<PAGE>

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

                                    FORM 10-K

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

         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

[ ]  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

              DELAWARE                                  75-2243266
(State of incorporation)(I.R.S. ID)

                               SIX HARRISON STREET
                            NEW YORK, NEW YORK 10013
                                 (212) 925-8745

        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.

Indicate by check mark whether the registrant (1) has 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. [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in herein, and will not 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-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of common stock held by non-affiliates of the
registrant as of June 30, 2003 was approximately $4,635,188.

Portions of the registrant's definitive proxy statement, which will be filed
within 120 days of December 31, 2003, are incorporated by reference into Part
III.

<PAGE>

                     FRANKLIN CREDIT MANAGEMENT CORPORATION

                                    FORM 10-K
                                DECEMBER 31, 2003

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                          <C>
                                    PART I.

Item 1.   Business                                                                                             3

Item 2.   Properties                                                                                           9

Item 3.   Legal Proceedings                                                                                   10

Item 4.   Submission of Matters to a Vote of Security Holders                                                 10

                                    PART II.

Item 5.   Market for Registrant's Common Equity and Related Stockholders Matters                              10

Item 6.   Selected Financial Data                                                                             11

Item 7.   Management's Discussion and Analysis of Financial Condition and Results Of Operations               11

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk                                           21

Item 8.   Financial Statements and Supplementary Data                                                         22

Item 9.   Change in and Disagreements with Accountants on Accounting and Financial Disclosures                22

Item 9a.  Controls and Procedures                                                                             22

                                    PART III.

Item 10.  Directors and Executive Officers of the Registrant                                                  24

Item 11.  Executive Compensation                                                                              24

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder matters      24

Item 13.  Certain Relationships and Related Transactions                                                      24

Item 14   Principal Accountant Fees and Services.                                                             24

                                     PART IV

Item 15.  Exhibits, Financial Statements Schedules and Reports on Form 8-K                                    25
</TABLE>

<PAGE>

                                     PART I

ITEM 1. 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 acquires these mortgages from a
     variety of mortgage bankers, banks, and other specialty finance companies.
     These loans are generally purchased in pools at discounts from their
     aggregate contractual balances, from sellers in the financial services
     industry. Real estate is acquired in foreclosure or otherwise and is also
     acquired at a discount relative to the appraised value of the asset. The
     Company conducts its business from its executive and main office in New
     York City and through its website www.franklincredit.com.

     In January 1997, the Company formed a wholly owned subsidiary, Tribeca
     Lending Corp. ("Tribeca"), to originate primarily 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. The majority of
     first and second mortgages originated are on a retail basis through
     marketing efforts, utilization of the FCMC database and the Internet.
     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.

     LOAN ACQUISITIONS - Since commencing operations in 1990, the Company has
     purchased, in aggregate, approximately 31,254 loans with a face value of
     approximately $1.2 billion primarily from private institutions. During
     2003, the Company took advantage of market opportunities to increase its
     volume of loan acquisitions purchasing $244 million in assets during 2003
     versus $212 million in assets during 2002. Management may increase the
     amount of loans purchased at par or at premium in the future. The following
     table sets forth the acquisition amounts and prices by year:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                               2003          2002          2001
                                                       ($ IN MILLIONS)
<S>                                           <C>           <C>           <C>
NUMBER OF LOANS                                3,476         4,331         3,599
UNPAID PRINCIPAL BALANCE AT ACQUISITION       $  244        $  212        $  184
PURCHASE PRICE                                $  214        $  184        $  162
PURCHASE PRICE PERCENTAGE                         88%           87%           88%
</TABLE>

     LOAN ORIGINATIONS - Since commencing operations in 1997, Tribeca has
     originated approximately $247 million in loans. During 2003, Tribeca
     increased its origination volume through the expansion of its branch office
     network adding offices in New Jersey, Maryland and Florida and hiring
     additional sales personnel. The following table sets forth the origination
     amounts by year:

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                                           2003        2002         2001
                                                  ($ IN MILLIONS)
<S>                                        <C>         <C>          <C>
NUMBER OF LOANS                             562         501          386
ORIGINAL PRINCIPAL BALANCE                 $ 97        $ 70         $ 42
</TABLE>

                                       3

<PAGE>

     LOAN PORTFOLIO - The Company's portfolio grew 9.8% to $503 million at
     December 31, 2003, from $458 million at December 31, 2002. The increase
     reflected loan acquisitions which were partially offset by a high volume of
     prepayments resulting from a favorable refinancing market due to
     historically low rates. At December 31, 2003, approximately 98% of the
     Company's loan portfolio consisted of first mortgages, home equity/home
     improvement and second mortgages collateralized by real estate, and 2%
     consisted of unsecured consumer loans collateralized by other assets.

     NOTES RECEIVABLE PORTFOLIO - As of December 31, 2003, the Company's notes
     receivable portfolio included approximately 10,095 loans with an aggregate
     face value of $466 million. An allowance for loan losses of approximately
     $46 million has been recorded against this face value. The following table
     provides a breakdown of the portfolio by year:

<TABLE>
<CAPTION>
                                              2003             2002              2001
                                          ------------     ------------     ------------
<S>                                       <C>              <C>              <C>
Performing Loans                          $322,345,537     $292,018,333     $228,979,679
Allowance for Loan Losses                   15,584,769       11,096,115        7,275,013
                                          ------------     ------------     ------------
Total Performing Loans,
Net of Allowance for Loan Losses          $306,760,768     $280,922,218     $221,704,666
                                          ============     ============     ============

Impaired Loans                            $126,341,722     $119,134,128     $ 74,563,057
Allowance for Loan losses                   30,111,278       32,809,607       24,810,426
                                          ------------     ------------     ------------
Total Impaired Loans,
Net of Allowance for Loan Losses          $ 96,230,444     $ 86,324,521     $ 49,752,631
                                          ============     ============     ============

Not Yet Boarded onto Servicing System,    $ 16,866,611     $ 24,106,933     $ 28,100,340
Allowance for Loan Losses                      551,183        1,935,929        1,405,017
                                          ------------     ------------     ------------
Not Yet Boarded onto Servicing System
Net of Allowance for Loan Losses          $ 16,315,428     $ 22,171,004     $ 26,695,323
                                          ============     ============     ============
</TABLE>

     The following table provides a breakdown of the balance of the Company's
     portfolio of Notes Receivable by coupon type, net of Allowance for Loan
     Losses and excluding loans purchased but not boarded onto the Company's
     servicing system as of December 31, 2003, December 31, 2002 and December
     31, 2001 of $16,315,428, $22,171,005 and $26,695,323 respectively:

<TABLE>
<CAPTION>
                                          2003               2002                 2001
<S>                                   <C>              <C>                   <C>
Total Performing Loans
Total Fixed Rate Performing Loans     $199,691,299     $    213,429,977      $  181,847,633
                                      ============     ================      ==============
Total Adjustable Performing Loans     $107,069,469     $     67,492,241      $   39,857,033
                                      ============     ================      ==============

Total Impaired Loans
Total Fixed Rate Impaired Loans       $ 58,752,534     $     58,873,564      $   40,557,413
                                      ============     ================      ==============
Total Adjustable Impaired Loans       $ 37,477,910     $     27,450,957      $    9,195,218
                                      ============     ================      ==============
</TABLE>

                                       4

<PAGE>

     ORIGINATED LOANS - LOANS HELD FOR SALE & LOANS HELD FOR INVESTMENT - During
     2003, the Company changed the holding strategy of several of its originated
     loans and reclassified $13.5 million of principal and fees into loans held
     for investments. The Company expects to hold these loans until maturity.

     LOAN SALES - Periodically, the Company sells portfolios of purchased
     performing, reperforming and nonperforming loans on a whole loan basis.
     During 2003, the Company sold 148 performing loans with a face value of
     $15.1 million, and 248 non-performing loans with an aggregate face value of
     $4.2 million. During 2002, the Company sold four performing loans with an
     aggregate face value of $900,000, and one non-performing loan with face
     value of $215,000. During 2003, the Company retained the servicing rights
     on approximately $2.7 million of the performing loans sold; the Company
     generally does not retain the servicing rights on loans it sells.

     FUNDING - As of December 31, 2003, the Company owed an aggregate of $427
     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 portfolios and Other Real Estate Owned ("OREO") portfolios.
     From December 31, 2001 until March 2003, the Company's Senior Debt incurred
     after March 1, 2001, accrued interest at the Federal Home Loan Bank of
     Cincinnati ("FHLB") thirty day advance rate plus a spread of 3.25%(the
     "Spread"), and interest on Senior Debt incurred before March 1, 2001
     accrued interest at the prime rate plus a margin of between 0% and 1.75%;
     under a two year interest rate agreement. On March 19, 2003, the Company
     and its Senior Debt lender agreed that the Spread would be increased to
     3.5%, the spread shall remain at 3.5% until the index exceeds 2.00% at
     which point it will revert back to 3.25%. Further, the Senior Debt lender
     will reduce the spread to 3.00% in the event that the Index exceeds 4.75%.
     At December 31, 2003, approximately $35 million of the Senior Debt incurred
     before March 1, 2001 will continue to accrue interest at the prime rate
     plus a margin of between 0% and 1.75%. At December 31, 2003, the weighted
     average interest rate on Senior Debt was 4.82%.

     The Company is divided into five operating departments, which are described
     below:

     ACQUISITION DEPARTMENT- The Acquisition Department is divided into two
     units the bulk purchase unit, which is responsible for acquisitions in
     excess of $1.5 million and the flow unit, which is responsible for
     acquisitions less than $1.5 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 the value of collateral, debt-to-income ratios,
     the borrower's creditworthiness, employment stability, years of home
     ownership, credit bureau reports and mortgage payment history. The
     Acquisition Department review 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 collectability 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 Information
     Systems staff ("MIS"), monitors the electronic transfer of loan data into
     the Company's data management system.

                                       5

<PAGE>

     TRIBECA LENDING- Tribeca Lending, a wholly-owned subsidiary, provides first
     and second mortgages to individuals interested in purchasing real estate or
     refinancing their existing loan. Tribeca Lending is currently licensed as a
     mortgage banker in California, Colorado, Connecticut, Florida, Georgia,
     Kentucky, Illinois, Maryland, Massachusetts, Michigan, New York, New
     Jersey, North Carolina, 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. In addition, Tribeca Lending is exempt from licensing in
     Alabama, Missouri and Indiana. Loans originated by Tribeca are either sold
     in the secondary market through whole-loan sales, typically on a,
     servicing-released basis, or held for investment. During 2003, Tribeca
     Lending opened new branches in New Jersey, Maryland and Florida. Loans are
     originated by a retail sales force that generates leads from the Internet,
     the Company's database of serviced loans, and external sources. Tribeca's
     staff processes, underwrites and closes all loans in its own name.

     Operating Expenses of Tribeca. - During 2003, Tribeca recorded operating
     income of $1.4 million compared to $1.8 million during 2002. This decrease
     was primarily attributable to a reduction in interest spread due to the
     transfer of $23 million in performing loans to Franklin Credit Management
     Corporation on January 1, 2003. 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 $30 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
     2003 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 $30 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 3.50%.

     SERVICING DEPARTMENT- The Servicing Department manages the Company's
     performing loans and seeks to provide quality customer service while
     securing 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. The 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. 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.

     LEGAL DEPARTMENT- The Legal Department manages and monitors the progress of
     defaulted loans requiring legal action, and the loss mitigation area, which
     negotiates legal settlement strategies. These loans are identified and
     referred by the Acquisition or Servicing Departments to the Legal
     Department, which prepares an analysis of each loan to determine a
     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 credit profile, current ability to pay, collateral
     lien position

                                       6

<PAGE>

     and current collateral value. The Legal Department sets up the collection
     strategy, negotiates settlements, modification and forbearance agreements,
     manages their costs, monitors ensuing litigation to insure the optimal
     recovery of the remaining principal and interest balance and when
     appropriate retains outside counsel. 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.

     REAL ESTATE DEPARTMENT - The Real Estate Department manages all properties
     in order to preserve their value, realize rental income and ensure 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.

     OPERATING 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 sub performing notes receivable and
     promissory notes from financial institutions, and services and collects
     such notes receivable through enforcement of original note terms,
     modification of original note terms and, if necessary, liquidation of the
     underlying collateral. The mortgage-banking segment originates or
     purchases, residential mortgage loans for individuals whose credit
     histories, income and other factors cause them to be classified as
     non-conforming 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.

     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 Resolution Trust Company ("RTC") and the
     Federal Deposit Insurance Corporation ("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.

     The market for sub-prime loan origination is also highly competitive.
     Tribeca competes with savings banks, and mortgage bankers for the
     origination of mortgages. Among the largest of these competitors are New
     Century Mortgage, Ameriquest 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.

     CUSTOMERS. The Company's revenue is derived from interest amortization of
     purchase discount recognized from the collection of loans, origination
     fees, rental income, other fees, gains recorded from the bulk sale of
     performing, non-performing and originated loans to banks and other
     financial

                                       7

<PAGE>

     institutions, amortization of purchase discount and gains on 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, and believes
     there are sufficient buyers for its products there can be no assurance that
     the Company will be able to successfully market loan portfolios in the
     future.

     SUPPLIERS. The Company acquires its loans through a variety of methods
     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. During the past year,
     several institutions supplied the Company with its portfolio acquisitions.
     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.

     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.

     Tribeca Lending 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.

     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

                                       8

<PAGE>

     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.

     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.

     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 and 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. The Company recruits, hires, and retains individuals with the
     specific skills that complement its corporate growth and business
     strategies. As of December 31, 2003, the Company had 127 full time
     employees.

ITEM 2. DESCRIPTION OF PROPERTIES

     PROPERTIES. The Company maintains its corporate headquarters at 6 Harrison
     Street, New York, NY, where the Company owns a 6,600 square foot
     condominium unit. The second office is located at 99 Hudson Street, New
     York, where the Company leases approximately 6,400 square feet of office
     space under a lease that expires in December 2008. The Company extended
     sub-leases on the fourth and fifth floor of Six Harrison Street, New York,
     which houses Tribeca Lending's sales force. The lease expires on September
     1, 2009. The Company extended the lease of office space on four floors
     located at 185 Franklin Street for its Accounting and Tribeca Lending's
     Operations departments; the leases expire in November 2008. On March 1,
     2003, the Company leased additional office space on the third and fourth
     floors of 185 Franklin Street. This lease expires in March 2008. During
     2003, the Company leased branch offices located in Marlton, NJ, St.
     Petersburg, FL and Columbia, MD for the expansion of Tribeca, the leases
     expire in 2006.

     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, co-ops, condos, or commercial
     property. The Company acquires or forecloses on property primarily with the
     intent to sell such property at a profit, or to rent 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

                                       9

<PAGE>

     property is then evaluated independently and a decision is made on whether
     the additional investment would generate an adequate return.

ITEM 3. LEGAL PROCEEDINGS

           The Company is from time to time involved in legal action arising in
     the ordinary course of its business. In the opinion of management after
     consultation with legal counsel, the outcome of such matters is not
     expected to have a material adverse effect on the Company's financial
     statements.

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

         None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S 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".

     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 2003 and 2002 was compiled from information representing
     the daily inter-dealer bid activity during the period.

<TABLE>
<CAPTION>
                        2003 Bid                   2002 Bid
                   -----------------         ------------------
                    High        Low          High          Low
                    ----        ---          ----          ---
<S>                <C>         <C>           <C>          <C>
First Quarter      $1.75       $1.07         $1.05        $1.05
Second Quarter     $5.25       $1.15         $1.80        $1.75
Third Quarter      $3.25       $2.75         $1.35        $1.35
Fourth Quarter     $3.20       $2.96         $1.05        $1.05
</TABLE>

     As of December 31, 2003, 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
     Management and Board of Directors deem relevant.

                                       10

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data set forth below as of and for the years ended
     December 31, 2003, 2002, 2001, 2000 and 1999 have been derived from the
     Company's audited consolidated financial statements. This information
     should be read in conjunction with "Item 1. Business" and "Item 7.
     Management Discussion and Analysis of Financial Condition and Results of
     Operations", as well as the audited financial statements and notes thereto
     included in "Item 8. Financial Statements.

<TABLE>
<CAPTION>
                                               2003          2002            2001           2000           1999
                                          ------------   ------------   -------------   ------------   -------------
<S>                                       <C>            <C>            <C>             <C>            <C>
STATEMENT ON INCOME DATA
Revenues                                  $ 57,566,559   $ 46,842,437   $  37,963,358   $ 29,047,390   $  22,451,660
Expenses                                    45,186,102     34,664,987      34,637,210     28,476,727      22,319,812
                                          ------------   ------------   -------------   ------------   -------------
Income before provision for income taxes    12,380,457     12,177,450       3,326,148        570,663         131,848
provision for income taxes                   5,695,000      5,514,000         444,000              -               -
                                          ------------   ------------   -------------   ------------   -------------
Net Income                                $  6,685,457   $  6,663,450   $   2,882,148   $    570,663   $     131,848
                                          ============   ============   =============   ============   =============

Earnings per share basic                  $       1.13   $       1.13   $        0.49   $       0.10   $        0.02
Earnings per share diluted                $       1.02   $       1.07   $        0.49   $       0.10   $        0.02

BALANCE SHEET DATA
Total Assets                              $476,733,346   $424,419,034   $ 334,162,501   $243,235,288   $ 195,737,096
Total Liabilities                          457,054,040    411,425,185     327,832,102    239,787,037     192,859,508
                                          ------------   ------------   -------------   ------------   -------------
TOTAL STOCKHOLDER'S EQUITY                $ 19,679,306   $ 12,993,849   $   6,330,399   $  3,448,251   $   2,877,588
                                          ============   ============   =============   ============   =============

Principal                                 $465,553,870   $435,259,394   $ 331,643,076   $255,055,677   $ 206,262,651
Purchase discount                          (25,678,165)   (22,974,310)    (22,248,344)   (23,392,400)    (18,449,141)
Allowance for loan losses                  (46,247,230)   (45,841,651)    (33,490,456)   (24,086,322)    (22,185,945)
                                          ------------   ------------   -------------   ------------   -------------
Net Notes                                 $393,628,475   $366,443,433   $ 275,904,276   $207,576,955   $ 165,627,565
                                          ============   ============   =============   ============   =============
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

GENERAL

     FORWARD-LOOKING STATEMENTS. When used in this report, the words "believes",
     "anticipates", and "expects" and similar expressions are intended to
     identify forward-looking statements that involve certain risks and
     uncertainties. Additionally statements contained herein that are not
     historical fact may be forward-looking statements within the meaning of
     Section 27A of the Securities Act of 1933, as amended, and Section 21E of
     the Securities Exchange Act of 1934, as amended, that are subject to a
     variety of risks and uncertainties. There are a number of important factors
     that could cause actual results to differ materially from those projected
     or suggested in forward-looking statements made by the Company. These
     factors include, but are not limited to: (i) 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; (ii)
     the status of relations between the Company and its sole Senior Debt Lender
     and the Senior Debt Lender's willingness to extend additional credit to the
     Company; (iii) the availability for purchases of additional loans; (iv) the
     status of relations between the Company and its sources for loan purchases;
     (v) unanticipated difficulties in collections under loans in the Company's
     portfolio; and (vi) other risks detailed from time to time in the Company's
     SEC reports. Additional factors that would cause actual results to differ
     materially from those projected or suggested in any forward-looking
     statements are contained in the Company's filings with the Securities and
     Exchange Commission, including, but not limited to, those factors discussed

                                       11

<PAGE>

     under the caption "Quantitative and Qualitative Disclosures About Market
     Risk" in the Company's Annual Report on Form 10-K, which the Company urges
     investors to consider. The Company undertakes no obligation to publicly
     release the revisions to such forward-looking statements that may be made
     to reflect events or circumstances after the date hereof or to reflect the
     occurrences of unanticipated events, except as other wise required by
     securities and other applicable laws. Readers are cautioned not to place
     undue reliance on these forward-looking statements, which speak only as of
     the date thereof. The Company undertakes no obligation to release publicly
     the results on any events or circumstances after the date hereof or to
     reflect the occurrence of unanticipated events.

     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 acquires these mortgages from a
     variety of mortgage bankers, banks, and other specialty finance companies.
     These loans are generally purchased in pools at discounts from their
     aggregate contractual balances, from sellers in the financial services
     industry. Real estate is acquired in foreclosure or otherwise and is also
     acquired at a discount relative to the appraised value of the asset. The
     Company conducts its business from its executive and main office in New
     York City and through its website www.franklincredit.com.

     In January 1997, the Company formed a wholly owned subsidiary, Tribeca
     Lending Corp. ("Tribeca"), to originate primarily 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. The majority of
     first and second mortgages originated are on a retail basis through
     marketing efforts, utilization of the FCMC database and the internet.
     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.

     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 consolidated 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

                                       12

<PAGE>

     down or an allowance for uncollectibility is recognized. The allowance for
     loan losses is initially established by an allocation of the purchase loan
     discount based on 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.

     LOANS HELD FOR SALE AND OTHER REAL ESTATE OWNED - The loans held for sale
     consist 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 ("OREO")
     consists of properties acquired through, or in lieu of, foreclosure or
     other proceedings and are held for sale and carried at the lower of cost or
     fair value less estimated costs to sell. Any write-down to fair value, less
     cost to sell, at the time of acquisition is charged to purchase discount.
     Subsequent write-downs are charged to operations based upon management's
     judgement and continuing assessment of the fair value of the underlying
     collateral. Property is evaluated periodically 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 sell. Revenue and expenses from the operation of OREO and
     changes in the valuation allowance are included in operations. Direct costs
     relating to the development and improvement of the property are
     capitalized, subject to the limit of fair value of the collateral, while
     costs related to holding the property are expensed. Gains or losses are
     included in operations upon disposal.

     INCOME TAXES - Income taxes are accounted for under Financial Accounting
     Standards Board Statement No. 109 "Accounting for Income Taxes". 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 the consolidated 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 if management determines that it is
     more likely than not that some portion or all of the deferred tax assets
     will not be realized.

     RESULTS OF OPERATIONS

     YEAR ENDED FISCAL DECEMBER 31, 2003 COMPARED TO YEAR ENDED FISCAL DECEMBER
     31, 2002

     Total revenue, comprised of interest income, purchase discount earned,
     gains on sale of notes receivable sale of notes, gain on sale of loans held
     for sale, gain on sale of OREO, gain on holding securities, rental income
     and other income, increased by $10,724,122 or 23%, to $57,566,559 during
     fiscal 2003, from $46,842,437 during fiscal 2002.

     Total revenue as a percentage of notes receivable, loans held for sale,
     loans held for investment and OREO as of the last day of the fiscal year,
     net of allowance for loan losses during fiscal 2003 was 12.2% as compared
     with 11.5% during fiscal 2002. Interest income on notes receivable
     increased by $5,970,975 or 16%, to $42,699,710 during fiscal 2003 from
     $36,728,735 during fiscal 2002. 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. Interest income increased due

                                       13

<PAGE>

     to a 17.5% increase in the average balance outstanding a result of $244
     million of loan acquisitions over the year that was partially offset by
     both a decline in the yield on the portfolio and prepayments. The average
     yield on the portfolio was 10.36% and 11.29% during 2003 and 2002
     respectively.

     Purchase discount earned increased by $1,312,674 or 34%, to $5,154,601
     during fiscal 2003 from $3,841,927 during fiscal 2002. The increase in
     purchase discount earned was due to an increase in prepayment activity
     during the year due to a favorable refinancing environment resulting from
     historically low interest rates.

     Gains on sale of notes receivable increased by $978,720 or 701%, to
     $1,118,239 during fiscal 2003 from $139,519 during fiscal 2002. This
     increased reflected an increase in the volume of loans sold during 2003.
     The Company sold a total of $19.4 million in face value notes receivable
     during 2003, as compared to $1.1 million during 2002.

     Gain on sale of loans held for sale increased by $976,637 or 43%, to
     $3,236,616 during 2003 from $2,259,979 during fiscal 2002. This increase
     was due to an increase in loan originations due to hiring additional sales
     personnel and opening three branch offices, which increased the volume of
     loans available to be sold by 88% as compared to 2002. Tribeca had loan
     sales of $79 million during 2003 as compared to $42 million of loans during
     2002.

     Gain on sale of OREO increased by $230,568 or 29% to $1,027,130 during
     fiscal 2003 from $796,562 during fiscal 2002. The Company sold 231 OREO
     properties during 2003 as compared to 105 OREO properties during 2002.

     Rental income decreased by $39,710 or 26% to $113,255 during fiscal 2003,
     from $152,965 during fiscal 2002. Rental income decreased due to the
     reduction of rental properties held during the year, the decrease was
     partially offset by the recognition of security deposits as rent during the
     year. The Company held three rental properties at December 31, 2003 as
     compared to seven at December 31, 2002.

     Other income increased by $1,293,505 or 44%, to $4,216,255 during fiscal
     2003 from $2,922,750 during fiscal 2002. The increase was due primarily to
     increases in the number of prepayment penalties due to an increase in
     prepayments during 2003, increased late charges resulting primarily from
     the growth in the size of the portfolio, and increased loan fees from an
     increase in loans sold.

     Total operating expenses increased by $8,858,516 or 24% to $45,186,101
     during fiscal 2003 from $36,327,585 during fiscal 2002 net of the special
     recovery. 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 $2,545,280 or 13%, to $21,672,993 during
     fiscal 2003 from $19,127,713 during fiscal 2002. This increase was due to a
     11% increase in Senior Debt, financing agreements and loans from
     affiliates to $451 million as of December 31, 2003 as compared with $407
     million as of December 31, 2002 and an increase in the spread.

     Collection, general and administrative expenses increased by $4,982,651 or
     39% to $17,864,786 during fiscal 2003 from $12,882,135 during fiscal 2002.
     The primary components of collection, general and administrative expense
     are personnel expenses, OREO related expenses, litigation expenses, office
     expenses, and collection expenses.

                                       14

<PAGE>

     Personnel expenses increased by $2,011,948 or 30%, to $8,735,747 from
     $6,723,799 during fiscal 2002. This increase resulted from the growth in
     size of the Company's staff, salary increases, and increased commissions
     due to increased loan production due to the opening of three new branches
     during the year. The total number of employees at December 31, 2003 and
     2002 was 127 and 110 respectively. Legal expenses increased by $577,896 to
     $2,324,196 or 33% from $1,746,300 due to an increase in the number of
     foreclosures and asset protection litigation due to the growth in both the
     OREO inventory and the nonperforming portfolio. Professional fees increased
     by $553,412 to $1,021,626 or 118% from $468,214 due to nonrecurring
     professional fees associated with the conversion to a new servicing system
     and various other consulting projects during 2003. Collection expenses
     increased by $506,812 to $1,164,692 or 77% from $657,880 this increase was
     due to the growth in number of nonperforming assets. Travel and promotion
     increased by $439,927 to $913,217 or 93% from $473,290 this increase was
     due to a changed advertising strategy for Tribeca Lending during 2003, the
     company purchased third party leads from an online provider, these leads
     generated increased revenue for Tribeca. Computer consulting and supplies
     increased by $230,995 to $504,230 or 85% from $273,235 due to consulting
     expenses associated with the conversion to a new servicing system. Office
     expenses increased by $171,564 to $1,026,933 or 20% from $855,369 this
     increase was directly related to the opening of three new offices and the
     growth in staffing. OREO related expenses increased by $155,310 to $622,148
     or 33% from $466,838 due to a 49% increase in OREO inventory during the
     year. OREO inventory was $14.0 million and $9.4 million at December 31,
     2003 and 2002 respectively. Insurance expenses increased by $124,911 to
     $374,851 or 50% from $249,940 due to a new forced placed insurance policy
     issued for the portfolio during 2003. Other general and administrative
     expenses increased by $209,875 to $1,177,146 or 22% from $967,271 due to
     training expenses associated with the conversion to a new servicing system,
     increased volume of loans closed in states that charge realty tax and
     increased license and state filing fees.

     Provisions for loan losses increased by $450,239 or 17%, to $3,164,103
     during fiscal 2003 from $2,713,864 during fiscal 2002. This increase was
     primarily due to an increase in write-offs and reserve increases in
     portfolios that no longer have purchase discount and the increase in size
     of the nonperforming portfolio. Provision for loan loss expressed as a
     percentage of face value of notes receivable and loans held as of the last
     day of such years for fiscal 2003 and fiscal 2002 were approximately 0.63%
     and 0.58%, respectively.

     Amortization of deferred financing costs increased by $715,096 or 57%, to
     $1,979,208 during fiscal 2003 from $1,264,112 during fiscal 2002. This
     increase resulted primarily from increased prepayments and collections,
     which caused a corresponding increase in the pay down of Senior Debt.

     Depreciation expense increased by $165,251 or 49%, to $505,012 during
     fiscal 2003 from $339,761 during fiscal 2002. This increase resulted
     primarily from the purchase of a new servicing system and new computer
     equipment.

     The Company's operating income increased by $203,007 or 2% to $12,380,457
     during fiscal 2003 from $12,177,450 during fiscal 2002 for the reasons set
     forth above.

     During 2003, the Company had a provision for income taxes of $5,695,000 as
     compared to 2002 when the provision was $5,514,000. The effective tax rate
     for 2003 and 2002 was 46% and 45% respectively.

                                       15

<PAGE>

     YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Total revenue, comprised of interest income, purchase discount earned,
     gains on sale of notes receivable sale of notes, gain on sale of loans held
     for sale, gain on sale of OREO, rental income and other income, increased
     by $8,879,079 or 23%, to $46,842,437 during fiscal 2002, from $37,963,358
     during fiscal 2001.

     Total revenue as a percentage of notes receivable, loans held for sale and
     OREO as of the last day of the fiscal year, net of allowance for loan
     losses during fiscal 2002 was 11.5% as compared with 11.1% during fiscal
     2001. Interest income on notes receivable increased by $7,904,111 or 27%,
     to $36,728,735 during fiscal 2002 from $28,824,624 during fiscal 2001. 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 $212 million of performing loans
     during 2002, which increased the size of the Company's outstanding
     portfolio of notes receivable by 27%.

     Purchase discount earned decreased by $144,571 or 4%, to $3,841,927 during
     fiscal 2002 from $3,986,498 during fiscal 2001. The decrease in purchase
     discount earned was due to maturation of the portfolio, write-offs and
     reserve increases in certain portfolio's that would have earned income.

     Gains on sale of notes receivable decreased by $847,051 or 86%, to $139,519
     during fiscal 2002 from $986,570 during fiscal 2001. This decrease
     reflected the Company's decision not to sell bulk performing loans out of
     the portfolio this year to hold them for yield spread premium instead. The
     Company sold approximately $1.1 million in face value notes receivable
     during 2002 as compared to $24 million during 2001.

     Gain on sale of loans held for sale increased by $1,417,928 or 168%, to
     $2,259,979 during 2002 from $842,051 during fiscal 2001. This increase was
     due to an increase in loan origination, which increased the volume of loans
     sold during 2002 as compared to 2001. Tribeca had loan sales of $42 million
     during 2002 as compared to $15 million of loans during 2001.

     Gain on sale of OREO decreased by $651,986 or 45% to $796,562 during fiscal
     2002 from $1,448,548 during fiscal 2001. The decrease resulted from less
     inventory available for sale during the first half of the year. The Company
     sold 105 OREO properties during 2002 as compared to 140 OREO properties
     during 2001.

     Rental income decreased by $177,284 or 54% to $152,965 during fiscal 2002,
     from $330,250 during fiscal 2001. Rental income decreased due to the sale
     of several rental properties where it was more advantageous to sell than to
     continue to hold for rent during the year. The Company held seven rental
     properties at December 31, 2002 as compared to sixteen at December 31,
     2001.

     Other income increased by $1,377,933 or 89%, to $2,922,750 during fiscal
     2002 from $1,544,817 during fiscal 2001. The increase was due primarily to
     increases in the number of prepayment penalties due to an increase in
     prepayments during 2002, increased late charges resulting primarily from
     the growth in the size of the portfolio and increased loan fees from loan
     originations.

                                       16

<PAGE>

     Total operating expenses increased by $1,690,375 or 5% to $36,327,585
     during fiscal 2002 from $34,637,210 during fiscal 2001. 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 decreased by $1,626,568 or 7.84%, to $19,127,713 during
     fiscal 2002 from $20,754,281 during fiscal 2001. This decrease was due to
     decreases in the Company's costs of funds and was partially offset by a 27%
     increase in debt. Senior Debt, and financing agreements increased by $85
     million to $407 million as of December 31, 2002 as compared with $322
     million as of December 31, 2001.

     Collection, general and administrative expenses increased by $2,471,123 or
     24% to $12,882,135 during fiscal 2002 from $10,411,012 during fiscal 2001.
     The primary components of collection, general and administrative expense
     are personnel expenses, OREO related expenses, litigation expenses, office
     expenses, and collection expenses.

     The Company received a $1,662,598 cash settlement representing a recovery
     of a special charge taken to income during 1997 to reserve for a portfolio
     purchase of $1.8 million.

     Personnel expenses increased by $1,285,516 or 24%, to $6,723,799 during
     fiscal 2002 from $5,438,283 during fiscal 2001. This increase resulted from
     the growth in size of the Company's staff, salary increases, and increased
     commissions due to increased loan production and bonus accruals. OREO
     related expenses decreased by $409,603 to $466,838 during fiscal 2002 from
     $876,441 during fiscal 2001 due to the selling of OREO properties. Other
     general and administrative expenses increased $1,595,210 or 39% to
     $5,691,499 during fiscal 2002 from $4,096,289 during fiscal 2001. This
     increase resulted primarily from increased legal expenses for asset
     protection, and collection costs associated with an increase in
     nonperforming loans.

     Provisions for loan losses increased by $526,411 or 24%, to $2,713,864
     during fiscal 2002 from $2,187,453 during fiscal 2001. This increase was
     primarily due to an increase in write-offs and reserve increases in
     portfolios that no longer have purchase discount. Provision for loan loss
     expressed as a percentage of face value of notes receivable and loans held
     as of the last day of such years for fiscal 2002 and fiscal 2001 were
     approximately 0.58% and 0.60%, 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 $205,669 or 19%, to
     $1,264,112 during fiscal 2002 from $1,058,443 during fiscal 2001. This
     increase resulted primarily from the growth in size of the portfolio,
     increased prepayments and collections, which caused a corresponding
     increase in the pay down of Senior Debt. On December 31, 2002 and December
     31, 2001, deferred financing costs, as a percentage of Senior Debt
     outstanding were 1.01 % and 1.02%, respectively.

     Depreciation expense increased by $113,740 or 50%, to $339,761 during
     fiscal 2002 from $226,021 during fiscal 2001. This increase resulted
     primarily from the purchase of computer equipment.

     The Company's operating income increased by $8,851,302 or 266% to
     $12,177,450 during fiscal 2002 from $3,326,148 during fiscal 2001 for the
     reasons set forth above.

                                       17

<PAGE>

     During 2002, the Company had a provision for income taxes of $5,514,000 as
     compared to 2001 when the provision was $444,000 after the utilization of
     all available net operating losses.

     LOAN AND OREO ACQUISITIONS. - During the year ended December 31, 2003
     ("fiscal 2003") the Company purchased 3,476 loans consisting primarily of
     first and second mortgages, with an aggregate face value of $244 million at
     an aggregate purchase price of $214 million or 88% of the face value.
     Acquisition of these 2003 portfolios was fully funded through Senior Debt
     in the amount equal to the purchase price plus a 1% loan origination fee.

     COST OF FUNDS. - As of December 31, 2003, the Company had Senior Debt
     outstanding under several loans with an aggregate principal balance of $427
     million. Additionally, the Company has financing agreements, which had an
     outstanding balance of $23.3 million at December 31, 2003.

     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. From December 31, 2001 until March 2003, the Company's
     Senior Debt incurred after March 1, 2001, accrued interest at the Federal
     Home Loan Bank of Cincinnati ("FHLB") thirty day advance rate plus a spread
     of 3.50%(the "Spread"), and interest on Senior Debt incurred before March
     1, 2001 accrued interest at the prime rate plus a margin of between 0% and
     1.75%; under a two year interest rate agreement. At December 31, 2003 $35
     million of senior debt incurred before March 1, 2001 remained outstanding.
     The weighted average interest rate on borrowed funds for the Senior Debt
     based on the balances as of December 31, 2003 and December 31, 2002 was
     4.82% and 4.85%, respectively.

     The impact of inflation on the Company's operations during fiscal 2003,
     2002 and 2001 was immaterial.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity is a measurement of the Company's ability to meet potential cash
     requirements including lending activities, ongoing commitments to repay
     borrowings and other general business purposes. The primary source of funds
     for liquidity is principal payments on loans, proceeds from sales and debt
     thereof.

     General- During fiscal 2003 the Company purchased 3,476 loans with an
     aggregate face value of $244 million at an aggregate purchase price of $214
     million or 88% of the face value. During fiscal 2002, the Company purchased
     4,331 loans with an aggregate face value of $212 million at an aggregate
     purchase price of $184 million or 87% of face value. This increase
     reflected the Company's enhanced marketing efforts, which resulted in the
     growth in volume of the Company flow acquisition business during the year.
     The Company achieved increased market penetration by establishing
     relationships with sellers of small pools of single loans and continued to
     build on existing relationships with certain repeat customers.

     The Company's portfolio of notes receivable at December 31, 2003, had a
     face value of $466 million and included net notes receivable of
     approximately $394 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.

                                       18

<PAGE>

     During fiscal 2003, the Company used cash in the amount of $11.8 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 $28.3 million in its investing
     activities, which reflected primarily the use of $214 million for the
     purchase of notes receivable offset by principal collections of its notes
     receivable of $157 million and proceeds from sales of OREO of $16 million.
     Net cash provided by financing activities was $44 million primarily from an
     increase in Senior Debt of $32 million. The above activities resulted in a
     net increase in cash at December 31, 2003 over December 31, 2002 of
     approximately $3.8 million.

     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, 2003 and 2002, the Company held
     OREO recorded in the financial statements at $14 million and $9.4 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, 2003 has
     a net realizable value (market value less estimated commissions and legal
     expenses associated with the disposition of the asset) of approximately
     $15.5 million based on market analyses of the individual properties less
     the estimated closing costs. The Company generally sells such OREO in the
     ordinary course of business when it is economically beneficial to do so.

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 of notes and OREO properties.

     At December 31, 2003, the Company had unrestricted cash, cash equivalents
     and marketable securities of $14.6 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.

CASH FLOW FROM FINANCING ACTIVITIES

     Senior Debt. -As of December 31, 2003, the Company owed an aggregate of
     $427 million to the Senior Debt Lender, under several loans.

     The Senior Debt is collateralized by first liens on the respective loan is
     guaranteed by the Company. The monthly payments on the Senior Debt have
     been, and the Company intends for such payments to continue to be, met by
     the collections from the respective loan portfolios. The loan agreements
     for the Senior Debt call for contractual interest and principal payments
     each month and accelerated payments based upon the collection of the notes
     receivable securing the debt during the preceding month. The Senior Debt
     accrues interest at a variable rate based on the FHLB of Cincinnati rate
     plus a premium of 3.50% for all new Senior Debt and certain debt incurred
     after March 1, 2000, and prime plus between 0% and 1.75% debt incurred
     before such date, of which there was approximately $35 million at December
     31, 2003. At December 31, 2003, the weighted average interest rate on
     Senior Debt was 4.82%. The accelerated payment provisions are generally of
     two types: the first requires

                                       19

<PAGE>

     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 February 2004, 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 $2,075,000 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 and to
     refinance loans in the Company's own portfolio. 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
     $413,443 on December 31, 2003 and $632,883 on December 31, 2002.

     Total Senior Debt funding capacity was $500 million at December 31, 2003 of
     which approximately $427 million had been drawn down as of such date. As a
     result, the Company has approximately $73 million available to purchase
     additional portfolios of notes receivable. Together, expected principal
     collections and the available $73 million and an increase to $550 million
     in the line should give the Company sufficient liquidity to fund next
     year's acquisitions.

     The Company's Senior Debt Lender has provided Tribeca with a warehouse
     financing agreement of $30 million. At December 31, 2003, Tribeca had drawn
     down $23.3 million on the line. The warehouse line accrues interest based a
     variable rate of prime plus 2%. The Senior Debt lender has provided Tribeca
     with the ability to hold its originated notes by providing them with the
     option of rolling the outstanding warehouse line into the senior debt
     facility when and if it reaches the $30 million warehouse line cap.

     Financing Agreement- The Company has a financing agreement with the Senior
     Debt Lender permitting it to borrow a maximum of approximately $2,500,000
     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 amount outstanding
     under the financing agreement as of December 31, 2003 and December 31,
     2002, was $569,451 and $1,250,451 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. During 2003, Management reached an
     agreement with its Senior Debt Lender to increase the availability under
     this credit facility from $1.5 million to $2.5 million to cover additional
     properties

                                       20

<PAGE>

     foreclosed upon by the Company, which the Company may be required to hold
     as rental property to maximize its return.

FINANCING ACTIVITIES AND CONTRACTUAL OBLIGATIONS

     Below is a schedule of the Company's contractual obligations and
     commitments at December 31, 2003.

<TABLE>
<CAPTION>
                                                    LESS THAN
   (AMOUNTS IN THOUSANDS)            TOTAL            1 YEAR       1 - 3 YEARS     3 - 5 YEARS       THEREAFTER
-----------------------------   --------------    ------------    -------------   -------------    -------------
<S>                             <C>               <C>             <C>             <C>              <C>
Contractual Cash Obligations:
  Notes Payable                 $  427,447,844    $ 42,947,946    $ 122,065,463   $  35,966,791    $ 226,467,644
  Warehouse Line                    23,315,301      23,315,301               --              --               --
  Operating Leases                   2,327,166         514,269        1,566,641         246,256               --
  Capital Lease                        480,328         162,859          317,469              --               --
  Employment Agreements                275,000         220,000           55,000              --               --
                                --------------    ------------    -------------   -------------    -------------
  Total Contractual Cash
     Obligations                $  453,845,639    $ 67,160,375    $ 124,004,573   $  36,213,047    $ 226,467,644
                                ==============    ============    =============   =============    =============
</TABLE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

THE COMPANY IS VULNERABLE TO CHANGES IN INTEREST RATES

Interest rate fluctuations can adversely affect the Company's income and value
of its common shares in many ways and present a variety of risks, including the
risk of mismatch between asset yields and borrowing rates, variances in the
yield curve and changing prepayment rates.

Interest rates are highly sensitive to many factors, including governmental
monetary policies and domestic and international economic and political
conditions. Conditions such as inflation, recession, unemployment, money supply
and other factors beyond the Company's control may also affect interest rates.
Fluctuations in market interest rates are neither predictable nor controllable
and may have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company's operating results will depend in large part on differences between
the income from its assets (net of credit losses) and its borrowing costs. Most
of the Company's assets, consisting primarily of mortgage notes receivable,
generate fixed returns and will have terms in excess of five years. The Company
funds the origination and acquisition of a significant portion of these assets
with borrowings, which have interest rates that are based on the monthly Federal
Home Loan Bank of Cincinnati 30-day advance rate ("FHLB"). In most cases, the
income from assets will respond more slowly to interest rate fluctuations than
the cost of borrowings, creating a mismatch between yields and borrowing rates.
Consequently changes in interest rates, particularly short-term rates may
influence the Company's net income. The Company's borrowing under agreements
with its Senior Debt Lender bear interest at rates that fluctuate with the FHLB
rate of Cincinnati and the prime rate. Based on approximately $392 and $35
million of borrowings outstanding under these facilities at December 31, 2003, a
1% change in FHLB and prime rate, would impact the Company's annual net income
and cash flows by approximately $2.3 million. Increases in these rates will
decrease the net income and market value of the Company's net assets. Interest
rate fluctuations that result in interest expense exceeding interest income
would result in operating losses.

                                       21

<PAGE>

The value of the Company's assets may be affected by prepayment rates on
investments. Prepayments rates are influenced by changes in current interest
rates and a variety of economic, geographic and other factors beyond the
Company's control, and consequently, such prepayment rates cannot be predicted
with certainty. When the Company originates and purchases mortgage loans, it
expects that such mortgage loans will have a measure of protection from
prepayment in the form of prepayments lockout periods or prepayment penalties.
In periods of declining mortgage interest rates, prepayments on mortgages
generally increase. If general interest rates decline as well, the proceeds of
such prepayments received during such periods are likely to be reinvested by the
Company in assets yielding less than the yields on the investments that were
prepaid. In addition the market value of mortgage investments may, because the
risk of prepayment, benefit less from declining interest rates than from other
fixed-income securities. Conversely, in periods of rising interest rates,
prepayments on mortgage generally decrease, in which case the Company would not
have the prepayment proceeds available to invest in assets with higher yields.
Under certain interest rate and prepayment scenarios the Company may fail to
recoup fully its cost of acquisition of certain investments.

REAL ESTATE RISK

Multi-family and residential property values and net operating income derived
from such properties are subject to volatility and may be affected adversely by
number of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by industry slowdowns and
other factors); local real estate conditions (such as the over supply of
housing). In the event net operating income decreases, a borrower may have
difficultly paying the Company's mortgage loan, which could result in losses to
the Company. In addition, decreases in property values reduce the value of the
collateral and the potential proceeds available to a borrower to repay the
Company's mortgage loans, which could also cause the Company to suffer losses.

ITEM 8.  FINANCIAL STATEMENTS

See the financial statements and notes related thereto, beginning on page 29,
included elsewhere in this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

     (a)  Evaluation of Disclosure Controls and Procedures. The Company's
          management, with the participation of the Company's Chief Executive
          Officer and Chief Financial Officer, has evaluated the effectiveness
          of the Company's disclosure controls and procedures (such term is
          defined in Rules 13a-14 (c) and 15d14(c) under the Securities Exchange
          Act of 1934, as amended (the "Exchange Act") as of the end of the
          period covered by this report. Based on such evaluation, the Company'
          Chief Executive Officer and Chief Financial Officer have concluded
          that, as of the end of such period, the Company's disclosure controls
          and procedures are effective in alerting them on a timely basis to
          material information relating to the Company (including its
          consolidated subsidiaries) required to be included in the Company's
          reports filed or submitted under the Exchange Act.

                                       22

<PAGE>

     (b)  Changes in Internal Controls. There has been no change in the
          Company's internal control over financial reporting during the quarter
          ended December 31, 2003 that has materially affected, or is reasonably
          likely to materially affect, such internal control over financial
          reporting.

                                       23

<PAGE>

PART III

INFORMATION WITH RESPECT TO ITEMS 10, 11, 12, 13 AND 14 ON FORM 10K WILL BE SET
FORTH IN THE DEFINITIVE PROXY STATEMENT, WHICH WILL BE FILED WITHIN 120 DAYS OF
DECEMBER 31, 2003, THE COMPANY'S MOST RECENT FISCAL YEAR. SUCH INFORMATION IS
INCORPORATED HEREIN BY REFERENCE.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

                                       24

<PAGE>

PART IV

     (a)  EXHIBIT TABLE

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                  DESCRIPTION
--------       -----------------------------------------------------------------
<S>            <C>
 *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(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(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.

 *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.

 31.1          Certification of Chief Executive Officer

 31.2          Certification of Chief Financial Officer

 32.1          Section 1350 Certification of Chief Executive officer and Chief
               Financial Officer
</TABLE>

*Previously filed.

                                       25

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

March 31, 2004                      FRANKLIN CREDIT MANAGEMENT
                                            CORPORATION

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

         Pursuant to the requirements of the Securities Exchange Act, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.

<TABLE>
<CAPTION>
          Signature                           Title                                            Date
<S>                                 <C>                                                    <C>
/s/SETH COHEN                       President, Chief Executive Officer, Director           March 31, 2004
------------------
Seth Cohen
(Principal executive officer)

/s/JOSEPH CAIAZZO                   Executive Vice President, Chief Operating              March 31, 2004
-----------------                   Officer, Secretary and Director
Joseph Caiazzo
(Secretary)

/s/ALAN JOSEPH                      Executive Vice President, Chief Financial Officer      March 31, 2004
--------------                      and Director
Alan Joseph
(Principal financial officer)
</TABLE>

                                       26

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE
<S>                                                                                                        <C>
INDEPENDENT AUDITORS' REPORT                                                                                  32

 CONSOLIDATED FINANCIAL STATEMENTS:

   Consolidated Balance Sheets at December 31, 2003 and 2002                                                  33

   Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001                     34

   Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001       35

   Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001              36-37

   Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001         38-57
</TABLE>

                                       31

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Franklin Credit Management Corporation

We have audited the accompanying consolidated balance sheets of Franklin Credit
Management Corporation and subsidiaries (the "Company") as of December 31, 2003
and 2002, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2003. 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 Franklin Credit Management
Corporation and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.

New York, New York

March 31, 2004

                                       32
<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                       2003               2002
<S>                                                               <C>                <C>
ASSETS

CASH AND CASH EQUIVALENTS                                         $  14,418,876      $  10,576,610

RESTRICTED CASH                                                         413,443            632,883

NOTES RECEIVABLE:
  Principal                                                         465,553,870        435,259,394
  Purchase discount                                                 (25,678,165)       (22,974,310)
  Allowance for loan losses                                         (46,247,230)       (45,841,651)
                                                                  -------------      -------------

           Net notes receivable                                     393,628,475        366,443,433

ORIGINATED LOANS HELD FOR SALE                                       27,372,779         22,869,947

ORIGINATED LOANS HELD FOR INVESTMENT                                  9,536,669                  -

ACCRUED INTEREST RECEIVABLE                                           4,332,419          4,157,615

OTHER REAL ESTATE OWNED                                              13,981,665          9,353,884

OTHER RECEIVABLES                                                     2,893,735          2,259,543

MARKETABLE SECURITIES                                                   202,071                  -

DEFERRED TAX ASSET                                                      681,398            387,767

OTHER ASSETS                                                          3,720,163          2,633,082

BUILDING, FURNITURE AND EQUIPMENT - Net                               1,252,711          1,106,865

DEFERRED FINANCING COSTS- Net                                         4,298,942          3,997,405
                                                                  -------------      -------------

TOTAL ASSETS                                                      $ 476,733,346      $ 424,419,034
                                                                  =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Accounts payable and accrued expenses                           $   4,979,806      $   3,818,557
  Financing agreements                                               23,315,301         11,557,369
  Notes payable                                                     427,447,844        395,266,144
  Deferred tax liability                                              1,311,089            783,115
                                                                  -------------      -------------

           Total liabilities                                        457,054,040        411,425,185
                                                                  -------------      -------------

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
  Retained earnings                                                  12,634,171          5,948,714
                                                                  -------------      -------------

           Total stockholders' equity                                19,679,306         12,993,849
                                                                  -------------      -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $ 476,733,346      $ 424,419,034
                                                                  =============      =============
</TABLE>

                                       33

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                   2003             2002               2001
<S>                                            <C>              <C>               <C>
REVENUES:
  Interest income                              $ 42,699,710     $ 36,728,735      $ 28,824,624
  Purchase discount earned                        5,154,601        3,841,927         3,986,498
  Gain on sale of notes receivable                1,118,239          139,519           986,570
  Gain on sale of loans held for sale             3,236,616        2,259,979           842,051
  Gain on sale of other real estate owned         1,027,130          796,562         1,448,548
  Rental income                                     113,255          152,965           330,250
  Prepayments penalties and other income          4,217,008        2,922,750         1,544,817
                                               ------------     ------------      ------------

                                                 57,566,559       46,842,437        37,963,358
                                               ------------     ------------      ------------
OPERATING EXPENSES:
  Interest expense                               21,672,993       19,127,713        20,754,281
  Collection, general and administrative         17,864,786       12,882,135        10,411,012
  Recovery of a special charge                            -       (1,662,598)                -
  Provision for loan losses                       3,164,103        2,713,864         2,187,453
  Amortization of deferred financing costs        1,979,208        1,264,112         1,058,443
  Depreciation                                      505,012          339,761           226,021
                                               ------------     ------------      ------------

                                                 45,186,102       34,664,987        34,637,210
                                               ------------     ------------      ------------

INCOME BEFORE PROVISION FOR INCOME TAXES         12,380,457       12,177,450         3,326,148

PROVISION FOR INCOME TAXES                        5,695,000        5,514,000           444,000
                                               ------------     ------------      ------------

NET INCOME                                     $  6,685,457     $  6,663,450      $  2,882,148
                                               ============     ============      ============
NET INCOME  PER COMMON SHARE:
  Basic                                        $       1.13     $       1.13      $       0.49
                                               ============     ============      ============

  Diluted                                      $       1.02     $       1.07      $       0.49
                                               ============     ============      ============
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING, BASIC                              5,916,527        5,916,527         5,916,527
                                               ============     ============      ============
  OUTSTANDING, DILUTED                            6,536,639        6,216,337         5,916,527
                                               ============     ============      ============
</TABLE>

See notes to consolidated financial statements.

                                       34

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                        COMMON STOCK              ADDITIONAL
                               -----------------------------        PAID-IN        RETAINED
                                  SHARES            AMOUNT          CAPITAL         EARNINGS            TOTAL
<S>                            <C>              <C>              <C>              <C>               <C>
BALANCE, JANUARY 1, 2001          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

  Net income                              -                -                -        6,663,450         6,663,450
                               ------------     ------------     ------------     ------------      ------------

BALANCE, DECEMBER 31, 2002        5,916,527           59,167        6,985,968        5,948,714        12,993,849

  Net income                              -                -                -        6,685,457         6,685,457
                               ------------     ------------     ------------     ------------      ------------

BALANCE, DECEMBER 31, 2003        5,916,527     $     59,167     $  6,985,968     $ 12,634,171      $ 19,679,306
                               ============     ============     ============     ============      ============
</TABLE>

See notes to consolidated financial statements.

                                       35

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                    2003               2002               2001
<S>                                                            <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                   $   6,685,457      $   6,663,450      $   2,882,148
  Adjustments to reconcile income to net cash used in
    operating activities:
    Gain on sale of notes receivable                              (1,118,239)          (139,519)          (986,570)
    Gain on sale of other real estate owned                       (1,027,130)          (796,562)        (1,448,548)
    Depreciation                                                     505,012            339,761            226,021
    Amortization of deferred financing costs                       1,979,208          1,264,112          1,058,443
    Origination of loans held for sale                           (97,143,554)       (70,444,721)       (39,594,000)
    Proceeds from the sale of and principal collections on
      loans held for sale - net of gain                           80,810,221         53,355,507         17,930,017
    Purchase discount earned                                      (5,154,601)        (3,841,927)        (3,986,498)
    Provision for loan losses                                      3,164,103          2,713,864          2,187,453
    Changes in operating assets and liabilities:
       Accrued interest receivable                                  (174,804)           638,174         (1,399,384)
       Other receivables                                            (634,192)        (3,045,866)        (3,370,966)
        Deferred tax asset                                          (293,631)         1,179,821          1,913,414
        Other assets                                              (1,087,834)          (739,030)          (451,365)
        Deferred tax liability                                       527,974         (1,308,203)        (1,469,743)
        Accounts payable and accrued expenses                      1,161,249           (411,646)         1,295,406
        Notes payable, affiliates and stockholders                         -                  -           (146,835)
                                                               -------------      -------------      -------------
           Net cash used in operating activities                 (11,800,761)       (14,572,785)       (25,361,007)
                                                               -------------      -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Increase) decrease in restricted cash                            (219,440)           (91,440)           391,131
  Purchase of notes receivable                                  (213,638,801)      (184,090,904)      (162,340,435)
  Principal collections on notes receivable and loans held
    for Investment                                               156,924,859        110,541,717         72,930,175
  Investment in marketable securities                               (203,771)                 -                  -
  Acquisition and loan fees                                       (2,564,246)        (2,065,626)        (1,420,254)
  Proceeds from sale of other real estate owned                   16,407,503          7,053,926          8,609,271
  Proceeds from sale of notes receivable                          15,648,149          1,000,083         19,905,420
  Purchase of building, furniture and fixtures                      (650,858)          (295,455)          (508,722)
                                                               -------------      -------------      -------------

           Net cash used in investing activities                 (28,296,605)       (67,947,699)       (62,433,414)
                                                               -------------      -------------      -------------
</TABLE>

Continued on next page

                                       36

<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

CONTINUED FROM PREVIOUS PAGE

<TABLE>
<CAPTION>
                                                                2003              2002             2001
<S>                                                      <C>                <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                              226,367,253        205,224,166        176,562,187
  Principal payments of notes payable (194,185,553)       (194,165,519)      (123,901,830)       (93,668,864)
  Proceeds from financing agreements                       101,322,968         74,886,326         38,495,144
  Payments on financing agreements                         (89,565,036)       (70,871,468)       (32,973,967)
  Principal payments of subordinated debentures                      -            (24,262)           (48,263)
                                                         -------------      -------------      -------------
           Net cash provided by financing activities        43,939,632         85,312,932         88,366,237
                                                         -------------      -------------      -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                    3,842,266          2,792,448            571,816
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                10,576,610          7,784,162          7,212,346
                                                         -------------      -------------      -------------

CASH AND CASH EQUIVALENTS, END OF YEAR                   $  14,418,876      $  10,576,610      $   7,784,162
                                                         =============      =============      =============
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash payments for interest                             $  21,204,660      $  19,404,197      $  18,931,784
                                                         =============      =============      =============
  Cash  payments for taxes                               $   5,713,700      $   5,425,000      $      56,875
                                                         =============      =============      =============
</TABLE>

See notes to consolidated financial statements.

                                       37

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

     1. ORGANIZATION AND BUSINESS

     Franklin Credit Management Corporation ("the Company"), a Delaware
     corporation, was formed to acquire 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 the original note
     term, 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.

     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - 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.

     The preparation of financial statements in conformity with accounting
     principles generally accepted 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 revenues and expenses during the reporting period. Actual
     results could differ from those estimates. The most significant estimates
     of the Company are allowance for loan losses. The Company's estimates and
     assumptions primarily arise from risks and uncertainties associated with
     interest rate volatility and credit exposure. Although management is not
     currently aware of any factors that would significantly change its
     estimates and assumptions in the near term, future changes in market trends
     and conditions may occur which could cause actual results to differ
     materially.

     RECLASSIFICATION- Certain prior years amounts have been reclassed to
     conform with current year presentation.

     OPERATING SEGMENTS- Statement of Financial Accounting Standards ("SFAS")
     No. 131 Disclosures about Segments of an Enterprise and Related
     Information requires companies to report financial and descriptive
     information about their reportable operating segments, including segment
     profit or loss, certain specific revenue and expense items, and segment
     assets. The Company is currently operating in two business segments: (i)
     portfolio asset acquisition; and (ii) mortgage banking. (See note 9)

     EARNINGS PER SHARE- Basic earnings per share is calculated by dividing net
     income by the weighted average number of shares outstanding during the
     year. Diluted earnings per share is calculated by

                                       38

<PAGE>

     dividing net income by the weighted average number of shares outstanding,
     including the dilutive effect, if any, of stock options outstanding,
     calculated under the treasury stock method.

     CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes cash and
     short-term investments with original maturities of three months or less,
     with the exception of restricted cash. 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 performing, nonperforming or underperforming at the time of
     purchase and 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 allowance for loan losses. The Company has
     the ability and intent to hold these notes until maturity, payoff or
     liquidation of collateral. Impaired notes receivable 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. The Company periodically evaluates the
     collectability of both interest and principal of its notes receivable to
     determine whether they are impaired. A note receivable is considered
     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.

     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 accrual 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 collectability of the remaining interest
     and principal. A non-accrual note is restored to an accrual status when it
     is no longer delinquent and collectability of interest and principal is no
     longer in doubt and past due interest is recognized at that time.

     Loan purchase discounts are amortized into 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.

     In the event projected payments do 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
     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

                                       39

<PAGE>

     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. Impaired notes receivable, are
     charged against the allowance for loan losses when management believes that
     the collectability of principal is unlikely based on a note-by-note review.
     In connection with the determination of the allowance for loan losses,
     management obtains independent appraisals for the underlying collateral
     when considered necessary.

     The Company's notes receivable are collateralized by real estate located
     throughout the United States with a concentration in California, New York,
     Georgia, and Florida. 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 certain specific
     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. An allowance of
     $46,247,230 and $45,841,651 is included in notes receivable at December 31,
     2003 and 2002, respectively.

     ORIGINATED LOANS HELD FOR SALE- The loans held for sale consist 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. The gain/loss on sale is recorded as the difference
     between the carrying amount of the loan and the proceeds from sale on a
     loan-by-loan basis. The Company records a sale when the title transfers to
     the seller. In the second quarter of 2003, the Company's holding strategy
     on several loans originated changed and the unamortized cost of these loans
     was transferred from the loans held for sale category into loans held for
     investment.

     ORIGINATED LOANS HELD FOR INVESTMENT - Such loans consist primarily of
     secured real estate first and second mortgages originated by the Company.
     Such loans held for investment are performing and are carried at amortized
     cost of the loan.

     OTHER REAL ESTATE OWNED - Other real estate owned ("OREO") consists of
     properties acquired through, or in lieu of, foreclosure or other
     proceedings and are held for sale and carried at the lower of cost or fair
     value less estimated costs to sell. Any write-down to fair value, less cost
     to sell, at the time of acquisition is charged to purchase discount.
     Subsequent write-downs are charged to operations based upon management's
     continuing assessment of the fair value of the underlying collateral.
     Property is evaluated periodically 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 sell. Revenue and expenses from the operation of OREO and changes in the
     valuation allowance are included in operations. Direct costs relating to
     the development and improvement of the property are capitalized, subject to
     the limit of fair value of the collateral, while costs related to holding
     the property are expensed. Gains or losses are included in operations upon
     disposal.

     BUILDING, FURNITURE AND EQUIPMENT - Building, furniture and equipment is
     recorded at cost net of accumulated depreciation. Depreciation is computed
     using the straight-line method over the estimated

                                       40

<PAGE>

     useful lives of the assets, which range from 3 to 40 years. Maintenance and
     repairs are expensed as incurred.

     DEFERRED FINANCING COSTS - Costs incurred in connection with obtaining
     financing are deferred and are amortized over the term of the related loan.

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

     INCOME TAXES - Income taxes are accounted for under SFAS No. 109 Accounting
     for Income Taxes" which requires an asset and liability approach in
     accounting for income taxes. 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 the
     consolidated 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.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, Disclosures About Fair
     Value of Financial Instruments, requires disclosure of fair value
     information of financial instruments, whether or not recognized in the
     balance sheets 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 non-financial 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
          consolidated balance sheets 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 fair value of notes receivable at December 31, 2003 and
          2002 was $393,628,475 and 366,443,433, respectively.

     c.   SHORT-TERM BORROWINGS - The interest rate on financing agreements and
          other short-term borrowings reset on a monthly basis therefore, the
          carrying amounts of these liabilities approximate their fair value.
          The fair value at December 31, 2003 and 2002 was $23,315,301 and
          $11,557,369, respectively.

     d.   LONG-TERM DEBT - Fair value of the Company's long-term debt (notes
          payable) is estimated using discounted cash flow analysis based on the
          Company's current incremental borrowing rates for

                                       41

<PAGE>

          similar types of borrowing arrangements. The fair value approximates
          $427,447,844 at December 31, 2003.

     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
     2003, 2002 and 2001 therefore net income was the same as its comprehensive
     income.

     ACCOUNTING FOR STOCK OPTIONS- The incentive stock option plan is accounted
     for under the recognition and measurement principles of Accounting
     Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees
     and related interpretations. No stock-based employee compensation cost is
     reflected in net income for stock options, because all options granted
     under these plans had an exercise price equal to the market value of the
     underlying common stock on the date of grant.

     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 2003, 2002, and 2001 net income and earnings per share would have
     been reduced to the pro forma amounts indicated in the table that follows.

<TABLE>
<CAPTION>
                                                                2003             2002                2001
<S>                                                         <C>               <C>                <C>
Net income  - as reported                                   $ 6,685,457       $ 6,663,450        $ 2,882,148
Net income  -  pro forma                                    $ 6,620,124       $ 6,585,073        $ 2,882,148

Net income  per common share - basic - as reported                $1.13             $1.13              $0.49
Net income per common share - basic - pro forma                   $1.12             $1.12              $0.49
Net income per common share - dilutive - as reported              $1.02             $1.07              $0.49
Net income per common share - dilutive - pro forma                $1.01             $1.06              $0.49
</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 2003, 2002 and 2001:

<TABLE>
<S>                                   <C>         <C>           <C>
Dividend yield                              0%          0%            0%
Volatility                                 97%        139%          241%
Risk-free interest rate                     5%       5.20%         3.62%
Weighted average expected lives       5 years     5 years       3 years
</TABLE>

     There were 39,000 options granted during the 2003. The weighted average
     fair value of options granted during the year was $2.41. The fair value of
     the options granted was estimated using the Black-Scholes option-pricing
     model.

                                       42

<PAGE>

     RECENT ACCOUNTING PRONOUNCEMENTS

     The Company adopted SFAS No. 143, Accounting for Asset Retirement
     Obligations on January 1, 2003. On January 1, 2003, the Company also
     adopted SFAS No. 145, Rescission of SFAS No. 4, 44 and 64, Amendment of
     SFAS No. 13, and Technical Corrections and SFAS No. 146, Accounting for
     Costs Associated with Exit or Disposal Activities. In addition, in 2003,
     Interpretation No. 45 "Guarantors' Accounting and Disclosure Requirements
     for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
     was adopted by the Company. Implementation of these statements did not
     have a material impact on the Company's consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
     Compensation-Transition and Disclosure. This statement amends SFAS No. 123
     to provide alternative methods of transition for a voluntary change to the
     fair value based method of accounting for stock-based employee compensation
     and amends the disclosure requirements of SFAS No. 123. Adoption of the
     provisions of the Statement in 2003 did not have any impact since the
     Company will continue to use the intrinsic value method as set forth in APB
     No. 25.

     In January of 2003, the Financial Accounting Standards Board ("FASB")
     issued Interpretation No. 46, "Consolidation of Variable Interest
     Entities", which was amended by Interpretation No. 46(R) in December of
     2003. This Interpretation clarifies the application of existing accounting
     pronouncements to certain entities in which equity investors do not have
     the characteristics of a controlling financial interest or do not have
     sufficient equity at risk for the entity to finance its activities without
     additional subordinated financial support from other parties. As it applies
     to the Company, Interpretation No. 46(R) will be immediately effective for
     all variable interests in variable interest entities created after December
     31, 2003, and to all variable interest entities on March 31, 2004. The
     adoption of Interpretation No. 46(R) is expected to have no impact on the
     Company's consolidated financial statements.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
     clarifies the accounting for derivative instruments, including certain
     derivative instruments embedded in other contracts and for hedging
     activities under SFAS No. 133, "Accounting for Derivative Instruments and
     Hedging Activities". SFAS No. 149 is generally effective for contracts
     entered into or modified after June 30, 2003 and for hedging relationships
     designated after June 30, 2003. The adoption of SFAS No. 149 had no impact
     on the Company's consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
     Financial Instruments with Characteristics of Both Liabilities and Equity".
     SFAS No. 150 establishes standards for how an issuer classifies and
     measures certain financial instruments with characteristics of both
     liabilities and equity. SFAS No. 150 requires that certain financial
     instruments be classified as liabilities that were previously considered
     equity. In October of 2003, the FASB agreed to defer, indefinitely, the
     application of paragraphs 9 and 10 of SFAS No. 150 regarding mandatorily
     redeemable non-controlling interests in subsidiaries that would not be
     liabilities under SFAS No. 150 for the subsidiary. The adoption of the
     remaining provisions of this pronouncement on July 1, 2003 had no impact on
     the Company's consolidated financial statements.

                                       43

<PAGE>

3.   NOTES RECEIVABLE, LOANS HELD FOR SALE, PURCHASE DISCOUNT AND ALLOWANCE FOR
     LOAN LOSSES

     Notes receivable consist principally of real estate mortgages as of
     December 31, 2003 and 2002 and are classified as follows:

<TABLE>
<CAPTION>
                                     2003               2002
<S>                             <C>                <C>
Real estate secured             $ 436,748,611      $ 399,197,450
Consumer unsecured                  8,382,427         19,345,544
Mobile homes                       14,871,762         12,091,393
Other                               5,551,070          4,625,007
                                -------------      -------------

                                  465,553,870        435,259,394
Less:
  Purchase discount               (25,678,165)       (22,974,310)
  Allowance for loan losses       (46,247,230)       (45,841,651)
                                -------------      -------------

Balance                         $ 393,628,475      $ 366,443,433
                                =============      =============
</TABLE>

     Originated loans held for sale at December 31, 2003 and 2002 represent real
     estate mortgages.


                                       44

<PAGE>

<TABLE>
<CAPTION>
                                    2003
<S>                             <C>
Real estate secured             $ 9,575,896
Consumer unsecured                   53,816
Mobile homes                         85,240
                                -----------
                                  9,714,952

Less:
  Allowance for loan losses        (178,283)
                                -----------
Balance, December 31, 2003      $ 9,536,669
                                ===========
</TABLE>

     As of December 31, 2003, contractual maturities of notes receivable,
     originated loans held for sale and originated loans held for investment net
     of the allowance for loan losses if any, were as follows:

<TABLE>
<CAPTION>
                                                     ORIGINATED          ORIGINATED
YEAR ENDING                          NOTES           LOANS HELD          LOANS HELD
DECEMBER 31,                      RECEIVABLE          FOR SALE         FOR INVESTMENT
<S>                              <C>                <C>                <C>
2004                             $ 18,210,384       $    370,120       $    512,561
2005                               16,949,622            391,782            522,065
2006                               16,006,666            415,052            533,284
2007                               14,965,218            440,057            545,355
2008                               20,321,242            407,462            152,368
Thereafter                        332,853,508         25,348,306          7,271,036
                                 ------------       ------------       ------------
Balance, December 31, 2003       $419,306,640       $ 27,372,779       $  9,536,669
                                 ============       ============       ============
</TABLE>

     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, 2003, 2002 and 2001,
     cash collections of principal amounts totaled approximately $157,000,000,
     $120,000,000 and $ 72,900,000 respectively, and the ratios of these cash
     collections to average $73,000,000 principal balances were approximately
     33%, 29% and 23% respectively.

                                       45

<PAGE>

     Changes in the allowance of loan losses on notes receivable for the years
     ended December 31, 2003, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                      2003               2002                 2001
<S>                                              <C>                 <C>                 <C>
Balance, beginning                               $ 45,841,651        $ 33,490,456        $ 24,086,322
Allowance allocated on purchased portfolio         11,413,944          15,551,056           9,198,705
Loans charged to allowance                        (14,172,468)         (5,913,725)         (1,982,024)
Provision for loan losses                           3,164,103           2,713,864           2,187,453
                                                 ------------        ------------        ------------
Balance, ending                                  $ 46,247,230        $ 45,841,651        $ 33,490,456
                                                 ============        ============        ============
</TABLE>

     At December 31, 2003, 2002 and 2001, principal amounts of notes receivable
     included approximately $126,000,000, $119,000,000 and $75,000,000
     respectively, of notes for which there was no accrual of interest income.
     The following information relates to impaired notes receivable, which
     include all nonaccrual loans as of and for the years ended December 31,
     2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                        2003               2002               2001
<S>                                                 <C>                <C>                <C>
Total impaired notes receivable                     $126,341,722       $119,134,128       $ 74,563,057
                                                    ============       ============       ============
Allowance for loan losses related to impaired
  notes receivable                                  $ 30,111,278       $ 32,809,607       $ 24,810,426
                                                    ============       ============       ============
Average balance of impaired notes receivable
  during the year                                   $122,737,925       $ 96,848,593       $ 64,049,206
                                                    ============       ============       ============
Interest income recognized                          $  2,196,003       $  5,866,377       $  2,223,530
                                                    ============       ============       ============
</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. Notes that are current under their restructured or
     modified terms are not considered impaired.

                                       46

<PAGE>

4.   BUILDING, FURNITURE AND EQUIPMENT

     At December 31, 2003 and 2002, building, furniture and equipment consisted
     of the following:

<TABLE>
<CAPTION>
                                       2003             2002
<S>                                 <C>              <C>
Building and improvements           $1,094,336       $1,060,359
Furniture and equipment              1,871,925        1,255,044
                                    ----------       ----------
                                     2,966,261        2,315,403
Less accumulated depreciation        1,713,550        1,208,538
                                    ----------       ----------
                                    $1,252,711       $1,106,865
                                    ==========       ==========
</TABLE>

5.   NOTES PAYABLE

     Notes payable ("Senior Debt") 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 ("Facility") with the Senior
     Debt Lender. The Facility was amended on March 19, 2003 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 3.50%. As of December 31, 2003
     and 2002, the Company had several loans outstanding to its Senior Debt
     Lender with an aggregate principal balance of $427,213,039 and $395,011,306
     respectively. 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, 2003, approximately $
     35,071,944 of borrowings accrues interest at a rate of prime plus a margin
     of 0% to 1.75%. The remaining $392,141,095 accrues interest at the FHLB 30
     day advance rate plus 3.50%. The remaining $234,805 accrues interest at
     8.93%. The above loans requires all cash collections received on the notes
     receivable to be paid to the Senior Debt Lender and the Company is provided
     with $1,912,500 monthly, to fund operations.

     At December 31, 2003 and 2002, the weighted average interest rate on the
     Senior Debt was 4.82% and 4.85%, respectively.

     The above loans also require additional monthly principal reductions based
     on cash collections received by the Company.


                                       47

<PAGE>

     Aggregate contractual maturities of all notes payable at December 31, 2003
     are as follows:

<TABLE>
<S>              <C>
2004             $ 42,947,946
2005               42,148,523
2006               40,903,803
2007               39,013,137
2008               35,966,791
Thereafter        226,467,644
                 ------------
                 $427,447,844
                 ============
</TABLE>

6.   FINANCING AGREEMENTS

     The Company has the following financing agreements with certain banks:
     warehouse financing agreement, credit facility, and line of credit.

     The warehouse financing agreement provides the Company with the ability to
     borrow a maximum of $30,000,000 at a rate equal to the bank's prime rate or
     a floor of 5%, if prime is lower than 5%. This credit facility is to be
     utilized for the purpose of originating mortgage loans. As of December 31,
     2003 and 2002, $22,646,114 and $10,196,976, respectively, are outstanding
     on the warehouse financing agreement and are secured by originated loans
     held for sale. The prime rate at December 31, 2003 was 4%.

     The credit facility provides the Company with the ability to borrow a
     maximum of $2,500,000 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
     respective loan is due six months from the date of each advance and
     interest is payable monthly. As of December 31, 2003 and 2002, $569,451 and
     $1,250,451, respectively, are outstanding on this credit facility.

     The credit facility is secured by a first priority security interest in the
     respective 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 line of credit 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, 2003, and 2002, $99,736 and $109,942,
     respectively, are outstanding on the line of credit. The bank's prime rate
     at December 31, 2003 was 4%.

                                       48
<PAGE>

7.       INCOME TAX MATTERS

         The components of the income tax provision for the years ended December
         31, 2003, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                          2003          2002          2001
<S>                                                    <C>           <C>           <C>
Current provision:
  Federal                                              $ 4,131,000   $ 3,317,000   $   146,000
  State and local                                        1,036,000     1,043,000        79,000
                                                       -----------   -----------   -----------

                                                         5,167,000     4,360,000       225,000
                                                       -----------   -----------   -----------
Deferred provision:
  Federal                                                  422,000       945,000       671,000
  State and local                                          106,000       209,000       588,000
                                                       -----------   -----------   -----------
                                                           528,000     1,154,000     1,259,000
                                                       -----------   -----------   -----------

Decrease in valuation allowance                                  -             -    (1,040,000)
                                                       -----------   -----------   -----------

Provision                                              $ 5,695,000   $ 5,514,000   $   444,000
                                                       ===========   ===========   ===========
</TABLE>

         A reconciliation of the anticipated income tax expense (computed by
         applying the Federal statutory income tax rate of 34% to income before
         income tax expense) to the provision for income taxes in the
         accompanying consolidated statements of income for the years ended
         December 31, 2003, 2002, and 2001 are as follows:

<TABLE>
<CAPTION>
                                                          2003          2002          2001
<S>                                                    <C>           <C>           <C>
Tax determined by applying U.S. statutory rate
  to income                                            $ 4,546,000   $ 4,262,000   $ 1,164,000
Increase in taxes resulting from:
State and local income taxes, net of Federal benefit     1,142,000     1,252,000       331,000
Meals and entertainment (net of adjustments)                 7,000             -         5,000
Decrease in valuation allowance                                  -             -    (1,040,000)
Other items, net                                                 -             -       (16,000)
                                                       -----------   -----------   -----------

                                                       $ 5,695,000   $ 5,514,000   $   444,000
                                                       ===========   ===========   ===========
</TABLE>

                                       49
<PAGE>

         The tax effects of temporary differences that give rise to significant
         components of deferred tax assets and deferred tax liabilities at
         December 31, 2003, and 2002 are presented below:

<TABLE>
<CAPTION>
                                         2003          2002
<S>                                   <C>           <C>
Deferred liabilities:
  Purchase discount                   $   926,596   $  783,115
  Deferred cost                       $   384,493            -
                                      -----------   ----------
                                                -            -
           Deferred tax liabilities   $ 1,311,089   $  783,115
                                      ===========   ==========

Deferred tax assets:
  Inventory, repossessed collateral   $   681,398   $  387,767
                                      -----------   ----------

           Deferred tax assets        $   681,398   $  387,767
                                      ===========   ==========
</TABLE>

         The Company has not recorded an evaluation allowance, as the Company
         believes all of the deferred tax assets will be realized.

8.       STOCK OPTION PLAN

         During 1996, the Company adopted an incentive stock option 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. During 2000, the Company revised
         its incentive stock plan increasing the plan to aggregate to 1,600,000
         shares. 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.

         The Company granted 39,000 options to five members of the Board of
         Directors during 2003. The weighted average fair value of options
         granted during the year was $2.41. The fair value of the options
         granted was estimated using the Black-Scholes option-pricing model.

         During 2002, the Company granted 121,000 options to members of the
         Board of Directors and 275,000 options to various management employees.
         Also during 2002, 130,000 options were forfeited by former Company
         officers. There were no options granted during 2001.

                                       50
<PAGE>

       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, 2001        712,500    $   1.00
Granted                                             -           -
Forfeited                                           -           -
                                            ---------    --------
Options outstanding at December 31, 2001      712,500    $   1.00
                                            ---------    --------

Granted                                       396,000        0.75
Forfeited                                    (130,000)       1.00
                                            ---------    --------

Options outstanding at December 31, 2002      978,500    $   0.90

Granted                                        39,000        2.25
Expired                                             -           -
                                            ---------    --------

Options outstanding at December 31, 2003    1,017,500    $   0.95
                                            =========    ========
</TABLE>

         As of December 31, 2003, 2002, and 2001, there were 1,017,500, 978,500,
         and 712,500 options exercisable respectively.

9.       OPERATING 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 sub performing notes receivable and
         promissory notes from financial institutions, mortgage and finance
         companies, and services and collects such notes receivable through
         enforcement of original note terms, 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.

                                       51
<PAGE>

PORTFOLIO ASSET ACQUISITION AND RESOLUTION

<TABLE>
<CAPTION>
                                                  2003           2002           2001
<S>                                           <C>            <C>            <C>
REVENUES:
  Interest income                             $ 39,472,458   $ 33,435,447   $ 27,065,644
  Purchase discount earned                       4,912,686      3,841,927      3,986,498
  Gain on sale of notes receivable               1,118,239        139,519        986,570
  Gain on sale of other real estate owned          995,899        796,562      1,448,548
  Rental income                                    113,255        152,965        330,250
  Other                                          3,567,165      2,402,977      1,327,927
                                              ------------   ------------   ------------

                                                50,179,702     40,769,397     35,145,437
                                              ------------   ------------   ------------

OPERATING EXPENSES:
  Interest expense                              20,069,282     17,423,341     20,068,167
  Collection, general and administrative        13,741,836     10,646,814      8,894,760
  Recovery of a special charge                           -     (1,662,598)             -
  Provision for loan losses                      3,100,524      2,612,361      2,077,588
  Amortization of deferred financing costs       1,851,339      1,095,529        996,412
  Depreciation                                     428,906        279,616        179,150
                                              ------------   ------------   ------------

                                                39,191,887     30,395,063     32,216,077
                                              ------------   ------------   ------------

INCOME  BEFORE PROVISION FOR INCOME
  TAXES                                       $ 10,987,815   $ 10,374,334   $  2,929,360
                                              ============   ============   ============
</TABLE>

                                       52
<PAGE>

MORTGAGE BANKING

<TABLE>
<CAPTION>
                                                            2003             2002             2001
<S>                                                     <C>              <C>              <C>
REVENUES:
  Interest income                                       $   3,227,252    $   3,293,289    $   1,758,979
  Purchase Discount                                           241,915                -                -
  Gain on sale of loans held for sale                       3,236,616        2,259,979          842,051
  Gain on sale of other real estate owned                      31,231                -                -
  Other                                                       649,843          519,772          216,891
                                                        -------------    -------------    -------------
                                                            7,386,857        6,073,040        2,817,921
                                                        -------------    -------------    -------------

OPERATING EXPENSES:
  Interest expense                                          1,603,711        1,704,372          686,114
  Collection, general and administrative                    4,122,950        2,235,321        1,516,252
  Provision for loan loss                                      63,579          101,503          109,865
  Amortization of deferred financing costs                    127,869          168,583           62,031
  Depreciation                                                 76,106           60,145           46,871
                                                        -------------    -------------    -------------
                                                            5,994,215        4,269,924        2,421,133
                                                        -------------    -------------    -------------

INCOME BEFORE PROVISION FOR INCOME
  TAXES                                                 $   1,392,642    $   1,803,116    $     396,788
                                                        =============    =============    =============

CONSOLIDATED ASSETS:
  Portfolio asset acquisition and resolution assets     $ 428,436,923    $ 400,088,702    $ 303,705,008
  Mortgage banking assets                                  48,296,423       24,330,332       29,520,868
                                                        -------------    -------------    -------------

Consolidated assets                                     $ 476,733,346    $ 424,419,034    $ 333,225,876
                                                        =============    =============    =============

TOTAL ADDITIONS TO BUILDING, FURNITURE
AND FIXTURES:
   Portfolio asset acquisition and resolution assets    $     503,221    $     253,140    $     471,402
   Mortgage banking assets                                    147,637           42,314           37,320
                                                        -------------    -------------    -------------
   Consolidated additions to building,
   furniture and fixtures                               $     650,858    $     295,455    $     508,722
                                                        =============    =============    =============

CONSOLIDATED REVENUE:
   Portfolio asset acquisition and resolution           $  50,179,702    $  40,769,397    $  35,145,437
   Mortgage banking                                         7,386,857        6,073,040        2,817,921
                                                        -------------    -------------    -------------
   Consolidated Revenue                                 $  57,566,559    $  46,842,437    $  37,963,358
                                                        =============    =============    =============

CONSOLIDATED NET INCOME :
    Portfolio asset acquisition and resolution          $   5,933,419    $   5,671,774    $   2,485,360
    Mortgage banking                                          752,038          991,676          396,788
                                                        -------------    -------------    -------------
    Consolidated Net Income                             $   6,685,457    $   6,663,450    $   2,882,148
                                                        =============    =============    =============
</TABLE>

                                       53
<PAGE>

10.      CERTAIN CONCENTRATIONS

         The following table summarizes certain information and locations of
         mortgage loans as of December 31, 2003:

<TABLE>
<S>                 <C>              <C>
California           $76,547,084      15.23%
New York              40,180,064       8.00%
Georgia               37,091,524       7.38%
Florida               34,664,408       6.90%
Texas                 23,957,617       4.77%
Michigan              18,565,089       3.69%
Pennsylvania          18,239,588       3.63%
New Jersey            17,939,188       3.57%
Ohio                  17,746,000       3.53%
Illinois              17,257,437       3.43%
Maryland              13,859,712       2.76%
North Carolina        13,122,603       2.61%
Arizona               10,390,790       2.07%
All others           162,999,602      32.43%
                    ------------     ------
 Total              $502,560,706     100.00%
                    ============     ======
</TABLE>

         Such real estate notes receivable and loans held are collateralized by
         real estate with a concentration in these regions. 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 these regions. 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 these regions, which
         could impact the Company's related loan loss estimates.

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

11.      COMMITMENTS AND CONTINGENCIES

         Employment Agreements - Effective April 1, 2002, the Company entered
         into a three-year employment agreement with its Chief Operating
         Officer. The agreement provides for, among other things, a stipulated
         base salary, and share in a bonus pool of up to 10.0% of the Company's
         net income in excess of $500,000.

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

         Operating Leases - Certain secondary office and file space is leased
         under operating leases. The combined future minimum lease payments at
         December 31, 2003 are as follows:

                                       54
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED                                              AMOUNT
<S>                                                   <C>
2004                                                  $   514,269
2005                                                      535,056
2006                                                      547,888
2007                                                      483,697
2008                                                      208,456
Thereafter                                                 37,800
                                                      -----------
                                                      $ 2,327,166
                                                      ===========
</TABLE>

         Capital Leases - Certain office equipment is leased under capital
         leases. The combined future minimum lease payments at December 31, 2003
         are as follows:

<TABLE>
<CAPTION>
YEAR ENDED                                              AMOUNT
<S>                                                   <C>
2004                                                  $   162,859
2005                                                      162,859
2006                                                      154,609
                                                      -----------
                                                      $   480,327
                                                      ===========
</TABLE>

         Legal Actions - The Company is 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 Senior Debt 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. 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. At December 31, 2003 the remaining
         obligation under the recourse provision is approximately $425,000.

         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 Senior Debt 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 performing 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. 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. At December 31, 2003 the remaining
         obligation under the recourse provision was approximately $28,938.

         During the year the Company sold $2,730,605 of loans to one investor
         and retained the servicing rights. SFAS 140 requires that entities that
         acquire servicing assets through either purchase or origination of

                                       55
<PAGE>

         loans and sell or securitize those loans with servicing assets retained
         must allocate the total costs of the loans to the servicing assets and
         the loans (without the servicing assets) based on their relative fair
         values. The amount attributable to the servicing assets was determined
         to be $20,480 and is capitalized as a servicing asset in other assets
         in the consolidated balance sheet.

         As of December 31, 2003 the unpaid balances of the above mortgage loans
         being serviced by the Company were $3,574,724. Mortgage loans serviced
         for others are not included in the Company's consolidated balance
         sheet.

12.      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. 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, 2004. The Company and Mr. Axon extended the note
         until April 2004. The note and accrued interest is included in other
         assets.

         On December 31, 1998, with the approval of the Board of Directors, the
         Company sold one of its mortgage notes to the President of the Company
         for $418,500. The mortgage note was paid for through the reduction of a
         note payable of $184,335 due to an affiliated company, in which the
         President is a partner and through the issuance of a promissory note
         from the President for $234,165. The note is included in notes
         receivable and was extended until April 2004.

         At December 31, 2003, the Company is due a receivable from an
         affiliate, RMTS Associates, of $62,481. This receivable represents
         various shared operating expenses that are paid for by the Company and
         then reimbursed by RMTS.

         On March 31, 1999, Mr. Steven W. Leftkowitz, a board member and
         stockholder, purchased from the Company without recourse a note held by
         the Company. The consideration given included a note for $270,000 of
         indebtedness to the Company. The note bears interest at a rate of 8%
         per annum payable monthly and is secured by a mortgage on real estate.
         This note was paid of on March 31, 2004.

13.      SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

         The table below sets forth selected unaudited financial information for
         each quarter of the last two fiscal years. During the second quarter of
         2002, the Company received a $1,662,598 cash settlement representing a
         recovery of a special charge taken to income during 1997 to reserve for
         a portfolio purchase of $1.8 million.

                                       56
<PAGE>

<TABLE>
<S>                                  <C>            <C>            <C>            <C>
2003

Revenue                              $ 13,939,228   $ 13,957,953   $ 14,057,724   $ 15,611,654
Operating expenses                     10,517,883     11,246,377     11,386,400     12,035,442
                                     ------------   ------------   ------------   ------------
Income before income taxes           $  3,421,345   $  2,711,576   $  2,671,324   $  3,576,212
                                     ------------   ------------   ------------   ------------

Provision for Income taxes              1,573,800      1,282,500      1,215,900      1,622,800
                                     ------------   ------------   ------------   ------------

Net Income                           $  1,847,545   $  1,429,076   $  1,455,424   $  1,953,412
                                     ============   ============   ============   ============
Income per common share
     Basic                           $       0.31   $       0.24   $       0.25   $       0.33
                                     ============   ============   ============   ============
     Diluted                         $       0.30   $       0.22   $       0.22   $       0.30
                                     ============   ============   ============   ============

2002

Revenue                              $ 10,671,461   $ 11,306,298   $ 12,220,502   $ 12,644,176
Recovery of a special charge                    -      1,662,598              -              -
Operating expenses                   $  7,758,575   $  8,848,584   $  9,374,722   $ 10,345,704
                                     ------------   ------------   ------------   ------------
Income before income income taxes       2,912,886      4,120,312      2,845,780      2,298,472

Provision for Income taxes              1,354,500      1,854,250      1,280,601      1,024,649
                                     ------------   ------------   ------------   ------------

Net Income                           $  1,558,386   $  2,266,062   $  1,565,179   $  1,273,823
                                     ============   ============   ============   ============
Income per common share
     Basic                           $       0.26   $       0.38   $       0.26   $       0.22
                                     ============   ============   ============   ============
     Diluted                         $       0.26   $       0.36   $       0.25   $       0.20
                                     ============   ============   ============   ============
</TABLE>

14.      SUBSEQUENT EVENTS

         The credit facility with the Senior Debt Lender was amended on February
         28, 2004 and provides the Company with the ability to borrow up to an
         aggregate of $550,000,000 at rates based on the Federal Home Loan Bank
         of Cincinnati (FHLB) 30-day advance rate plus an additional spread of
         3.50%. The above financing agreement requires all cash collections
         received on the notes receivable to be paid to the Senior Debt Lender
         and the Company is provided with $2,075,000 monthly, to fund
         operations.

                                       57