assets belonging to PCC.
     However, before completing a complete transfer of the same, FCMC was able
     to exercise a lien on a claim under an E&O Policy maintained by PCC.
     Subsequently, the claim was liquidated at approximately $1 million dollars.
     The E&O carrier refused to issue the check directly to NJK due to the
     existence of FCMC's claims.

     In response, NJK sued FCMC seeking a determination that FCMC had no
     interest in the E&O proceeds. FCMC counterclaimed against NJK asserting
     that NJK did not have a lien against the proceeds of the E&O policy; that
     monies transferred from PCC to NJK were accomplished through illegal
     distributions and a fraudulent transfer and that NJK was the alter ego of
     PCC and as such was liable for the judgment FCMC obtained against PCC.

     NJK filed a Motion for Summary Judgment in late 2001. FCMC filed a response
     and a hearing on the Motion for Summary Judgment was held on January 30,
     2002. The matter is currently under advisement.

     Trial is currently scheduled to commence on March 25, 2002. It is currently
     anticipated that the trial will last approximately two weeks.


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 2001
     and 2000 was compiled from information representing the daily inter-dealer
     bid activity during the period.

<TABLE>
<CAPTION>
                                    2001 Bid                    2000 Bid
                                    --------                    --------
                               High          Low            High        Low
                               ----          ---            ----        ---
<S>                           <C>          <C>             <C>         <C>
     First Quarter            $ 0.33       $ 0.33          $ 0.75      $ 0.55
     Second Quarter           $ 1.20       $ 1.20          $ 0.75      $ 0.75
     Third Quarter            $ 1.10       $ 1.01          $ 0.45      $0.375
     Fourth Quarter           $  .75       $  .70          $ 0.50      $0.375
</TABLE>

     As of March 30, 2002, there were approximately 525 record holders of the
     Company's Common Stock.

     Dividend Policy. The Company intends to retain all 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, including changes in business
     conditions and interest rates and changes in 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 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


                                       9
<PAGE>



     undertakes no obligation to release publicly the results on any events or
     circumstances after the date hereof or to reflect the occurrence of
     unanticipated events.

     CRITICAL ACCOUNTING POLICIES

     The following management's discussion and analysis of financial condition
     and results of operations is based on the amounts reported in the Company's
     consolidated financial statements. These financial statements are prepared
     in accordance with accounting principles generally accepted in the United
     States of America. In preparing the financial statements, management is
     required to make various judgments, estimates and assumptions that affect
     the reported amounts. Changes in these estimates and assumptions could have
     a material effect on the Company's financial statements. The following is a
     summary of the Company's accounting policies that are the most affected by
     management judgments, estimates and assumptions:

     Notes Receivable-The Company purchases real estate mortgage loans to be
     held as long-term investments. Loan purchase discounts are established at
     the acquisition date. Management must periodically evaluate each of the
     purchase discounts to determine whether the projection of cash flows for
     purposes of amortizing the purchase loan discount has changed
     significantly. 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. 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. Given the nature of
     the Company's loan portfolio and the underlying real estate collateral
     significant judgment is required in determining periodic amortization of
     purchase discount, and allowance for loan losses. The allowance is
     maintained at a level that management considers adequate to absorb
     potential losses in the loan portfolio.


     LOAN AND OREO ACQUISITIONS. During the year ended December 31, 2001
     ("fiscal 2001") the Company purchased 3,599 loans consisting primarily of
     first and second mortgages, with an aggregate face value of $184 million at
     an aggregate purchase price of $162 million or 88% of the face value
     compared with the purchase during the year ended December 31, 2000 ("fiscal
     2000") of 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. Acquisition of these 2001 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 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. During the year 2001 there were several decreases in the
     prime rate, the benchmark rate for the Company's costs of funds on Senior
     Debt used to fund loan portfolio acquisitions. As of December 31, 2001, the
     Company had Senior Debt outstanding under several loans with an aggregate
     principal balance of $314 million. Additionally the Company has financing
     agreements, which had an outstanding balance of $7,542,511 at December 31,
     2001.


                                       10
<PAGE>


     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. On December 31, 2001 the Company and its Senior Debt
     Lender agreed to a long term interest rate agreement pursuant to which the
     interest rate for Senior Debt incurred after March 1, 2000, will be the
     Federal Home Loan Bank of Cincinnati (FHLB) thirty (30) day advance rate
     plus an additional spread of 3.25%. Under the amendment Senior Debt
     incurred prior to March 1, 2000 will accrue interest at a rate equal to the
     prime rate plus a margin of between 0% and 1.75%; approximately $68 million
     of total loans fall into this category. The Company believes that this new
     agreement will provide additional acquisition opportunities and ongoing
     competitiveness in the market. Decreases in the prime rate during the year
     positively impacted 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, 2001 and December 31, 2000 was 5.25% and 9.16%,
     respectively.

     The impact of inflation on the Company's operations during both fiscal 2001
     and 2000 was immaterial.


RESULTS OF OPERATIONS


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Total revenue, comprised of interest income, purchase discount earned,
     gains recognized on the bulk sale of notes, gain on sale of OREO, gain on
     sale of loans originated, rental income and other income, increased by
     $8,915,968 or 31%, to $37,963,358 during fiscal 2001, from $29,047,390
     during fiscal 2000.

     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 during fiscal 2001 was 12.7% as compared with 12.6% during fiscal
     2000. Interest income on notes receivable increased by $7,951,120 or 38%,
     to $28,824,624 during fiscal 2001 from $20,873,504 during fiscal 2000. 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 $184 million of performing loans
     during 2001, which increased the size of the Company's outstanding
     portfolio of notes receivable by 30%.

     Purchase discount earned increased by $198,464 or 5%, to $3,986,498 during
     fiscal 2001 from $3,788,034 during fiscal 2000. The increase in purchase
     discount earned reflected the growth in size of the portfolio. Purchase
     discount increased at a lower rate than the growth in the portfolio due to
     the maturation of the portfolio, and the purchase of performing assets for
     yield spread as opposed to purchase discount during the year.

     Gains from the bulk sale of loans decreased by $688,537 or 41%, to $986,570
     during fiscal 2001 from $1,675,107 during fiscal 2000. This decrease
     reflected the change in mix of loans sold to include a significantly
     greater proportion of non-performing loans in 2001, which resulted in lower
     margins. The Company sold approximately $24 million in face value notes
     receivable during 2001 as compared to $13 million during 2000.


                                       11
<PAGE>



     Gain on sale of originated notes by Tribeca increased by $565,140 or 204%,
     to $842,051 during 2001 from $276,911 during fiscal 2000. This increase was
     due to an increase in the number of loans sold during 2001 as compared to
     2000. Tribeca had loan sales of $15 million during 2001 as compared to $5
     million of loans during 2000.

     Gain on sale of OREO increased by $747,609 or 107% to $1,448,548 during
     fiscal 2001 from $ 700,939 during fiscal 2000. The increase resulted from
     the sale of OREO properties during the year that had appreciated in value
     in the Company's portfolio. The Company sold 140 OREO properties during
     2001 as compared to 120 OREO properties during 2000.

     Rental income decreased by $342,498 or 51% to $330,250 during fiscal 2001,
     from $672,748 during fiscal 2000. Rental income decreased due to the sale
     of several rental properties where it was more advantageous to sell than
     continue to hold for rent during the year. The Company held 17 rental
     properties at December 31, 2001 as compared to 47 at December 31, 2000.

     Other income increased by $484,670 or 46%, to $1,544,817 during fiscal 2001
     from $1,060,147 during fiscal 2000. The increase was due primarily to
     increases in the number of prepayment penalties due to an increase in
     prepayments during 2001, late charges resulting primarily from the growth
     in the size of the portfolio and increased loan fees from loan
     originations.

     Total operating expenses increased by $6,160,483 or 22% to $34,637,210
     during fiscal 2001 from $28,476,727 during fiscal 2000. 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.

     Interest expense increased by $1,972,749 or 11%, to $20,754,281 during
     fiscal 2001 from $18,781,532 during fiscal 2001. This increase resulted
     primarily from the increase in debt reflecting the Company's 37 % increase
     in notes receivable and loans held at the end of fiscal 2001 over those
     held at the end of fiscal 2000. Total debt increased by $88 million or 38%,
     to $321 million as of December 31, 2001 as compared with $233 million as of
     December 31, 2000. Interest expense was partially offset by decreases in
     the Company's costs of funds. Total debt includes Senior Debt, debentures,
     financing agreements and loans from affiliates.

     Collection, general and administrative expenses increased by $1,896,270 or
     22% to $10,411,012 during fiscal 2001 from $8,514,742 during fiscal 2000.
     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 $1,409,613 or 35%, to $5,438,283 during
     fiscal 2001 from $4,028,669 during fiscal 2000. This increase resulted from
     the growth in size of the Company's loan production staff, salary
     increases, increased commissions due to increased loan production and bonus
     accruals. OREO related expenses decreased by $386,066 to $876,441 during
     fiscal 2001 from $1,262,506 during fiscal 2000 due to the selling of OREO
     properties. Office expenses increased by $258,080 or 49%, to $ 789,711
     during fiscal 2001 from $531,631 due to an increase in office space for
     Tribeca on the fifth floor of 6 Harrison Street and new office space at 185
     Franklin Street for the file room, Accounting and Tribeca operations. Other
     general and administrative expenses increased $614,644 or 23% to $3,306,577
     during fiscal 2001 from $2,691,933 during fiscal 2000. This increase
     resulted primarily from increased travel for marketing, due diligence,
     increased legal expenses for asset protection, and professional fees.


                                       12
<PAGE>


     Provisions for loan losses increased by $1,776,448 or 432%, to $2,187,453
     during fiscal 2001 from $411,005 during fiscal 2000. This increase was
     primarily due to reserve increases on two large loans that are in
     litigation, the write off a $873,000 loan that was deemed uncollectable and
     reserve increases in portfolios that no longer have purchase discount. Bad
     debt expense expressed as a percentage of face value of notes receivable
     and loans held as of the last day of such years for fiscal 2001 and fiscal
     2000 were approximately 0.60% and 0.15%, 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 $438,551 or 71%, to
     $1,058,443 during fiscal 2001 from $619,892 during fiscal 2000. This
     increase resulted primarily from the growth in size of the portfolio,
     increased prepayments, collections, and an increase in the aggregate amount
     of assets sold, which sales generally accelerate the amortization of
     financing costs. On December 31, 2001 and December 31, 2000, deferred
     financing costs, as a percentage of Senior Debt outstanding was 1.02 % and
     1.05%, respectively.

     Depreciation expense increased by $76,465 or 51%, to $226,021 during fiscal
     2001 from $149,556 during fiscal 2000. This increase resulted primarily the
     purchase of computer equipment.

     The Company's operating income increased by $2,311,485 to $2,882,148 during
     fiscal 2001 from $570,663 during fiscal 2000 for the reasons set forth
     above.

     During 2001, the Company had a provision for income taxes of $444,000 after
     utilizing all available net operating losses and removed the valuation
     allowance. The Company did not record a provision in 2000 since available
     net operating losses exceeded taxable income. A valuation reserve was
     established against excess net operating losses.

LIQUIDITY AND CAPITAL RESOURCES

     General. During fiscal 2001 the Company purchased 3,599 loans with an
     aggregate face value of $184 million at an aggregate purchase price of
     $162.3 million or 88% of the face value. 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 face value. This increase
     reflected the Company's enhanced marketing efforts, which generated
     increased market penetration.

     Liquidity. The Company's portfolio of notes receivable at December 31,
     2001, had a face value of $332 million and included net notes receivable of
     approximately $276 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 2001, the Company used cash in the amount of $25.3 million in
     its operating activities primarily for interest expense, overhead,
     litigation expense incidental to its collections and for the foreclosure
     and improvement of OREO. The Company used $62.4 million in its investing
     activities, which reflected primarily the use of $162.3 million for the
     purchase of note receivable offset by principal collections of its notes
     receivable of $72.9 million and proceeds from sales of OREO of $8.6
     million. Net cash provided by financing activities was $88.3 million
     primarily from an increase in Senior Debt of $83 million. The above
     activities resulted in a net increase in cash at December 31, 2001 over
     December 31, 2000 of $571,816.



                                       13
<PAGE>


     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, 2001 and 2000, the Company held
     OREO recorded in the financial statements at $3.8 million and $5.3 million,
     respectively. OREO is recorded on the financial statements of the Company
     at the lower of cost or fair market value less estimated costs of disposal.
     The Company believes that the OREO inventory held at December 31, 2001 has
     a net realizable value (market value less estimated commissions and legal
     expenses associated with the disposition of the asset) of approximately
     $4.1 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 2001, Tribeca recorded income of
     $396,788 compared to a loss of $165,740 during 2000. This increase stemmed
     from a change in management in Tribeca. The Company hired a new Vice
     President who along with a new sales force increased production in Tribeca;
     this was responsible for a 406% increase in loan originations, a 200 %
     increase in loans sold and a 339% increase in net income. 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 $7 million. 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 fiscal 2001 Tribeca negotiated with the
     Senior Debt Lender to allow Tribeca to convert debt incurred under it's
     warehouse line into senior debt each time the aggregate amount outstanding
     hit $7 million dollars. This has allowed Tribeca to hold its loans while
     continuing its origination activity and thereby allowing Tribeca greater
     flexibility to time its bulk sales in the secondary market to its greatest
     advantage. The Senior Debt generally accrues interest at a variable rate
     based on the FHLB rate of Cincinnati plus a premium of 3.25%.

CASH FLOWS 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, 2001, the Company had unrestricted cash, cash equivalents
     and marketable securities of $7.8 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, which may cause the
     Company to incur additional capital expenditures, outside the acquisitions
     of additional notes receivable. Although the Company from time to time
     engages in discussions and negotiations, it currently has no agreements
     with respect to any particular acquisition.

CASH FLOW FROM FINANCING ACTIVITIES

     Senior Debt. As of December 31, 2001, the Company owed an aggregate of $314
     million to the Senior Debt Lender, under several 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


                                       14
<PAGE>



     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 variable rate based on the
     FHLB rate of Cincinnati plus a premium of 3.25% for all new Senior Debt and
     debt incurred after March 1, 2000, and prime plus between 0% and 1.75% debt
     incurred before such date, of which there was approximately $68 million at
     December 31, 2001. At December 31, 2001, the weighted average interest rate
     on Senior Debt was 5.25%. 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 weekly
     additional principal reduction from cash collected before 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 that is available to the Company.

     In December 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 cash of $1,345,000 per month for
     the year. Management believes that this modification will 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 sale of loans, sales and rental of OREO, or additional borrowing, to
     repay the current liabilities arising from operations and to repay the long
     term indebtedness of the Company.

     Certain 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 Company is no longer required to maintain these restricted
     accounts but has continued to under the prior agreement. The Company
     typically uses these funds to place deposits on loan portfolio bids. The
     restricted cash is maintained in an interest bearing account, with the
     Company's Senior Debt Lender. The aggregate balance of restricted cash in
     such accounts was $541,443 on December 31, 2001 and $932,574 on December
     31, 2000. The decrease in restricted cash at December 31, 2001 was due to
     cash deposits placed on portfolio bids, which funds are returned to the
     restricted account by the Senior Debt Lender once funding takes place.

     Total Senior Debt funding capacity was $500 million at March 29, 2002 of
     which approximately $314 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 $190 million available to purchase additional
     portfolios of notes receivable.

     The Company's Senior Debt Lender has provided Tribeca with a warehouse
     financing agreement of $7 million. At December 31, 2001, Tribeca had drawn
     down $6.8 million on the line. The warehouse line accrues interest based a
     variable rate of prime plus 2%.

     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, 2001 and 2000, $24,262 and $72,525 respectively,
     of these debentures were outstanding. The Harrison First 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

                                       15
<PAGE>


     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 which was later extended to March 31, 2002. The Harrison First 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, 2001 and December 31,
     2000, were $647,791 and $117,600 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.


     Aggregate maturities of all long-term debt at currently effective principal
     payment requirements for the next five years, at December 31, are as
     follows:

<TABLE>
<S>                    <C>
     2002              $ 30,700,721
     2003                22,772,822
     2004                59,903,471
     2005               177,356,311
     2006                20,206,261
     Thereafter          10,570,794
                       ------------

                       $321,510,380
                       ============
</TABLE>

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.


                                       16
<PAGE>

--------------------------------------------------------------------------------
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, 2001, 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
















                                       17
<PAGE>




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.

         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(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. Previously filed with, and
                     incorporated herein by reference to, the Company's 10-KSB,
                     filed with the Commission on March 31, 2001.

         11          Earnings per Share. Filed herewith.





                                       18
<PAGE>







                                   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 29, 2002                     FRANKLIN CREDIT MANAGEMENT
                                   CORPORATION



                                   By: /s/  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.

Signature                  Title                                  Date
---------                  -----                                  ----

/s/ SETH COHEN             President, Chief Executive Officer     March 29, 2002
------------------------
Seth Cohen
(Principal executive
officer)


/s/ JOSEPH CAIAZZO         Executive Vice President, Chief        March 29, 2002
------------------------   Operating Officer, Secretary and
Joseph Caiazzo             Director
(Secretary)


/s/ KIMBERLEY SHAW         Vice President,                        March 29, 2002
------------------------   Chief Financial Officer
Kimberley Shaw
(Principal financial
and accounting officer)




                                       19
<PAGE>






FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
--------------------------------------------------------------------------------


                                                                     PAGE

INDEPENDENT AUDITORS' REPORT                                          F-1

FINANCIAL STATEMENTS FOR THE YEARS ENDED
   DECEMBER 31, 2001 AND 2000:

   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 - F-6

   Notes to Consolidated Financial Statements                      F-7 - F-23







<PAGE>






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
Corporation and Subsidiaries (the "Company") as of December 31, 2001 and 2000,
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, 2001
and 2000, 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.



New York, New York

March 27, 2002





<PAGE>




FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                     2001                    2000
                                                                       -------------           -------------

<S>                                                                    <C>                     <C>
CASH AND CASH EQUIVALENTS                                              $   7,784,162           $   7,212,346
RESTRICTED CASH                                                              541,443                 932,574

NOTES RECEIVABLE:
  Principal                                                              331,643,076             255,055,677
  Purchase discount                                                      (22,248,344)            (23,392,400)
  Allowance for loan losses                                              (33,490,456)            (24,021,479)

           Net notes receivable                                          275,904,276             207,641,798

LOANS HELD FOR SALE-Net                                                   28,203,047               8,605,848

ACCRUED INTEREST RECEIVABLE                                                4,795,789               3,396,405

OTHER REAL ESTATE OWNED                                                    3,819,673               5,290,053

OTHER RECEIVABLES                                                          5,305,409               1,934,443

DEFERRED TAX ASSET                                                         1,567,588               3,481,002

OTHER ASSETS                                                               1,894,052               1,442,687

BUILDING, FURNITURE AND EQUIPMENT - Net                                    1,151,171                 868,471

DEFERRED FINANCING COSTS- Net                                              3,195,891               2,429,661
                                                                       -------------           -------------
TOTAL ASSETS                                                           $ 334,162,501           $ 243,235,288
                                                                       =============           =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Accounts payable and accrued expenses                                $   4,230,203           $   2,934,797
  Financing agreements                                                     7,542,511               2,021,334
  Notes payable                                                          313,943,808             231,050,485
  Subordinated debentures                                                     24,262                  72,525
  Notes payable, affiliates and stockholders                                    --                   146,835
  Tax liability
    Current                                                                  225,000                    --
    Deferred                                                               1,866,318               3,561,061
                                                                       -------------           -------------
           Total liabilities                                             327,832,102             239,787,037
                                                                       -------------           -------------

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                                                       (714,736)             (3,596,884)
                                                                       -------------           -------------
           Total stockholders' equity                                      6,330,399               3,448,251
                                                                       -------------           -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 334,162,501           $ 243,235,288
                                                                       =============           =============
</TABLE>

See notes to consolidated financial statements.





                                      F-2
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                       2001                   2000
                                                    ------------           ------------

<S>                                                 <C>                    <C>
REVENUES:
  Interest income                                   $ 28,824,624           $ 20,873,504
  Purchase discount earned                             3,986,498              3,788,034
  Gain on sale of notes receivable                       986,570              1,675,107
  Gain on sale of loans held for sale                    842,051                276,911
  Gain on sale of other real estate owned              1,448,548                700,939
  Rental income                                          330,250                672,748
  Other                                                1,544,817              1,060,147
                                                    ------------           ------------
                                                      37,963,358             29,047,390
                                                    ------------           ------------
OPERATING EXPENSES:
  Interest expense                                    20,754,281             18,781,532
  Collection, general and administrative              10,411,012              8,514,742
  Provision for loan losses                            2,187,453                411,005
  Amortization of deferred financing costs             1,058,443                619,892
  Depreciation                                           226,021                149,556
                                                    ------------           ------------
                                                      34,637,210             28,476,727
                                                    ------------           ------------

INCOME BEFORE PROVISION FOR INCOME TAXES               3,326,148                570,663

PROVISION FOR INCOME TAXES                               444,000                  --
                                                    ------------           ------------

NET INCOME                                          $  2,882,148           $    570,663
                                                    ============           ============
NET INCOME  PER COMMON SHARE:
  Basic                                             $       0.49           $       0.10
                                                    ============           ============
  Dilutive                                          $       0.49           $       0.10
                                                    ============           ============
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING, BASIC AND DILUTIVE                      5,916,527              5,916,527
                                                    ============           ============
</TABLE>

See notes to consolidated financial statements.




                                      F-3
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                        COMMON STOCK               ADDITIONAL
                                ----------------------------        PAID-IN        ACCUMULATED
                                   SHARES          AMOUNT           CAPITAL          DEFICIT            TOTAL
                                -----------      -----------      -----------      -----------       -----------

<S>                             <C>             <C>              <C>              <C>               <C>
BALANCE, JANUARY 1, 2000          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

  Net Income                           --               --               --          2,882,148         2,882,148
                                -----------      -----------      -----------      -----------       -----------

BALANCE, DECEMBER 31, 2001        5,916,527      $    59,167      $ 6,985,968      $  (714,736)      $ 6,330,399
                                ===========      ===========      ===========      ===========       ===========
</TABLE>


See notes to consolidated financial statements.





                                      F-4
<PAGE>



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   2001                  2000
                                                                               -------------         -------------
<S>                                                                            <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                   $   2,882,148         $     570,663
  Adjustments to reconcile income (loss) to net cash used in
    operating activities:
    Gain on sale of notes receivable                                                (986,570)           (1,675,107)
    Gain on sale of other real estate owned                                       (1,448,548)             (700,939)
    Depreciation                                                                     226,021               149,556
    Amortization of deferred financing costs                                       1,058,443               619,892
    Purchase discount earned                                                      (3,986,498)           (3,788,034)
    Provision for loan losses                                                      2,187,453               411,005
    Changes in assets and liabilities:
      Increase in accrued interest receivable                                     (1,399,384)             (971,047)
      (Increase) decrease in other receivables                                    (3,370,966)              892,858
      Decrease in deferred tax asset                                               1,913,414                  --
      (Increase) in other assets                                                    (451,365)             (287,590)
      (Increase) in loans held for sale                                          (19,597,199)           (5,382,123)
      Foreclosures on real estate                                                 (2,066,784)             (216,689)
      (Decrease) in deferred tax liability                                        (1,469,743)                 --
      Increase (decrease) in accounts payable and accrued expenses                 1,295,406              (182,542)
      (Decrease) increase in notes payable, affiliates and stockholders             (146,835)               37,485
                                                                               -------------         -------------

           Net cash used in operating activities                                 (25,361,007)          (10,089,234)
                                                                               -------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Decrease) increase in restricted cash                                            391,131              (544,602)
  Purchase of notes receivable                                                  (162,340,435)          (95,738,251)
  Principal collections on notes receivable                                       72,930,175            43,610,229
  Acquisition and loan fees                                                       (1,420,254)           (1,405,446)
  Proceeds from sale of other real estate owned                                    8,609,271             7,522,394
  Proceeds from sale of notes receivable                                          19,905,420            10,974,326
  Purchase of building, furniture and fixtures                                      (508,722)             (133,125)
                                                                               -------------         -------------

           Net cash used in investing activities                                 (62,433,414)          (35,714,475)
                                                                               -------------         -------------
</TABLE>

Continued on next page




                                      F-5
<PAGE>



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 2001                  2000
                                                                             -------------         -------------
CONTINUED FROM PREVIOUS PAGE

<S>                                                                          <C>                   <C>
           Net cash used in investing activities (from previous page)          (62,433,414)          (35,714,475)
                                                                             -------------         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                                  176,562,187            98,024,623
  Principal payments of notes payable                                          (93,668,864)          (51,993,943)
  Proceeds from financing agreements                                            38,495,144             8,296,532
  Payments on financing agreements                                             (32,973,967)           (7,066,273)
  Principal payments of subordinated debentures                                    (48,263)             (260,451)
                                                                             -------------         -------------

           Net cash provided by financing activities                            88,366,237            47,000,488
                                                                             -------------         -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                          571,816             1,196,779
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR                                      7,212,346             6,015,567
                                                                             -------------         -------------

CASH AND CASH EQUIVALENTS END OF YEAR                                        $   7,784,162         $   7,212,346
                                                                             =============         =============
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash payments for interest                                                 $  18,931,784         $  18,116,762
                                                                             =============         =============
  Cash  payments for taxes                                                   $      56,875         $      43,584
                                                                             =============         =============
</TABLE>


See notes to consolidated financial statements.



                                      F-6
<PAGE>



FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------


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 in the United States of America
      requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the financial statements and the
      reported amounts of revenue and expenses during the 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 accounts at 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-7
<PAGE>



      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 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-8
<PAGE>


      LOANS HELD FOR SALE - The loans held for sale consists primarily of
      secured real estate first and second mortgages originated by the Company.
      Such loans held for sale are performing and are carried at lower of cost
      or market.

      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. The Company does not generally retain servicing
      rights on loans sold.

      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. The
      Company made contributions of $28,536 and $0 in 2001 and 2000
      respectively.

      INCOME TAXES - The Company recognizes income taxes under an asset and
      liability method. This method provides for deferred income tax assets or
      liabilities based on the temporary difference between the income tax basis
      of assets and liabilities and their carrying amount in financial
      statements. 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.


                                      F-9
<PAGE>


      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 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 RECEIVABLES, 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
           agreements 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 2001 and 2000, therefore net income was the same
      as its comprehensive income.

      RECENT PRONOUNCEMENTS - Statement of Financial Accounting Standards (SFAS)
      No. 133, Accounting for Derivative Instruments and Hedging Activities, 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-10
<PAGE>


2.    NOTES RECEIVABLE, LOANS HELD FOR SALE AND ALLOWANCE FOR LOAN LOSSES

      Notes receivable consists principally of real estate mortgages as of
      December 31, 2001 and 2000 and are as follows:

<TABLE>
<CAPTION>
                                             2001                  2000
                                         -------------         -------------

<S>                                      <C>                   <C>
      Real estate secured                $ 311,667,321         $ 239,860,880
      Consumer unsecured                     7,599,633             7,171,016
      Mobile homes                          12,211,946             5,601,175
      Other                                    164,176             2,422,606
                                         -------------         -------------

                                           331,643,076           255,055,677

      Less:
        Purchase discount                  (22,248,344)          (23,392,400)
        Allowance for loan losses          (33,490,456)          (24,021,479)
                                         -------------         -------------

                                         $ 275,904,276         $ 207,641,798
                                         =============         =============
</TABLE>


      Loans held consists primarily of real estate mortgages as December 31,
      2001 and 2000 and are classified as follows:

<TABLE>
<CAPTION>
                                            2001                 2000
                                        ------------         ------------

<S>                                     <C>                  <C>
      Real estate secured               $ 28,477,873         $  8,670,691
      Consumer unsecured                      13,383                 --
      Mobile homes                            33,370                 --
                                        ------------         ------------


                                          28,524,626            8,670,691

      Less:
        Purchase discount                    (97,899)                --
        Allowance for loa losses            (223,680)             (64,843)
                                        ------------         ------------

                                        $ 28,203,047         $  8,605,848
                                        ============         ============
</TABLE>




                                      F-11
<PAGE>


      As of December 31, 2001, contractual maturities of notes receivables and
      loans held for sale net of the allowance for loan losses were as follows:


<TABLE>
<CAPTION>
      YEAR ENDING          NOTES             LOANS HELD
      DECEMBER 31,       RECEIVABLE           FOR SALE
      ------------      ------------        ------------
<S>                     <C>                 <C>
      2002              $ 41,656,212             479,292
      2003                37,130,184             473,513
      2004                33,257,489             499,195
      2005                27,913,758             467,236
      2006                18,692,471             366,670
      Thereafter         114,651,837          26,015,039
                        ------------        ------------

                        $273,301,951        $ 28,300,945
                        ============        ============
</TABLE>

      Excluded from the contractual maturities reflected above are the notes
      receivable acquired during the last two weeks of 2001 with $24,850,669 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, 2001 and 2000, cash
      collections of principal amounts totaled approximately $72,900,000 and
      $43,600,000, respectively, and the ratios of these cash collections to
      average principal balances were approximately 23.3% and 18.8%,
      respectively.

      Changes in the allowance of loan losses on notes receivable for the years
      ended December 31, 2001 and 2000 are as follows:


<TABLE>
<CAPTION>
                                                                    2001                2000
                                                                ------------         ------------

<S>                                                             <C>                  <C>
      Balance, beginning                                        $ 24,086,322         $ 22,185,945
      Initial allowance allocated on purchased portfolio
                                                                   9,198,705            2,264,703
      Loans charged to allowance                                  (1,982,024)            (840,174)
      Provision for loan losses                                    2,187,453              411,005
                                                                ------------         ------------

      Balance, ending                                           $ 33,490,456         $ 24,021,479
                                                                ============         ============
</TABLE>



                                      F-12
<PAGE>



      At December 31, 2001 and 2000, principal amounts of notes receivable
      included approximately $75,000,000 and $56,000,000, respectively, of notes
      for which there was no accrual of interest income. At December 31, 2001,
      approximately $26,231,465 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,
      2001 and 2000:

<TABLE>
<CAPTION>
                                                              2001               2000
                                                           -----------        -----------

<S>                                                        <C>                <C>
      Total impaired notes receivable                      $74,904,866        $56,069,711
                                                           ===========        ===========

      Allowance for loan losses related to impaired
        notes receivable                                   $25,022,497        $20,117,598
                                                           ===========        ===========

      Average balance of impaired notes receivable
        during the year                                    $64,049,206        $56,997,519
                                                           ===========        ===========

      Interest income recognized                           $ 2,223,530        $ 1,801,068
                                                           ===========        ===========
</TABLE>

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

3.    BUILDING, FURNITURE AND EQUIPMENT

      At December 31, 2001 and 2000, building , furniture and equipment
      consisted of the following:

<TABLE>
<CAPTION>
                                              2001              2000
                                           ----------        ----------

<S>                                        <C>               <C>
      Building and improvements            $  997,259        $  907,890
      Furniture and equipment               1,022,689           603,336
                                           ----------        ----------

                                            2,019,948         1,511,226

      Less accumulated depreciation           868,778           642,755
                                           ----------        ----------

                                           $1,151,171        $  868,471
                                           ==========        ==========
</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
      was amended on December 31, 2001 and provides the Company with the ability
      to borrow up to an aggregate of $500,000,000 at rates based on the Federal
      Home Loan Bank of Cincinnati (FHLB)30 day advance rate plus an additional
      spread of 3.25%. As of December 31, 2001 and 2000, the



                                      F-13
<PAGE>



       Company had several loans outstanding to its Senior Debt Lender with an
       aggregate principal balance of $313,670,618 and $230,760,549,
       respectively. As a result, the Company has approximately $190,000,000
       available to purchase additional portfolios of notes receivable. All
       notes payable are secured by an interest in the notes receivable,
       payments to be received under the notes and the underlying collateral
       securing the notes. At December 31, 2001 approximately $ 68,000,000 loans
       that were made prior to March 31, 2000, accrue at a rate of prime plus a
       margin of 0% to 1.75%. The remaining $245,670,618 accrues interest at the
       FHLB 30 day advance rate plus 3.25%.

       At December 31, 2001 and 2000 the weighted average interest rate on the
       Senior Debt was 5.25% and 9.16% respectively.

       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, 2001 and 2000, the Company had a
       note payable of $273,189 and $289,937, 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,
       2001 and 2000 was $541,443 and $932,574, respectively.

       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 notes payable debt at currently effective
       principal payment requirements, at December 31, 2001 are as follows:

<TABLE>
<S>                          <C>
       2002                  $ 23,134,148
       2003                    22,772,822
       2004                    59,903,471
       2005                   177,356,311
       2006                    20,206,261
       Thereafter              10,570,795
                             ------------
                             $313,943,808
                             ============
</TABLE>


5.     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 three 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, this agreement was subsequently extended to March 31,
       2002.


                                      F-14
<PAGE>


       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, 2001 balance of $2,232,445 encumbering the notes receivable
       portfolio.

6.     NOTES PAYABLE, AFFILIATES AND STOCKHOLDERS

       Notes payable, affiliates and stockholders consist of the following at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                             2001            2000
                                                                           --------        --------

<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


       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
                                                                           ========        ========
</TABLE>


7.     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,
       2001 and 2000, $647,791 and $117,600, 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 guarantee by one of the stockholders of the Company, and
       collateral securing the notes of certain loan portfolios.

       The Company has an additional financing agreement with a bank. The
       agreement provides the Company with a line of credit 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, 2001, and 2000, $118,239 and $127,014,
       respectively, are outstanding on the financing agreement.

       In addition the Company has a warehouse financing agreement with another
       bank. It provides the Company with the ability to borrow a maximum of
       $7,000,000 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, 2001 and 2000, $6,776,481 and $1,776,720,
       respectively, are outstanding on the financing agreement and are secured
       by loans held for sale.


                                      F-15
<PAGE>


8.     INCOME TAX MATTERS

       The components of income tax provision (benefit) for the years ended
       December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                               2001              2000
                                            ----------        ----------

<S>                                         <C>               <C>
       Current provision:
         Federal                            $  146,000        $     --
         State and local                        79,000              --
                                            ----------        ----------

                                               225,000              --
                                            ----------        ----------

       Deferred provision (benefit):
         Federal                               671,000           217,000
         State and local                       588,000            68,000
                                            ----------        ----------
                                             1,259,000           285,000
                                            ----------        ----------

       Valuation allowance                  (1,040,000)          (285,000)
                                            ----------        ----------

       Provision (benefit)                  $  444,000        $     --
                                            ==========        ==========
</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, 2001 and 2000 follows:


<TABLE>
<CAPTION>
                                                                          2001                2000
                                                                       -----------         -----------

<S>                                                                    <C>                 <C>
       Tax (benefit) determined by applying U.S. statutory rate
         to income (loss)                                              $ 1,164,000         $   194,000
       Increase (decrease) in taxes resulting from:
         State and local income taxes, net of Federal benefit              331,000              68,000
       Meals and Entertainment (net of adjustments)                          5,000              23,000
       Valuation allowance                                              (1,040,000)           (285,000)
       Other items, net                                                    (16,000)               --
                                                                       -----------         -----------

                                                                       $   444,000         $      --
                                                                       ===========         ===========
</TABLE>


                                      F-16
<PAGE>


       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, 2001 and 2000 are presented below:


<TABLE>
<CAPTION>
                                                                             2001                2000
                                                                          -----------         -----------

<S>                                                                       <C>                 <C>
       Deferred liabilities:
         Purchase discount                                                $ 1,866,318         $ 3,561,061
                                                                          -----------         -----------
                  Deferred tax liabilities                                $ 1,866,318         $ 3,561,061
                                                                          ===========         ===========

       Deferred tax assets:
         Inventory, repossessed collateral                                $   116,357         $    84,881
         Special charge on purchased loans                                    575,042             598,205
         Net operating loss carryforward                                                        2,643,234
         Bad Debt Reserve                                                     876,189           1,195,104
                                                                          -----------         -----------

                  Gross deferred tax assets                                 1,567,588           4,521,424

         Less valuation allowance                                                              (1,040,422)
                                                                          -----------         -----------

                  Deferred tax assets - net of valuation allowance        $ 1,567,588         $ 3,481,002
                                                                          ===========         ===========
</TABLE>


9.    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 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 a former Company Officer. There were no options granted
       during 2001.

       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 SFAS
       No.123, the Company's 2001 and 2000 net income and earnings per share
       would have been reduced to the pro forma amounts indicated in the table
       that follows.



                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                                      2001               2000
                                                                   -----------        -----------

<S>                                                                <C>                <C>
       Net income - as reported                                    $ 2,882,148        $   570,663
       Net income - pro forma                                      $ 2,882,148            426,847

       Net income  per common share - basic - as reported                 0.49               0.10
       Net income per common share - basic - pro forma                    0.49               0.07
       Net income per common share - dilutive - as reported               0.49               0.10
       Net income per common share - dilutive - pro forma                 0.49               0.07
</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:

<TABLE>
<CAPTION>
                                                                            WEIGHTED
                                                                            AVERAGE
                                                                            EXERCISE
                                                          SHARES             PRICE
                                                         --------           --------

<S>                                                     <C>                <C>
       Options outstanding at January 1, 2000             320,000           $   1.56

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

       Options outstanding at December 31, 2000           712,500               1.00

       Granted                                               --                 --
       Exercised                                             --                 --
       Forfeitured                                           --                 --
       Expired                                               --                 --
                                                         --------           --------

       Options outstanding at December 31, 2001           712,500           $   1.00
                                                         ========           ========
</TABLE>

       As of December 31, 2001 and 2000, 712,500 options are exercisable.


                                      F-18
<PAGE>



10.    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>
                                                            2001               2000
                                                         -----------        -----------

<S>                                                      <C>                <C>
       REVENUES:
         Interest income                                 $27,065,644        $20,292,305
         Purchase discount earned                          3,986,498          3,788,034
         Gain on sale of notes receivable                    986,570          1,675,107
         Gain on sale of other real estate owned           1,448,548            700,939
         Rental income                                       330,250            672,748
         Other                                             1,327,927          1,039,037
                                                         -----------        -----------

                                                          35,145,437         28,168,170
                                                         -----------        -----------
       OPERATING EXPENSES:
         Interest expense                                 20,068,167         18,489,548
         Collection, general and administrative            8,894,760          7,859,020
         Provision for loan losses                         2,077,588            370,674
         Amortization of deferred financing costs            996,412            593,624
         Depreciation                                        179,150            118,901
                                                         -----------        -----------

                                                          32,216,077         27,431,767
                                                         -----------        -----------
       INCOME BEFORE PROVISION FOR INCOME
         TAXES                                           $ 2,929,360        $   736,403
                                                         ===========        ===========
</TABLE>


                                      F-19
<PAGE>



       MORTGAGE BANKING

<TABLE>
<CAPTION>
                                                                       2001                  2000
                                                                   -------------        -------------
<S>                                                                <C>                  <C>
       REVENUES:
         Interest income                                           $   1,758,979        $     581,199
         Gain on sale of notes originated                                842,051              276,911
         Other                                                           216,891               21,110
                                                                   -------------        -------------
                                                                       2,817,921              879,220
                                                                   -------------        -------------
       OPERATING EXPENSES:
         Interest expense                                                686,114              291,984
         Collection, general and administrative                        1,516,252              655,722
         Provision for loan loss                                         109,865               40,331
         Amortization of deferred financing costs                         62,031               26,268
         Depreciation                                                     46,871               30,655
                                                                   -------------        -------------
                                                                       2,421,133            1,044,960
                                                                   -------------        -------------
       INCOME (LOSS) BEFORE PROVISION FOR INCOME
         TAXES                                                     $     396,788        $    (165,740)
                                                                   =============        =============
       CONSOLIDATED ASSETS:
         Portfolio asset acquisition and resolution assets         $ 303,705,008        $ 233,728,060
         Mortgage banking assets                                      29,520,868            9,507,228
                                                                   -------------        -------------
       Consolidated assets                                         $ 333,225,876        $ 243,235,288
                                                                   =============        =============
       TOTAL ADDITIONS TO BUILDING, FURNITURE
       AND FIXTURES:
          Portfolio asset acquisition and resolution assets        $     471,402        $      68,419
          Mortgage banking assets                                         37,320               64,706
                                                                   -------------        -------------
       Consolidated additions to building,
          furniture and fixtures                                   $     508,722        $     133,125
                                                                   =============        =============
       CONSOLIDATED REVENUE:
          Portfolio asset acquisition and resolution assets        $  35,145,437        $  28,168,170
          Mortgage banking assets                                      2,817,921              879,220
                                                                   -------------        -------------
          Consolidated Revenue                                     $  37,963,358        $  29,047,390
                                                                   =============        =============
       CONSOLIDATED NET INCOME (LOSS):
           Portfolio asset acquisition and resolution asset        $   2,485,360        $     736,403
           Mortgage banking assets                                       396,788             (165,740)
                                                                   -------------        -------------
           Consolidated Net Income                                 $   2,882,148        $     570,663
                                                                   =============        =============

</TABLE>


                                      F-20
<PAGE>




11.    CERTAIN CONCENTRATIONS

       Geographic Concentrations of Notes Receivable - Approximately 28% 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 this
       region. 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.

12.    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.
       This agreement has been extended through March 31, 2003.

       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 3.5%
       of the Company's net income in excess of $500,000.

       Operating Leases - Certain secondary office and file space is leased
       under operating leases. The combined future minimum lease payments are as
       follows:

<TABLE>
<S>                                <C>
       2002                        $  333,312
       2003                           334,373
       2004                           334,373
       2005                           140,158
       Thereafter                     280,316
                                   ----------
                                   $1,422,532
                                   ==========
</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.

          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 notes were sold with recourse. The recourse
       provision amounted to approximately $600,000 and provides that should a
       note become sixty days past due the Company must either buy it back or
       replace it with a note that is approximately equivalent to the
       outstanding principal and accrued interest. At December 31, 2001 and
       2000, the remaining obligation



                                      F-21
<PAGE>



       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 notes were sold
       with recourse. The recourse provision amounted to approximately $500,000
       and provides that should a note become sixty days past due the Company
       must either buy it back or replace it with a note that is approximately
       equivalent to the outstanding principal and accrued interest. At December
       31, 2001 and 2000, the remaining obligation under the recourse provision
       was approximately $28,938 and $48,183, 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.

       As of December 31, 2001 and 2000, the unpaid balances of the above
       mortgage loans being serviced by the Company were $2,622,362 and
       $3,580,347, respectively. Mortgage loans serviced for others are not
       included in the Company's consolidated balance sheet.


13.    RELATED PARTY TRANSACTIONS


       During 2000, Mr. Axon, the Company's Chairman, purchased from the Company
       a New York condominium held by the Company in its other real estate owned
       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, 2002. The note was extended by Mr. Axon for one year. The
       note and accrued interest is included in other assets.





                                      F-22
<PAGE>




14.    SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

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

<TABLE>
<CAPTION>
                                              1ST QUARTER       2ND QUARTER      3RD QUARTER       4TH QUARTER
                                              -----------       -----------      -----------       -----------
<S>                                           <C>               <C>              <C>               <C>
       2001

       Revenue                                $ 8,165,024       $ 9,329,718      $ 9,544,946       $10,923,670
       Operating expenses                       8,052,978         8,206,786        8,564,135         9,813,311
                                              -----------       -----------      -----------       -----------

       Income before provision for
        income taxes                          $   112,046       $ 1,122,932      $   980,811       $ 1,110,359
                                              ===========       ===========      ===========       ===========

       Income per common share
            Basic                             $      0.02       $      0.19      $      0.17       $      0.19
                                              ===========       ===========      ===========       ===========
            Diluted                           $      0.02       $      0.19      $      0.17       $      0.19
                                              ===========       ===========      ===========       ===========

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

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

          (Loss) income per common share
            Basic                             $     (0.02)      $      0.00      $     (0.07)      $      0.18
                                              ===========       ===========      ===========       ===========
            Diluted                           $     (0.02)      $      0.00      $     (0.07)      $      0.18
                                              ===========       ===========      ===========       ===========
</TABLE>


15.   SUBSEQUENT EVENTS

       Subsequent to year-end, the Company has purchased notes receivable with a
       face amount of approximately $38,371,313 at a cost of approximately
       $31,461,198. These purchases were financed by borrowing under the
       Company's credit facility.


                                      F-23