UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                For the transition period from _____________ to _____________

                          Commission file number 0-17771

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

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


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

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

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

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

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

         Issuer's revenues for its most recent fiscal year: $14,051,911.

         As of March 31, 1997 the issuer had 1,103,471 of shares of Common
Stock, par value $0.01 per share, outstanding.  On that date, the aggregate
market value of the voting stock held by persons other than those who may deemed
affiliates of the issuer was $703,806. (based on the average of the reported
high and low sale prices on such date)

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


   Transitional Small Business Disclosure Format:  Yes   No  X

                       Documents Incorporated by Reference
       Portions of the Registrant's Annual Report on 10-KSB for year ended
December 31, 1994 are incorporated by reference into Part I.


<PAGE>
                                                      PART I

Item 1.  Description of Business.

          Business of Registrant. Franklin Credit Management Corporation
(the "Company"), formerly Miramar Resources, Inc. acquires non-conforming,
non-performing and sub-performing loan portfolios from mortgage lending
companies, financial institutions and the Federal Deposit Insurance
Corporation ("FDIC"). These loans are restructured, brought to performing
status, and held through repayment or sale of the loan. The Company has and
expects to continue to focus primarily on acquisitions of portfolios of
residential real estate secured loans with aggregate face amounts of between
$2,000,000 and $25,000,000.

          Historically the largest portion of the Company's loan portfolios
was purchased from the Resolution Trust Company ("RTC") and, since the RTC
ceased to function, the FDIC. While the FDIC has sold a significant number
of loans at public and private auctions in the past, there can be no assurance
that loan portfolios will continue to be available from the FDIC or that loan
portfolios will be available from other sources.

          Since its inception the Company has purchased approximately 9,500
loans with a principal balance of approximately $207,000,000. The Company
currently holds approximately 3,600 loans with an aggregate principal balance
of approximately $113,600,000. An allowance for loan losses of
approximately $23,600,000 has been recorded against this principal balance.
See "Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Item 7. Financial Statements". Approximately
eighty-five percent of the Company's portfolio consists of first mortgages,
home equity/home improvement and second mortgages collateralized by real
estate, eight percent are unsecured, and seven percent are collateralized by
other assets.  As of December 31, 1996, the Company and its wholly owned
subsidiaries owed an aggregate amount of $73,538,865, (the "Senior Debt")
incurred in connection with loan portfolio purchases noted previously.

          In June 1996, the Company amended its Senior Debt agreement with one
of its lenders. The new agreement reduced service fees by 50%. This
modification had a positive impact of $365,460 or 25% of the net operating
income of the Company during fiscal 1996. In addition, the agreement provided
the Company with consistent streams of cash flow for operations and a reduction
of interest expense in the form of a weighted average interest rate reduction
of 0.336% to Prime plus 2.125% from Prime plus 2.461%. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations: General - Cost of Funds". Additionally, the lender which has
provided the Company's Senior Debt to date, agreed in March 1997 to a
further reduction in interest expense and the replacement of service fees with
a 1% exit fee based upon current Senior Debt loan balances as of December 31,
1996, or approximately $700,000.  This exit fee shall be paid after the
underlying Senior Debt has been repaid in full.  If the funds collected from the
underlying notes receivable are insufficient to satisfy the related Senior Debt
and exit fee any shortfall shall be forgiven.  The Company believes that this

                                     Page 2
<PAGE>

new Senior Debt agreement will have a beneficial impact on the Company's
earnings. Furthermore, the Company has received preliminary proposals from two
major financial institutions which may further reduce its costs of funding
future acquisitions as compared to the new Senior Debt agreement.

          In January, 1997, the Company formed a new wholly-owned subsidiary,
Liberty Lending Corporation ("Liberty Lending") to originate non-standard
(sub-prime) mortgages in New York, Pennsylvania, New Jersey, Connecticut
and  Massachusetts.  Management  currently  expects that Liberty Lending will
provide first and second mortgages to communities  under served by banks and
other lending  institutions,  comprised mainly of immigrant and minority
communities, the members of which do not meet conventional underwriting
criteria. The Company's current expectation  is that these  loans will be sold
upon  origination  in the  secondary market and to banks which will assist them
in complying with the Community  Reinvestment  Act, "CRA".  Many depository
lending  institutions that serve  these  communities  have  difficulty meeting
the  federally  mandated  CRA  requirements.  Liberty  Lending anticipates a
continuing  demand from these  institutions  to acquire loans that meet their
CRA  requirements.  The Company  will fund the  start-up of Liberty  Lending,
 with  $1,000,000  of proceeds  from the  refinancing  of two portfolios  for
which  refinancing  the Company  has already  received a  commitment  from its
Senior Debt lender. Additionally, such lender has agreed to provide a warehouse
line of credit of  $2,000,000.  Management  has filed an application to become
licensed to purchase FHA Title "I" loans.

     Prior to 1995, the Company  generally  acquired  interests in loan
portfolios through participation in limited partnerships rather than by
direct ownership. During 1995 the Company purchased the interests of all
remaining limited partners and liquidated the limited partnerships in an order
to simplify its capital structure and reduce administrative costs. Loss
upon liquidation of the limited partnerships was $247,105. Limited
partnership interests purchased from limited partners who also had an
ownership interest in the Company were recorded as additional paid in capital
of $144,579.

     Although the Company attempts to collect on all loans in its
portfolio, it is unlikely that the Company will be successful in collecting the
full amount due under each loan in its portfolio. In addition, significant
administrative and litigation expenses are often incurred in collection efforts.

     The Company employs standardized in-house servicing procedures in the
acquisition and collection of loans. The Company's operations are divided into
four departments which are responsible for servicing loans.

     Acquisition Department. The Acquisition Department: (i) researches and
identifies opportunities for acquisitions of loan portfolios; (ii) conducts
due-diligence of target portfolios including pricing and yield analysis; (iii)
prepares bids and seeks to acquire identified portfolios at advantageous
discounts; (iv) processes acquired loan files into a proprietary information
system; (v) issues introductory letters with information regarding the change of

                                     Page 3
<PAGE>

ownership of the loan, payment information and a toll-free Company information
line and initiates collection activities; (vi) conducts internal audits of newly
acquired loans to identify and address any disputes or problems relating to the
accounting for these loans; (vii) issues an audit letter advising the borrower
of the outstanding balance, last payment date and remaining term of the loan;
(viii) initiates collection activities in connection with performing loans and
restructuring activities with respect to non-performing loans (ix) identifies
loans to be referred to the Legal Department and initiates monitoring of
performing accounts; and (x) manages sales of performing loans. The Acquisition
Department was responsible for the purchase of loan portfolios with an aggregate
principal balance of approximately $34,000,000 and $59,000,000, at aggregate
prices of approximately $26,000,000 and $37,000,000, in fiscal 1996 and 1995,
respectively.

     Service Department. The Service Department seeks to provide quality
service to customers and secure full payment of the total principal outstanding,
and manages all of the Company's performing loans, including monitoring monthly
cash flow, maintaining customer relations and entering into extension and
modification agreements. Service Department members continuously review and
monitor the status of collections and individual loan cash flow in order to
proactively identify and solve potential collection problems. The Service
Department currently manages approximately 2,190 loan accounts, with a total
principal outstanding balance of approximately $51,000,000.

     Legal Department. The Legal Department monitors the progress of loans
requiring a legal remedy for recovery which are identified and referred by the
Acquisition or Service Departments. The Legal Department prepares an analysis
of each such loan to determine a litigation strategy to maximize the size and
speed of recovery and minimize costs, based upon individual borrower's past
payment history, current ability to pay, collateral position and value of the
collateral. The Legal Department retains counsel and monitors any ensuing
litigation to insure the optimal recovery of the remaining principal and
interest balance.

     Real Estate Department. The Real Estate Department manages properties
acquired through portfolio acquisitions or foreclosure, accepted by deed in lieu
of foreclosure or through other proceedings. The Real Estate Department also
manages such properties as rental properties until such time as it can arrange
economically beneficial sales.

     Formation of the Company. The Company was organized in Delaware in 1990,
by Thomas J. Axon and Frank B. Evans, Jr., currently executive officers of the
Company, to acquire consumer loan portfolios from the RTC and the FDIC. In March
1993, the Company completed the private placement of $2,000,000 of 15%
Debentures (the "15% Debentures") and warrants for the purchase of the Company's
Common Stock, the proceeds of which were used to acquire interests in loan
portfolios and for operations. In December 1994, the Company merged with Miramar
Resources, Inc., a public oil and gas company organized in Delaware, that had
emerged from bankruptcy proceedings in December 6, 1993. In January 1995, the
Company completed the private placement of $705,000 of 12% Debentures (the "12%
Debentures"), the proceeds of which were used to fund the acquisition of a loan

                                     Page 4
<PAGE>

portfolio, including amounts advanced by stockholders, service existing debt
obligations and for general working capital.  Additionally, in late 1995, the
Company completed the private placement of $555,000 of 12% Debentures (the
"Harrison 1st Debentures"), the proceeds of which were used in part to fund the
acquisition of an additional loan portfolio.

     Competition. The consumer mortgage industry is fragmented and highly
competitive. The Company faces significant competition in the acquisition of
loan portfolios from the FDIC and other financial institutions including
regional and local banks and finance companies. From 1990 to 1995, the Company
acquired a majority of its loan portfolios from the RTC or the FDIC at private
and public auction. The RTC ceased to do business as of December 31, 1995 and
the FDIC has decreased the number of loan auctions it conducts. The Company
believes, however that opportunities to acquire non-performing loans at
advantageous prices will remain strong.

     Since January 1, 1996, the Company's acquisition efforts have focused on
acquisition from private institutions, private auctions involving financial
institutions and the FDIC. Many of the Company's competitors have financial
resources, acquisition departments and servicing capacity considerably larger
than those of the Company. Among the Company's largest competitors, are Empire
Mortgage, LP of Hunt Valley, Maryland and Midstate Resources Corporation of
Omaha, Nebraska. Competition for acquisitions is generally based on price,
reputation and funding capacity and timing. The Company believes that the
changes in its Senior Debt agreement will lower its cost of funds and increase
it's competitiveness. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations: General - Cost of Funds". In
addition, the Company has received preliminary proposals from two additional
financial institutions which may further reduce its cost of funding future
acquisitions.

     The Company also experiences competition from mortgage and finance
companies in the sale of rehabilitated loan portfolios. The secondary market
demand has increased for pools of securitized re-performing first mortgages
which may be packaged in a pool and securitized. The Company believes that the
large demand for the securitization markets will provide attractive prices and
liquidity for portfolios offered for sale. Important characteristics which
impact offerings in this market are: price, size of pools and the integrity of
portfolio data. The Company faces intense competition, from numerous companies
seeking to re-sell first mortgage portfolios in this highly fragmented, diverse
market place. Nearly all of the Company's competitors have greater experience
and volume of product to supply the securitization market, which can result in
advantages.  The Company's proprietary information system and the continuous
review and monitoring of accounts and asset availability from new portfolio
acquisitions will position the Company to compete efficiently in the sale of
loan portfolios.

     Customers. The Company's income is derived from interest and purchase
discount recognized from the collection of loans and gains recorded from the
bulk sale of performing loans to banks and other financial institutions. The
decrease in the number of auctions of impaired loan portfolios by the FDIC has

                                     Page 5
<PAGE>

significantly decreased the number of opportunities for companies to acquire
loan portfolios. The Company will continue to sell bulk portfolios of performing
loans, when such sales are economically beneficial to the Company. While the
Company has been successful in marketing loan portfolios which it has elected to
sell in the past, there can be no assurance that the Company will be able to
successfully market loan portfolios in the future.

     Regulation. The Company's activities in servicing loan portfolios are
subject to regulation under various state and federal laws relating to the
collection of consumer obligations, including, without limitation, to the Fair
Debt Collection Act. These regulations specify the methods which the Company can
employ in its collection efforts. If the Company is deemed to have violated
these regulations, the Company could be precluded from further collection
efforts and liable for monetary damages. The Company does not expend material
amounts of financial resources complying with federal, state or local
environmental laws.

     Employees. As of December 31, 1996, the Company employed 22 people on a
full-time basis, including 5 employees in the Acquisitions Department, 6
employees in the Service Department, 3 employees in the Legal Department, 3
employees in the Real Estate Department and 4 managerial employees.

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


Item 2. Description of Properties.

     Properties. The Company, as of December 31, 1996, holds an undivided 100%
interest in a 6,600 square foot office condominium unit located on the Sixth
Floor of Six Harrison Street, New York, New York which houses its principal
offices. See "Item 12. Certain Relationships and Related Transactions". The
Company also rents a secondary office located at 8201 Greensboro Drive,
Suite 601, McLean Virginia.


Item 3. Legal Proceedings.

     Trademark Dispute. On January 4, 1994, the Company received a letter from
the law firm of Townsend and Townsend and Crew (the "Townsend Firm") of San
Francisco, California on behalf of their client Franklin Resources, Inc. ("FRI")
alleging that their client was the holder of the trademark "Franklin" as well as
other marks utilizing "Franklin" and, demanding that the Company cease use of
the designation "Franklin" in its business. In September of 1995, FRI commenced
a civil action in the United States District Court for the Southern District of
New York (the "Civil Action") styled Franklin Resources, Inc. V. Franklin Credit
Management Corporation, et al., Civil Action No. 95 Civ. 7686 (CSH) against the
Company, seeking to enjoin the Civil Action defendants from using the terms
"Franklin", Franklin Credit Management Corporation, Franklin Credit Recovery

                                     Page 6
<PAGE>

Fund, L.P., Franklin Asset Recovery Fund, L.P., and any other names or marks
confusingly similar to "Franklin" in conjunction with financial and investment
services. FRI also seeks Civil Action defendants' profits, an unspecified amount
of FRI's alleged damages, which FRI seeks to have repaid, and FRI's costs and
attorney's fees. The Company has, and intends to vigorously defend this action.
Discovery in the Civil Action is now completed. The Company anticipates that
trial in the Civil Action will occur in the second or third quarter of 1997. The
Company believes that the Civil Action will not materially impact the Company's
financial condition or operations.

     Beginning in July, 1991, the Company has been a plaintiff in various
actions and party to settlements with the previous directors and officers of
Miramar Resources, Inc. Information regarding the Company Legal Proceedings
concerning these matters and the legal status of the Company's collection
efforts is incorporated herein by reference to "Item 3. Legal Proceedings"
included in the Company's 10-KSB for the year ended December 31, 1994, filed
with the SEC on March 31, 1995 (the "1995 10-KSB").

     Subsequent to the 1995 10-KSB, the Company was awarded a First Deed of
Trust securing a $375,000 note receivable plus interest at 10% per annum, on a
4,000 acre ranch, appraised at approximately $850,000, owned by the parties to
the original Shultz settlement agreement. The Company is attempting to acquire
an additional lien on such property in respect of an additional $600,000 plus
interest owed to the Company under a judgement against Schultz Cattle Company.
Counsel to the Company has informed the Company that it believes it to be more
likely than not that the Shultz settlement agreement is enforceable and payment
will be received over the course of the next three to four years.


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

     On December 9, 1996 the Board of Directors approved and the Company
received the written consent of stockholders representing 82% of the outstanding
Common Stock of the Company to a one for five reverse stock split (the "Reverse
Split") of its outstanding Common Stock. Under the General Corporation Law of
the State of Delaware, passage of the Reverse Split required the receipt by
holders of record on the record date of a majority of the shares of Common
Stock then outstanding within 60 days after the earliest dated consent is
delivered to the Company. Pursuant to such consent, a one for five reverse was
consummated effective December 12, 1996.

                                     Page 7
<PAGE>

                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters

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

     Effective, December 12, 1996, the Board of Directors and holders of a
majority of its common stockholders authorized a 1 for 5 reverse stock split
(the "Reverse Split") of the Common Stock $.01 par value per share. The Company
paid $1,300 in lieu of any fractional shares resulting from the Reverse Split as
of December 31, 1996. The Company anticipates that the total amount of cash
payments in lieu of fractional shares will be approximately $6,000.

     The following table sets forth the bid prices for the common stock on
Nasdaq, for the periods indicated adjusted to reflect the Reverse Split. Such
prices reflect inter-dealer prices without retail markup or markdown or
commissions and may not represent actual transactions. Trading during these
periods was limited and sporadic. Therefore, the above-referenced quotes may not
accurately reflect the true market value of the securities. The Company has
obtained the information in the following table directly from the NASD Bulletin
Board.
<TABLE>
<S>                   <C>       <C>          <C>         <C>
                         1996  Bid              1995  Bid
                      High      Low          High       Low
First Quarter        $6.72     $6.72        $ 5.00     $ 5.00
Second Quarter       $3.91     $3.91        $12.50     $12.50
Third Quarter        $5.00     $5.00        $12.50     $12.50
Fourth Quarter       $8.75     $8.75        $11.25     $11.25

</TABLE>

     As of March 28, 1997, there were approximately 504 record holders of the
Company's Common Stock.

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

                                     Page 8
<PAGE>

Item 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

General

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

     Loan Acquisitions. During fiscal 1996 the Company acquired ten loan
portfolios in an aggregate principal amount of $34,015,000 including two
portfolios, in an aggregate principal amount of $2,393,000, acquired on December
31, 1996. During fiscal 1995 the Company acquired six loan portfolios totaling
approximately $59,500,000 including three portfolios, in an aggregate amount of
$28,000,000, acquired in December 1995. Acquisition of these portfolios was
funded through term debt facilities from financial institutions of approximately
$23,000,000 and $35,600,000 in fiscal 1996 and fiscal 1995, respectively. Total
Senior Debt funding capacity was approximately $100,000,000 at December 31,
1996, of which approximately $74,000,000 had been drawn down as of such date.

     The Company believes these acquisitions will result in substantial
increases in the level of interest income and purchase discount income during
future periods. During the initial period following acquisitions, the Company
incurs the carrying costs of the related Senior Debt and administrative costs of
the new portfolios. Payment streams are only generated once the loans are
incorporated into the Company's proprietary loan tracking system and contact
with the borrower. Non-performing loans are restructured or collection
litigation initiated.

     During the normal course of business, the Company acquires properties
either from portfolio acquisitions or via foreclosures. Such properties are
classified as, Other Real Estate Owned ("OREO") and are evaluated regularly to
ensure that recorded amounts are supported by current fair market values.

                                     Page 9

<PAGE>

     Management intends to continue to expand the Company's earning asset base
through the acquisition of additional portfolios including performing and
non-performing real estate secured loans. The Company believes that its current
infrastructure is adequate to service additional loans without any material
increases in expenses. There can be no assurance the Company will be able to
acquire any additional loans or that it may do so on favorable terms. While
management believes that the acquisition of additional loan portfolios would be
beneficial, management does not believe that current operations would be
materially impacted if additional loan portfolios were not acquired during 1997.

     Cost of Funds. The decline in interest rates during 1996 and 1995 decreased
the cost of funds on Senior Debt used to fund loan portfolio acquisitions,
directly increasing net income. As of December 31, 1996, the Company had twenty
three loans outstanding with two financial institutions with an aggregate
principal balance of approximately $74,000,000. One financial institution
provided approximately $71 million of such Senior Debt and refinanced the
remaining $3 million Senior Debt at the end of March 1997. References herein to
the Company's Senior Debt lender or lending arrangements refer to such
continuing lender or such continuing lender's lending arrangements. The Senior
Debt accrues interest at a variable rate based upon prime rate.

     The majority of the loans purchased by the Company bear interest at a fixed
rate; consequently, there is little corresponding change in interest income due
to changes in market interest rate conditions. The weighted average interest
rate on borrowed funds for the Senior Debt decreased to approximately 10.37% in
1996 from 10.70% in 1995. Management believes that any future decreases in the
prime rate will positively impact the net income of the Company while increases
may be expected to negatively impact such net income.

     During fiscal 1996 and 1995 the Company also incured additional financing
costs in the form of service fees and loan commitment fees. The service fees are
calculated as a percentage of gross collections on four specific portfolios
while loan commitment fees are points based upon origination of Senior Debt.
Certain of the Company's loan agreements required, during fiscal 1996 and 1995
payment of "service fees" based upon cash collections of principal and interest,
as well as accelerated principal reductions from early payoff collections.
During 1996 the Company negotiated a reduction in these fees to 2.5% to 3% from
5% to 6%, cutting service fee rates in half for fiscal 1996. This generated a
savings of $365,460, which had a direct positive impact on the net income of the
Company.

     Additionally, the lender which has provided the Company's Senior Debt to
date, agreed in March 1997 to a further reduction in interest expense of .375%
to prime plus 1.75% from prime plus 2.125% on all existing debt as of December
31, 1996, and replacement of service fees with a 1% exit fee based upon current
Senior Debt loan balances as of December 31, 1996, or approximately $700,000.
This exit fee shall be paid after the underlying Senior Debt has been repaid in
full.  If the funds collected from the underlying notes receivable are
insufficient to satisfy the related Senior Debt and exit fee any shortfall shall
be forgiven.  Any new Senior Debt incurred to finance acquisitions, after
December 31, 1996, will bear interest at the prime rate, resulting in a 2.125%

                                    Page 10
<PAGE>

reduction of interest rate, as compared to the weighted average interest rate
for fiscal 1996.

     Investments in Limited Partnerships. During 1995 the Company purchased the
interests of all limited partners and liquidated all limited partnerships.
Losses recognized from such liquidations for 1995 were $247,105. Limited
partnership interests purchased from limited partners who also had a significant
ownership interest in the Company were recorded as an increase of $144,579 to
paid in capital. The benefit of the ownership transfer of the partnership
related assets will be realized over their remaining lives.

     The impact of inflation on the Company's operations during both fiscal
1996 and 1995 was immaterial.


Results of Operations

Year ended December 31, 1996 Compared to Year ended December 31, 1995

     Total revenue, comprised of interest income, purchase discount earned and
gains recognized on the bulk sale of notes, increased by $2,291,054 or 19% to
$14,051,911 in the year ended December 31, 1996 ("fiscal 1996"), from
$11,760,857 in the year ended December 31, 1995 ("fiscal 1995"). 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 principal balance. Revenues from interest income on
notes receivable decreased by $476,717 or 7%, to $5,889,471 in fiscal 1996 from
$6,366,188 in fiscal 1995. This decline resulted primarily from the declining
loan balances in the Company's portfolio, and the bulk sale in June 1996 of
$6,311,404 in face amount of performing loans. Purchase discount earned
increased by $1,565,848 or 29%, to $6,887,198 in fiscal 1996 from $5,321,350 in
fiscal 1995. The increase in purchase discount earned reflects both an increased
size in the Company's portfolio of loans and the improved collection experience
of certain notes included in the portfolio. Total revenue as a percentage of
notes receivable, net of allowance for loan losses during fiscal 1996 was 16% as
compared with 12% during fiscal 1995. Gains from the bulk sale of portfolio
increased to $977,579 in fiscal 1996 from $0 in fiscal 1995. This increase
reflected the Company's initiating a strategy of conducting periodic sales of
performing loans to optimize yields and income.

     Total operating expenses increased by $1,211,740 or 11%, to $12,616,202 in
fiscal 1996 from $11,404,462 in fiscal 1995. Total operating expenses includes
collection, general and administrative costs, provisions for loan losses,
interest expense, service fees, amortization of loan commitment fees and
depreciation expense. Collection, general and administrative expenses increased
by $589,850 or 18%, to $3,800,303 in fiscal 1996 from $3,210,453 in fiscal 1995.
Personnel expenses increased by $83,239 or 8%, to $1,097,745 for fiscal 1996
from $1,014,506 for fiscal 1995. OREO related expenses increased by $202,401 or
140%, to $346,540 in fiscal 1996 from $144,139 in fiscal 1995. Properties held
as OREO as of December 31, 1996, had increased by $951,434 or 25%, to $4,737,085

                                    Page 11
<PAGE>

from $3,785,651 as of December 31, 1995. These increases reflected increased
foreclosure activity resulting from the growth in size of the Company's
portfolio. Litigation expenses increased by $485,583 or 70%, to $1,184,042 in
fiscal 1996 from $698,459 in fiscal 1995 and direct collection expenses relating
to credit reports and repossession fees, decreased by $181,373 or 13%, to
$1,171,976 for fiscal 1996 from $1,353,349 for fiscal 1995. Litigation expenses
increased due to the quality and quantity of notes receivable purchased and
OREO related activities. All other collection expenses decreased due to the
economies of scale with the increase in notes receivable.

     Provisions for loan losses decreased by $577,110 or 53%, to $513,372 for
fiscal 1996 from $1,090,482 for fiscal 1995. This decrease reflects the improved
performance in fiscal 1996 of certain notes receivable and the filing for
bankruptcy in 1995 of a borrower who owed the Company approximately $235,000,
which were only partially offset by the writeoff in fiscal 1996 of $155,396
worth of automobile inventory to reduce costs associated with managing such
inventory. Bad debt expense expressed as a percentage of gross notes receivable
for 1996 and 1995 was approximately 0.5% and 0.9%, respectively.

     Interest expense increased by $1,827,551 or 33%, to $7,338,815 in 1996 from
$5,511,264 in fiscal 1995. Total debt increased $2,786,338 or 4%, to $75,520,999
as of December 31, 1996 as compared with $72,734,661 as of December 31, 1995.
Total debt includes Senior Debt, debentures, lines of credit and loans from
affiliates. The Company incurred $1,724,140 of Senior Debt on December 30, 1996
and $16,328,930 on December 31, 1995.

     Service fees decreased by $463,557 or 56%, to $365,459 in 1996 from
$829,016 in fiscal 1995. During 1996 the Company negotiated a reduction in
service fees to 2.5% to 3% from 5% to 6%, cutting service fees in half for
fiscal 1996. This decrease directly accounted for a $365,459 savings or a
direct 44% positive impact on the operating income of the Company.

     Operating income increased by $1,079,314 or 303%, to $1,435,709 in fiscal
1996 from $356,395 in fiscal 1995. This increase resulted primarily from the
bulk sale of loans in June 1996, which resulted in a gain of $977,519 or 91% of
the increase, reduction of service fees, improved performance and the resolution
of notes receivable and non-recurring expenses incurred in connection with the
liquidation of the limited partnerships in December of 1995. In connection with
the bulk sale of loans, the Company is obligated under a recourse provision,
limited to $600,000, of which $425,000 is the remaining recourse obligation as
of December 31, 1996.

     Income before taxes and minority interest increased by $1,079,314 or 303%,
to $1,435,709 in fiscal 1996 from $356,395 in fiscal 1995. Net income increased
by $704,450 or 565%, to $829,153 in fiscal 1996 from $124,703 in fiscal 1995,
for the reasons described above.

                                    Page 12
<PAGE>

Liquidity and Capital Resources

     General. During fiscal 1996, the Company purchased notes receivable with a
face value of approximately $34 million at a cost of approximately $26 million
compared to purchases of notes receivable with a face value of approximately
$59 million at a cost of approximately $37 million during fiscal 1995. This
decrease reflected the replacement by the Company of its Chief Operating Officer
during the first quarter of 1996 and a decision by the Company to focus during
such quarter on reorganizing its senior management and developing new
strategies and criteria for acquisition operations. Additionally the Company
began to redirect its focus from loan acquisition from the RTC and FDIC which
in fiscal 1995 accounted for 60% and 40% of the Company's loan acquisition,
respectively. In fiscal 1996, all portfolio purchases were from independent
financial institutions.

     After the second quarter of fiscal 1996 the Company renegotiated its credit
arrangements with its senior lenders thereby reducing its cost of funds and
increasing its price competitiveness. See "- General - Cost of Funds". All of
the loans acquired by the Company during 1996 were acquired after the second
quarter. The Company believes that with new senior management, the redirection
of its marketing efforts and the reduction in the cost of funds, that the
Company has enhanced its competitiveness.

     The Company's portfolio of notes receivable at December 31, 1996 had a face
value of approximately $113.6 million and had net notes receivable of
approximately $71.5 million. Notes receivable are stated at the amount of unpaid
principal, reduced by purchase discount and an allowance for loan losses. The
Company has the ability and intent to hold its notes until maturity, payoff or
liquidation of collateral.

     During fiscal 1996, the Company used cash in the amount of $3,817,009 in
its operating activities primarily for interest expense, overhead, ordinary
litigation expense incidental to its collections and for the foreclosure and
improvement of OREO. The Company used $26,210,244, in its investing activities,
primarily for the purchase of notes receivable offset by principal collections
of $18,928,465, upon its notes receivable, providing a net of $1,969,541 form
investing activities. The amount of cash used in operating and investing
activities was funded by $2,479,632 of net cash provided by financing
activities, primarily from a net increase in Senior Debt of $4,222,948. The
above activities resulted in a net increase in cash of $632,164.

     In the ordinary course of its business, the Company accelerates and
forecloses upon real estate securing non-performing notes receivable included in
its portfolio. As a result of such foreclosures, at December 31, 1996 and 1995,
the Company held OREO having a net realizable value of $4,737,085 and
$3,785,651, respectfully. OREO is recorded on the financial statements of the
Company at the lower of cost or fair market value. The Company generally holds
OREO as rental property or sells such OREO in the ordinary course of business

                                    Page 13
<PAGE>

when it is economically beneficial. Management believes that the net increase in
OREO Properties held as inventory at December 31, 1996 is not material to the
operations of the Company.

     On December 31, 1995, the Company held as inventory automobiles having a
net realizable value of $267,428 which it obtained through repossessions. Such
automobiles are recorded in the financial statements of the Company at the lower
of cost or fair market value. In an effort to reduce costs associated with
managing the automobile inventory, the Company wrote off $155,396 worth of
automobiles in June 1996.

     On December 31, 1996, the Company held no automobile inventory. Management
believes that any additional automobile inventory acquired in the ordinary
course of business from the Company's remaining automobile loans will be sold.
The Company has ceased to purchase notes receivable secured by automobiles.
Approximately $562,000 or 0.5% of the Company's gross loan portfolio at December
31, 1996 was secured by automobiles.

     Management believes that the Company's existing cash balances, credit
lines, and anticipated cash flow from operations will provide sufficient working
capital resources for its anticipated operating needs. The Company has
negotiated with its Senior Debt lender a modification of the terms of its
funding of cash flows for operation, which may improve cash flows. See "Cash
Flow from Financing Activities". The Senior Debt agreement, has been modified to
permit the Company to retain operating cash flows in connection with budgeted
allowances to operate the Company after the current principal, interest and
escrow obligations are met. Funds remaining after such obligations have been met
are used first to fund the Company's budgeted operating cash flows, then to pay
service fees, and then fund certain reserve agreements, with any remaining funds
to be applied toward the prepayment of Senior Debt. Management believes that
this modification may improve cash flows.


Cash Flow From Operating and Investing Activities

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

     At December 31, 1996, the Company had cash, cash equivalents and marketable
securities of approximately $2.8 million. A portion of the Company's available
funds may be applied to fund acquisitions of companies or assets of companies in
complementary or related fields. Although the Company from time to time engages
in discussions and negotiations, it currently has no agreements with respect to
any particular acquisition.

     In June 1996, the Company negotiated with its Senior Debt lender a
modification to the Senior Debt obligation which increases the cash flow
available to the Company for operations. Management believes that this

                                    Page 14
<PAGE>

modification may reduce irregular periods of cash flow shortages arising from
operations. Management also believes that sufficient cash flow from the
collection of notes receivable will be available to repay the Company's secured
obligations and that sufficient additional cash flows will exist, through
collections of notes receivable, the bulk sale of performing loan portfolios,
continued modifications to the secured debt credit agreements or additional
borrowing, to repay the current liabilities arising from operations and to
repay the long term indebtedness of the Company.

     From time to time, the Company seeks merger and acquisition opportunities
of companies in the specialty financing industry. While, the Company does not
have a commitment to purchase any companies, management is in the process of
reviewing certain opportunities. This may cause the Company to incur
additional capital expenditures, outside the acquisitions of additional notes
receivable.



Cash Flow From Financing Activities

     Senior Debt. As of December 31, 1996, the Company and its wholly owned
subsidiaries owed an aggregate amount $73,538,865, under twenty three loans,
from two financial institutions.

     The Senior Debt is collateralized by first liens on the respective loan
portfolios for the purchase of which the debt was incurred and is guaranteed by
the Company. The monthly payments on the Senior Debt have been, and the Company
intends for such payments to continue to be, met by the collections from the
respective loan portfolios. The loan agreements for the Senior Debt call for
minimum 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 variable rates ranging from
1.5% to 3% over the prime rate. The accelerated payment provisions are generally
of two types: the first requires that all collections from notes receivable,
other than a fixed monthly allowance for servicing operations, be applied to
reduce the Senior Debt; the second requires a further amount to be applied
toward additional principal reduction from available cash after scheduled
principal and interest payments have been made. As a result of the accelerated
payment provisions, the Company is repaying the amounts due on the Senior Debt
at a rate faster than the minimum scheduled payments. However, while the Senior
Debt remains outstanding, these accelerated payment provisions may limit the
cash flow which is available to the Company.

     The Company has negotiated with its Senior Debt lender to modify the
existing terms of its funding of cash allowances for operations to increase cash
availability, whereby the Company receives additional availability based upon
collections after contractual principal, interest and escrow payments are met
the elimination of service fees and the reduction of the interest rate charged
on its outstanding Senior Debt. Management feels this may reduce periods of
irregular cash flows, however, there can be no assurance that the Company will
not encounter periods of cash flow shortages.

                                    Page 15
<PAGE>

     Certain of the Senior Debt credit agreements required establishment of
restricted cash accounts, funded by an initial deposit at the loan closing and
additional deposits based upon monthly collections up to a specified dollar
limit. The restricted cash is maintained in a interest bearing account, at a
bank which is one of the lenders of the Senior Debt. Restricted cash may be
accessed by the lender only upon the Company's failure to meet the minimum
monthly payment due if collections from notes receivable securing the loan are
insufficient to satisfy the installment due. Historically, the Company has not
called upon these reserves. The aggregate balance of restricted cash in such
accounts was $828,845 on December 31, 1996 and $617,111 on December 31, 1995.

     12% Debentures. In connection with the acquisition of a loan portfolio
during 1994, the Company offered to investors $750,000 of subordinated
debentures. As of December 31, 1996 and December 31, 1995, $470,000 and
$705,000, respectively, of these debentures were outstanding. The 12% Debentures
bear interest at the rate of 12% per annum payable in quarterly installments.
The principal is to be repaid over four years in sixteen equal installments of
$44,062 which commenced March 31, 1996. The 12% Debentures are secured by a lien
on the Company's interest in certain notes receivable and are subordinated to
the Senior Debt encumbering the loan portfolio.

     Harrison First Corporation 12% Debentures. In connection with the
acquisition of a loan portfolio during 1995, the Company offered to investors
$800,000 of subordinated debentures. As of December 31, 1996 and December 31,
1995, $555,000 and $555,000, respectively, of these debentures were outstanding.
The Harrison 1st 12% Debentures bear interest at the rate of 12% per annum
payable in quarterly installments. The principal is to be repaid over three
years in ten equal quarterly installments of $22,200 commencing September 30,
1997 with the remaining balloon payment of $333,000 due June 30, 2000. The
Harrison 1st 12% Debentures are secured by a lien on the Company's interest in
certain notes receivable and are subordinated to the Senior Debt encumbering the
loan portfolio.

     Lines of Credit. Advances made available to the Company by its Senior Debt
lender were used to satisfy senior lien positions and fund property repair costs
in connection with foreclosures of certain real estate loans financed by the
Company. Management believes the ultimate sale of these properties will satisfy
the outstanding lines of credit and accrued interest, as well as surpass the
collectible value of the original secured notes receivable. Management has an
agreement in principal with its Senior Debt lender to increase this credit
facility to cover additional real estate foreclosures which the Company maybe
required to hold as rental property to maximize its return. The total amounts
outstanding under the lines of credit as of December 31, 1996 and 1995, were
$583,916 and $1,324,128, respectively. This credit facility provides the Company
the ability to borrow a maximum of approximately $1,500,000 at a rate equal to
the bank's prime rate plus two percent per annum. Principal repayment of the
lines are due six months from the date of each cash advance and interest is
payable monthly.

                                    Page 16
<PAGE>

     Limited Partnerships. The Company was the general partner of seventeen
limited partnerships which were active during 1995. The limited partnerships
obtained capital to purchase loan portfolios primarily from one, or a
combination of the following sources: (i) equity contributions or loans from the
Company and its stockholders, (ii) the sale of limited partnership interests to
third parties and (iii) loans from banks or finance companies (which is referred
to as the Senior Debt). During 1994 the Company purchased the interests of
certain limited partners and liquidated the associated limited partnerships.
During 1995 the Company purchased the interests of all remaining limited
partners and liquidated all limited partnerships. Loss upon liquidation for 1995
was $247,105. Limited partnership interests purchased from limited partners who
also had an ownership interest in the Company were recorded as additional paid
in capital in the amount of $144,579.



Item 7. Financial Statements.

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


Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     Not Applicable


                                      PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of Exchange Act.
<TABLE>
<S>                   <C>       <C>         <C>          <C>
                                          Current
                            Year First    Term as
                             Elected     Director
Name                  Age    Director     Expires     Office
Thomas J. Axon         45      1988         1997      President, Chief
                                                      Executive Officer
                                                      and Director

Frank B. Evans         45      1994         1997      Vice President,
                                                      Chief Financial
                                                      Officer, Treasurer
                                                      Secretary and Director

                                    Page 17
<PAGE>

Steven W. Lefkowitz    41      1996         1997      Director

Joseph Bartfield       42      1994         1998      Director

Joseph Caiazzo         39      1994         1998      Vice President,
                                                      Chief Operating
                                                      Officer and
                                                      Director

Robert M. Chiste       50      1994         1998      Director

Allan R. Lyons         56      1994         1999      Director

William F. Sullivan    47      1996         1999      Director

Eugene T. Wilkinson    47      1996         1999      Director
</TABLE>

                             CLASS 1 DIRECTORS
                         WITH TERMS EXPIRING 1998

     Joseph Bartfield has served as a Director of the Company since December 30,
1994. Mr. Bartfield has practiced law in New York State since 1980. Since 1988
he has been self-employed, specializing in commercial litigation and commercial
arbitration. Mr. Bartfield graduated from New York Law School and holds a
masters degree in political science from Long Island University.

     Joseph Caiazzo has served as a Director of the Company since December 30,
1994 and Vice President and Chief Operating Officer since March of 1996. From
August 1989 to March 1996, Mr. Caiazzo served as corporate controller of R.C.
Dolner, Inc., a general contractor. Mr. Caiazzo holds a Bachelor of Science from
St. Francis College and a Masters of Business Administration in Finance from
Long Island University.

     Robert M. Chiste has served as a Director of the Company since December 30,
1994. Since November 1994, Mr. Chiste has served as Chief Executive Officer and
a Director of Allwaste, Inc. From February 1986 to November 1994, Mr. Chiste
served as Chief Executive Officer and President of American National Power,
Inc., successor to Transco Energy Ventures Company. Mr. Chiste holds a Bachelor
of Science with honors in mathematics from Trenton State College, a J.D. cum
laude from Rutgers University School of Law and a Master of Business
Administration cum laude from Rutgers University School of Management.

                                    Page 18
<PAGE>

                               CLASS 2 DIRECTORS
                            WITH TERMS EXPIRING 1999

     Allan R. Lyons has served as a Director of the Company since December 30,
1994. Mr. Lyons is a Certified Public Accountant who has been a principal in
Piaker & Lyons, P.C. and its predecessors since 1968.  Mr. Lyons is engaged
primarily in estate, tax and financial planning services including investment
structuring.  Mr. Lyons has been a director of Starlog Franchise Corporation
since August 1993 and a Director of The Score Board, Inc., a corporation
primarily engaged in the sale of sports and entertainment memorabilia since June
1990.  Mr. Lyons holds a Bachelor of Science in accounting from Harpur College
and a Masters of Business Administration from Ohio State University.

     William F. Sullivan has served as a Director of the Company since June
1996. Mr. Sullivan has been a Partner at Marnik & Sullivan, a general practice
law firm, since 1985 and is admitted to both the New York State and
Massachusetts Bar Associations. Mr. Sullivan graduated from Suffolk University
School of Law and holds a Bachelor of Arts in political science from the
University of Massachusetts.

     Eugene T. Wilkinson has served as a Director of the Company since December
30, 1994. Mr. Wilkinson has served as President and CEO of Management Facilities
Corporation, a Warren, New Jersey reinsurance facilities manager, underwriter
and consultant primarily in the health care field, since 1987. Mr. Wilkinson
holds a Bachelor of Business Administration from the University of Ohio.


                               CLASS 3 DIRECTORS
                            WITH TERMS EXPIRING 1997

     Thomas J. Axon has served as President, Chief Executive Officer and
Chairman of Board of Directors of the Company since December 30, 1994. Mr. Axon
also served as Director of Franklin Credit Management Corporation ("Franklin")
from May 1988 until the Merger and President of Franklin from October 8, 1991
until the Merger. Since 1985, Mr. Axon has been the President and principal
owner of RMTS Associates, LLC.("RMTS"), an insurance consulting and underwriting
business with emphasis in professional sports, medical stop-loss insurance and
large risk management. Mr. Axon holds a Bachelor of Arts in economics from
Franklin and Marshall College and attended the New York University Graduate
School of Business.

     Frank B. Evans, Jr. has served as Vice President, Treasurer, Chief
Financial Officer,Secretary,  and Director of the Company since December 30,
1994. Mr. Evans also served as the Secretary, Treasurer, a Vice President and a
Director of Franklin from its inception in 1990 until the Merger. Mr. Evans is
CEO of Earthsafe Corporation, a McLean, Virginia firm that designs and supplies
environmental compliance systems. Since October 1995, Mr. Evans has served as
Vice President of RMTS, an insurance consulting and underwriting business. Mr.
Evans is a Certified Public Accountant and holds a Bachelor of Science from the

                                    Page 19
<PAGE>

University of Maryland and a Masters in business from the University of Southern
California.

     Steven W. Lefkowitz has served as a Director of the Company since June
1996. Mr. Leftkowitz is the founder and President of Wade Capital Corporation,
a privately held investment firm organized in 1990. From 1988 to 1990, Mr.
Lefkowitz served as a Vice President of Corporate Finance for Drexel Burnham
Lambert, Incorporated, where he had been employed since 1985. Mr. Lefkowitz
serves on the Board of Directors of American Film Technologies, Inc. and several
private companies. Mr. Lefkowitz holds a Bachelor of Arts in history from
Dartmouth College and a Masters in business administration from Columbia
University.


                         COMPLIANCE WITH SECTION 16(a)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended requires
the Company's Directors and Executive Officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Reporting
persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms that they file.

     Based solely on review of the copies of such reports furnished to the
Company, the Company believes that during the fiscal year ended December 31,
1996 ("Fiscal 1996") all Section 16(a) filing requirements applicable to its
Officers, Directors and ten percent stockholders were complied with except for
the submission four days late of a single Form 4 for each of Mr. Evans and
Mr. Bartfield.


Item 10. Executive Compensation.

Summary Compensation Table

     The following table sets forth compensation earned by or paid to Thomas J.
Axon, the Chief Executive Officer of the Company (the "Named Executive"). No
other Executive Officer of the Company earned over $100,000 in fiscal 1996. The
Company awarded or paid such compensation to Mr. Axon for services rendered in
all capacities during the applicable fiscal years.

                                    Page 20
<PAGE>
<TABLE>
<CAPTION>
                          SUMMARY COMPENSATION TABLE
<S>                          <C>              <C>        <C>          <C>
-------------------------------------------------------------------------------
                                                    Annual Compensation
-------------------------------------------------------------------------------
                                                                  Other Annual
     Name and             Fiscal Year        Salary      Bonus    Compensation
 Principal Position                            ($)        ($)         ($)
===============================================================================
Thomas J. Axon-Chief          1996            $ 0          -        $7,000(1)
 Executive Officer            1995            $ 0          -        $7,000(1)
                              1994            $ 0          -        $7,000(1)
===============================================================================
<FN>
(1) Represents health insurance benefits received by Mr. Axon.
</FN>

</TABLE>

Directors Compensation. Directors receive no compensation for their service as
such. Effective June 5, 1996, each non-employee director of the Company was
granted an option to purchase 10,000 shares of Common Stock pursuant to the
Company's 1996 Stock Incentive Plan. These options vest 25% each year on the
first four anniversaries of the date of grant at $7.85 per share. To date none
of these options have been exercised.

Employment Agreements. The Company has written employment agreements with two of
its senior employees. Ms. Marcia Vacacela, President of Liberty Lending, entered
into a two year employment agreement with Liberty Lending effective January 1,
1997. The agreement provides for an annual compensation of $104,000 and provides
for a renewal term of four years, upon agreement of the parties. Ms. Vacacela
also received a signing bonus of $12,000 and a grant of 10,000 options to
purchase Common Stock, of which 2,000 vest after each year of service is
completed. In addition, under her employment agreement Ms. Vacacela will receive
a bonus based on 1.5% of post tax profits of Liberty Lending from $250,000 up to
$2 million and 1% of any post tax profits in excess of $2 million.

     Mr. Caiazzo, the Chief Operating Officer, has a five year contract for
annual compensation of $125,000 beginning March 25, 1996 and expiring on March
24, 2001. In addition, under his employment contract Mr. Caiazzo will receive a
bonus of 3.5% of post tax profits in excess of $500,000. Mr. Caiazzo also
received a grant of 20,000 options to purchase Common Stock, of which 10,000
vested immediately and the balance of which will vest on March 26, 1998.


Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth, as of March 31, 1997, the number of
shares of Common Stock and the percentage of the Company's Common Stock
beneficially owned by (i) each person known (based solely on Schedules 13D or
13G filed with the Securities and Exchange Commission (the "Commission") to the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each Director and nominee for Director of the Company, (iii) the Named
Executive (as defined in "Executive Compensation" below), and (iv) all Directors

                                    Page 21
<PAGE>

and executive Officers of the Company as a group (based upon information
furnished by such persons). Under the rules of the Commission, a person has
benefical ownership of Common Stock if the power or shares the power to vote or
direct the disposition of such security or the power to dispose of or to direct
the disposition of such security. In general, a person is also deemed to be a
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities.
<TABLE>
<S>                                 <C>                          <C>
                                                          Number of Shares
                                Beneficially                  Percentage
Name and Address                   Owned                   of Common Stock
Thomas J. Axon (1)(2)             610,818                       55.4%

Frank B. Evans, Jr. (1)(3)        186,727                       16.9%

Joseph Caiazzo (1)(4)              10,220                         *

Vincent A. Merola                  59,187                        5.4%
25 Wildwood Court
Montvalle, NJ 07645

James B. Murphy (1)                41,509                        3.8%

Joseph Bartfield (1)                  0                           *

Robert M. Chiste (1)                9,011                         *

Steven W. Leftkowitz (1)              0                           *

Allan R. Lyons (1)                    0                           *

William F. Sullivan (1)               0                           *

Eugene T. Wilkinson (1)             2,902                         *

All Directors and officers        920,374                       82.7%
as a group (8 persons)
-----------------------------------------------------------------------------
<FN>

* Indicates beneficial ownership of less than one (1%) percent.

(1) Mailing address: C/O Franklin Credit Management Corporation, Six Harrison
    Street, New York, New York 10013.

                                     Page 22
<PAGE>

(2) Includes 2,322 beneficially owned by Mr. Axon's mother, Ann Axon, with
    respect to which shares Mr. Axon disclaims beneficial ownership and 206
    shares owned of record by him as custodian for a minor child.

(3) Includes 2,222 shares beneficially owned by Mr. Evans's father Frank Evans,
    with respect to which shares Mr. Evans disclaims beneficial ownership.

(4) Includes options to purchase 10,000 shares of Common Stock exercisable
    within sixty days.
</FN>
</TABLE>

Item 12. Certain Relationships and Related Transaction.

During the year ended December 31, 1995, the Company held an undivided 60%
interest in an office condominium unit located on the Sixth Floor of Six
Harrison Street, New York, New York, which houses the Company's principal
executive offices. During fiscal 1995, the Company made monthly mortgage
payments proportional to its undivided 60% interest of the mortgage of the
unit. On December 31, 1995, the Company purchased the remaining undivided
interests in the condominium unit from RMTS and Axon Associates, Inc. ("Axon")
in consideration of the assumption by the Company of the obligation to pay all
principal and interest under the mortgage and a purchase price of $150,000, half
of which is due to each of RMTS and Axon. In payment of such amounts the
Company issued to RMTS and to Axon 10% Demand Notes due on demand, which are
reflected on the financial statements of the Company as Notes Payable to
Affiliates at December 31, 1996 and December 31, 1995. Thomas J. Axon owns 100%
of the outstanding stock of Axon.

     The Company has indebtedness to Mr. Axon currently in the amount of
$79,000, $75,000 of which was originally incurred to Axon Associates, Inc.on
December 31, 1995 in respect of the purchase by the Company of the remainder of
the undivided interest in the condominium unit and $4,000 of which is the
principal amount remaining outstanding on a 1994 advance of $120,000 to fund the
purchase of a portfolio. This indebtedness bears interest at a rate of 10% per
annum and requires quarterly payments of $6,000 in respect of principal and
interest.

     Additionally, in connection with such purchase, the Company incurred
indebtedness of $100,000 to RMTS. Such indebtedness accrues interest at a rate
of 10% per annum and is payable on demand.

     In Janaury, 1995 the Company incurred indebtedness to Vincent A. Merola,
the former Secretary of Miramar, and Mr. Axon the President of the Company, of
$90,034 and $82,139, respectively, in repsect of advances used to finance
certain of the Company's ordinary operating expenses in 1995. Such indebtedness
bears interest at a rate of 10% per annum. The indebtedness to Mr. Merola
requires monthly payments of $4,155 until repaid in full at December 31, 1997,
and the indebtedness to Mr. Axon requires monthly interest payments, with the
principal due upon demand. $39,704 of the indebtedness to Mr. Merola currently
remains outstanding.

                                    Page 23
<PAGE>

     As of December 31, 1996, the Company had indebtedness of $65,000
outstanding to RMTS in respect of a November 1996 advance under a line of credit
provided to the Company by RMTS to fund deposits required in connection with
bids at notes receivable auctions. The indebtedness bears interest at a rate of
9.85% per annum and $16,500 of the indebtedness to RMTS currently remains
outstanding.

     On May 3, 1995, the Company entered into a letter agreement with Wade
Capital Corporation ("WCC"), of which Steven W. Lefkowitz, a member of the
Company's Board of Directors, serves as President, pursuant to which WCC was
retained through April 30, 1996 to provide financial advisory services to the
Company. In consideration for such services, the Company agreed to pay WCC a
monthly retainer of $2,500 and a success fee based upon performance parameters,
and to issue WCC a five year warrant to purchase 5% of the amount of the
Company's securities issued in any financing or acquisition transaction. To date
the Company has paid WCC the $30,000 of retainer fees.



                   Item 13. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>

(a)                           EXHIBIT TABLE
<S>         <C>            <C>

           Exhibit
           No.           Description
           3(a)          Restated Certificate of Incorporation. Previously
                         filed with, and incorporated herein by reference to,
                         the Company's 10-KSB , filed with the Commission on
                         December 31, 1994.

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

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

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

           10(c)         Employment Agreement, dated December 4, 1996, between
                         the Company and Marcia Vacacela.

                                    Page 24
<PAGE>

           10(d)         Employment Agreement, dated December 4, 1996, between
                         the Company and Joseph Caiazzo.

           10(e)         Agreement dated March 29, 1997 between the Company and
                         the Citizens Banking Company.

           11            Computation of earnings per share

           21            Listing of subsidiaries


(b)                      No reports on Form 8-K were filed during the last
                         quarter of 1996.
</TABLE>

                                    Page 25
<PAGE>

                                   SIGNATURES

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

March 31, 1997                          FRANKLIN CREDIT MANAGEMENT
                                        CORPORATION


                                         By: THOMAS J. AXON
                                             Thomas J. Axon
                                            President and Chief
                                             Executive Officer

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

Signature             Title                                     Date


THOMAS J. AXON        President, Chief Executive Officer      March 31, 1997
Thomas J. Axon        and Director
                      (Principal executive officer)


FRANK B. EVANS, Jr.   Vice President, Treasurer,               March 31, 1997
Frank B. Evans, Jr.   Chief Financial Officer and Director
                      Secretary (Principal financial and accounting officer)



JOSEPH CAIAZZO        Vice President, Chief Operating          March 31, 1997
Joseph Caiazzo        Officer and Director



                                    Page 26

<PAGE>

                    FRANKLIN CREDIT MANAGEMENT CORPORATION
                                AND AFFILIATES

                         CONSOLIDATED FINANCIAL REPORT


                                DECEMBER 31, 1996



                                    Page 27
<PAGE>
<TABLE>
<CAPTION>

                                      CONTENTS
<S>                                                                      <C>
------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                            F-1
------------------------------------------------------------------------------
FINANCIAL STATEMENTS

   Consolidated balance sheets                                          F-2

   Consolidated statements of income                                    F-3

   Consolidated statements of stockholders' equity                      F-4

   Consolidated statements of cash flows                                F-5

   Notes to consolidated financial statements                    F-6 to F-27
------------------------------------------------------------------------------
</TABLE>
                                    Page 28
<PAGE>








                            INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Franklin Credit Management Corporation and Affiliates
New York, New York

We have audited the accompanying consolidated balance sheets of Franklin Credit
Management Corporation and Affiliates as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  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, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Franklin  Credit
Management Corporation and Affiliates as of December 31, 1996 and 1995, and the
results of their  operations  and their cash flows for the years then ended, in
conformity with generally accepted accounting principles

As discussed in Note 1, the Company  adopted  Statement of Financial  Accounting
Standards  Numbers 114 and 118 on January 1, 1995 and changed its method of
accounting for impaired loans.  Also discussed in Note 1, the Company adopted
Statement of Finaincial Accounting Standards No. 122 on January 1, 1996 and
changed its method of accounting for mortgage servicing rights.

In addition, as discussed in Note 11, the Company adopted Statement of Financial
Standards No. 123 on Jnauary 1, 1996 which established new standards for
stock-based compensation.




Jericho, New York
March 7, 1997
                                  Page 29 F-1
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
-------------------------------------------------------------------------------
                                                      1996             1995
                                               --------------------------------
<S>                                                    <C>              <C>
ASSETS
Cash                                          $      1,967,964 $      1,335,800
Restricted Cash (Note 5)                               828,845          617,111
Notes Receivable (Notes 2 and 5)
   Principal amount                                113,610,782      116,573,463
   Joint venture participations                       (360,395)        (448,966)
   Purchase discount                               (18,160,403)     (28,708,043)
   Allowance for loan losses                       (23,604,810)     (20,420,311)
                                               --------------------------------
          Net notes receivable                      71,485,174       66,996,143
                                               --------------------------------
Accrued Interest Receivable                          1,132,370        1,150,869
Other real estate owned                              4,737,085        3,785,651
Inventory, repossessed collateral                         -             267,428
Other receivables                                      421,392          502,486
Refundable income tax                                     -              74,240
Other assets                                           704,695          938,001
Building, furniture and fixtures, net (Note 3)         640,749          698,418
Deferred financing costs                             1,358,874        1,564,920
                                               --------------------------------
          Total assets                        $     83,277,148 $     77,931,067
                                               ================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable and accrued expenses       $      1,874,267 $        781,682
  Line of credit (Note 9)                              583,916        1,324,128
  Notes payable (Note 5)                            73,538,865       69,315,917
  Subordinated debentures (Note 7)                   1,025,000        1,260,000
  Notes payable, affiliates (Note 8)                   373,218          834,616
  Deferred income taxes (Note 10)                    1,778,862        1,240,540
                                              ---------------------------------
          Total liabilities                         79,174,128       74,676,343
                                              ---------------------------------

Commitments and Contingencies (Note 16)

Stockholder's Equity:
  Common stock,$.01 par value, 10,000,000
    authorized shares; issued and outstanding
    in 1996: 1,102,077; 1995: 5,503,896
    (Notes 6, 11 and 13)                                11,022           55,040
  Additional paid-in capital (Note 4)                6,534,113        6,470,952
  Accumulated deficit                               (2,442,115)      (3,271,268)
                                              ---------------------------------
          Total stockholders' equity                 4,103,020        3,254,724
                                              ---------------------------------
  Total liabilities and stockholders' equity  $     83,277,148 $     77,931,067
                                              =================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                   Page 30 F-2
<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------
                                                        1996          1995
                                               --------------------------------
<S>                                                     <C>             <C>

Revenue:
   Interest income                             $      5,889,471 $     6,366,188
   Purchase discount earned                           6,887,198       5,321,350
   Gain on sale of notes receivable (Note 12)           977,519            -
   Loss on liquidation of partnership
     interests (Note 4)                                    -           (247,105)
   (Loss) gain on sale of repossessed collateral        (63,877)        109,067
   Gain on sale of other real estate owned               75,533            -
   Other                                                286,067         211,357
                                                -------------------------------
                                                     14,051,911      11,760,857
                                                -------------------------------
Operating expenses:
   Interest expense                                   7,338,815       5,511,264
   Collection, general and administrative             3,800,303       3,210,453
   Provision for loan losses (Note 2)                   513,372       1,090,482
   Banking service fees                                 365,459         829,016
   Amortization of debt financing costs                 531,895         710,663
   Depreciation                                          66,358          52,584
                                                 ------------------------------
                                                     12,616,202      11,404,462
                                                 ------------------------------

          Operating income                            1,435,709         356,395
                                                 ------------------------------

Provision for income taxes (Note 10)                    606,556         176,901
                                                 ------------------------------
          Net income before minority interest           829,153         179,494

Minority interest in net income
  of consolidated partnerships                             -            (54,791)
                                                 ------------------------------
              Net income                         $      829,153  $      124,703
                                                 ==============================

Earnings per common share: (Note 13)
   Income before minority interest               $         0.72  $         0.17
   Minority interest in net income
     of consolidated partnerships                           -             (0.05)
                                                 ------------------------------
   Net income                                    $         0.72  $         0.12
                                                 ==============================
Weighted average number of shares outstanding         1,150,141       1,028,597
                                                 ==============================
</TABLE>

See Notes to Consolidated Financial Statements.

                                   Page 31 F-3

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------
                         Common Stock      Additional
                        --------------      Paid -In    Accumulated
                        Shares    Amount    Capital       Deficit       Total
-------------------------------------------------------------------------------
<S>                       <C>       <C>        <C>          <C>          <C>

Balance
  December 31, 1994   5,247,871    52,479   $5,838,941   $(3,395,971) $2,495,449

  Conversion of
    warrants              1,568        16        2,977          -          2,993

  Conversion of
    subordinated
    debentures
    (Note 6)            254,457     2,545      484,455          -        487,000

  Contributed
     capital(Note 4)     -         -           144,579          -        144,579

  Net income             -         -              -          124,703     127,703
                   -------------------------------------------------------------
Balance
 December 31, 1995    5,503,896    55,040    6,470,952    (3,271,268)  3,254,724

  Conversion of
    warrants             10,225       102       20,348          -         20,450

  One-for-five
    reverse stock
    split (Note 13)  (4,411,297)  (44,113)      44,113          -           -

  Purchase of
    fractional shares
    in connection
    with reverse
    stock split
    (Note 13)              (747)       (7)      (1,300)         -        (1,307)

  Net income               -         -            -          829,153     829,153
                   -------------------------------------------------------------
Balance
 December 31, 1996    1,102,077  $ 11,022   $6,534,113   $(2,442,115) $4,103,020
                   =============================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                   Page 32 F-4
<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------
                                                      1996            1995
-------------------------------------------------------------------------------
<S>                                                   <C>              <C>
Cash Flows From Operating Activities
  Net income                                  $        829,153   $     124,703
  Adjustments to reconcile net income
   to net cash used in operating
   activities:
     Gain on sale of notes receivable                 (977,519)           -
     Loss on liquidation of partnership
       interests                                          -            247,105
     Loss (gain) on sale of repossessed collateral      63,877        (109,067)
     Gain on sale of other real estate owned           (75,533)           -
     Depreciation                                       66,358          52,584
     Amortization of deferred financing costs          531,895         710,663
     Minority interest in net income of affiliates        -             54,791
     Purchase discount earned                       (6,887,198)     (5,321,350)
     Provision for loan losses                         513,372       1,090,482
     Deferred tax provision                            538,322         181,928
     Changes in assets and liabilities:
       Increase in accrued interest receivable          18,499        (218,419)
       Decrease in other assets and other
          receivables                                  368,640          69,396
       Increase (decrease) in accounts payable
          and accrued expenses                       1,173,125         (80,540)
       Decrease in due to affiliates                      -           (232,075)
       Decrease in income tax payable                     -           (237,576)
                                               --------------------------------
          Net cash used in operating activities     (3,817,009)     (3,667,375)
                                               --------------------------------
Cash Flows From Investing Activities
  Increase in restricted cash                         (211,734)       (234,717)
  Purchase of notes receivable                     (26,210,244)    (37,507,456)
  Principal collections on notes receivable         18,928,465      13,965,811
  Joint venture participation                          (88,571)        (43,120)
  Proceeds from sale of OREO property                3,771,035            -
  Proceeds from sale of motes receivable             5,789,279            -
  Proceeds from sale of property and equipment          20,000            -
  Purchase of property and equipment                   (28,689)        (56,605)
                                               --------------------------------
          Net cash provided by (used in)
             investing activities                    1,969,541     (23,876,087)
                                               --------------------------------
Cash Flows From Financing Activities
   Proceeds from long-term debt                    23,244,945       43,237,988
   Principal payments of long-term debt           (20,223,607)     (11,728,171)
   Proceeds from debenture notes                         -             685,000
   Principal payments of debentures                  (235,000)        (526,600)
   Debt issuance costs paid                          (325,849)        (745,120)
   Distributions to minority interests                   -          (2,728,062)
   Conversion of warrants                              20,450            2,993
   Purchase of fractional shares of common stock       (1,307)            -
                                               --------------------------------
      Net cash provided by financing activities     2,479,632       28,198,028
                                               --------------------------------
      Net increase in cash                            632,164          654,566
Cash:
   Beginning                                        1,335,800          681,234
                                               --------------------------------
   Ending                                     $     1,967,964    $   1,335,800
                                               ================================

Supplemental Disclosures of Cash Flow Information
   Cash payments for interest                 $      6,702,448   $   5,601,403
                                               ================================
   Cash (receipts) payments for taxes         $           (264)  $     232,548
                                               ================================
Supplemental Schedule of Noncash Investing and
   Financing Activities
   Other assets received in settlement
     of loans                                 $      4,646,936   $   3,908,721
   Conversion of redeemable common stock to
      common stock                                        -            487,000
   Contribution of capital upon liquidation
      of limited partnerships                             -            144,579

Acquisition of building assets:
     Building acquired                        $           -      $     309,056
     Long-term debt assumed                               -           (309,056)
                                               --------------------------------
     Cash paid for assets                     $           -      $        -
                                               ================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                   Page 33 F-5
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Note1.   Nature of Business and Significant Accounting Policies

Nature of business

Franklin Credit Management Corporation (the "Company"), incorporated under the
laws of the State of Delaware, acquires non-performing, non-conforming and
sub-performing notes receivable and promissory notes from financial
institutions, mortgage and finance companies and the Federal Deposit Insurance
Corporation ("FDIC").  The Company services and collects such notes receivable
through enforcement of terms of original note, modification of original note
terms, and, if necessary, liquidation of the underlying collateral.

A summary of the Company's significant accounting policies follow:

Basis of financial statement presentation

The financial statements have been prepared in accordance with generally
accepted accounting principles and general practices similar to those of a
consumer finance company.  In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenue and
expenses for the period.  Actual results could differ from those estimates and
the differences could be significant.

Basis of consolidation

The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and all limited partnerships controlled by the
Company.  By terms outlined in the various partnership agreements that were in
effect during 1995, the Company was specifically afforded full power and
authority on behalf of the partnerships to manage, control, administer and
operate the business and affairs of the partnerships.  During 1995, the Company
purchased the interests of the limited partners and all limited partnerships
were liquidated (see Note 4). All significant intercompany accounts and
transactions have been eliminated in consolidation.

Statement of Cash Flows

For purposes of reporting cash flows, the Company includes all cash accounts
(excluding restricted cash) and money market accounts held at financial
institutions. The Company maintains amounts due from banks which at times may
exceed federally insured limits. The Company has not experienced any losses
from such concentrations.

                                   Page 34 F-6
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Notes Receivable and Income Recognition

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

Notes receivable are stated at the amount of unpaid principal, reduced by
purchase discount and an allowance for loan losses.  The Company has the
ability and intent to hold its notes until maturity, payoff or liquidation of
collateral.

On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures."  The effect of adopting Statement
114 was not significant to the operations of the Company based on the
composition of the notes receivable portfolio and because the method utilized
by the Company to measure impairment of notes receivable prior to the adoption
of Statement No. 114 was essentially equivalent to the method prescribed by
Statement No. 114.  Impaired notes are measured based on the present value of
expected future cash flows discounted at the note's effective interest rate or,
as a practical expedient, at the observable market price of the note receivable
or the fair value of the collateral if the note is collateral dependent.  A note
receivable is impaired when it is probable the Company will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the note agreement. Approximately 10% of the Company's note receivable
portfolio consists of smaller balance, homogeneous notes receivable which are
collectively evaluated for impairment and approximately 90% consists of larger
balance notes receivable secured by real estate which are individually
evaluated for impairment.

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

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

                                  Page 35 F-7
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

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

Allowance for loan losses

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

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

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

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

                                  Page 36 F-8
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Other real estate owned

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

Building, property and equipment

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

Deferred financing costs

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

Mortgage servicing rights

The Company adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," on January 1, 1996.  Statement No.
122 requires an entity which acquires mortgage servicing rights through either
purchase or origination of mortgage loans and subsequent sale or securitization
with servicing rights retained, to allocate the total cost of the mortgage
loans, proportionately, to the mortgage servicing rights and the loans based on
the relative fair value.  The servicing rights capitalized are amortized in
proportion to and over the period of, estimated net servicing income including
prepayment assumptions based upon the characteristics of the underlying loans.
Capitalized servicing rights are periodically assessed for impairment based on
the fair value of the rights with any impairment recognized through a valuation
allowance.

                                  Page 37 F-9

<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Pension plan

The Company has a defined contribution retirement plan (the "Plan") covering
all full-time employees who have completed one year of service.  Contributions
to the Plan are made in the form of payroll reductions based on employees'
pretax wages.  Currently, the Company does not offer a matching provision for
the Plan.

Income taxes

The Company recognizes income taxes under an asset and liability method.  Under
this method, deferred tax assets are recognized for deductible temporary
differences and operating loss or tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.  Temporary
differences are the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable come 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 enactment.

Earnings per common share

Primary earnings per share amounts are computed by dividing net income by the
weighted average number of shares actually outstanding plus the shares that
would be outstanding assuming the exercise of dilutive stock options and
warrants, which are considered common stock equivalents.  The number of shares
that would be issued from the exercise of stock options and warrants has been
reduced by the number of shares that could have been purchased from the proceeds
at the average market price of the Company's stock.  Earnings per common share
has been retroactively restated for the effects of the 1996 one-for-five reverse
stock split.  (See Note 13).

                                  Page 38 F-10
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Fair value of financial instruments

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value.  In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques.  Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments.  Statement No. 107 excludes certain
financial instruments and all nonfinancial assets and liabilities from its
disclosure requirements.  Accordingly, the aggregate fair value amounts do not
represent the underlying value of the Company.

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

      Cash, restricted cash, accrued interest receivable, other receivables and
      accrued interest payable:  The carrying values reported in the balance
      sheet are a reasonable estimate of fair value.

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

      Short-term borrowings:  The carrying amounts of the line of credit and
      other short-term borrowings approximate their fair value.

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

Recent accounting pronouncement

The Financial Accounting Standards Board has issued Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," effective for transfers and servicing of financial assets and

                                  Page 39 F-11
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

extinguishment of liabilities occurring after December 31, 1996.  This Statement
provides financial reporting standards for the derecognition and recognition of
financial assets, including the distinction between transfers of financial
assets which should be recorded as sales and those which should be recorded as
secured borrowings. Certain provisions of Statement No. 125 are effective
beginning January 1, 1997, while other provisions are effective January 1, 1998.
The Company believes that the effect of the adoption of Statement No. 125 will
not be material to its financial position or results of operations.

Reclassifications

Certain 1995 amounts have been reclassified to conform with the 1996
presentation.  These reclassifications had no impact on net income.

Note 2.  Notes Receivable and Allowance for Loan Losses

Notes receivable consist principally of real estate mortgage and unsecured
consumer notes receivable as of December 31, 1996 and 1995 and are classified
as follows:
<TABLE>
<CAPTION>
       <S>                                       <C>               <C>

                                                 1996              1995
                                          -----------------  ---------------

       Real estate secured                $     95,513,512   $   99,264,936
       Consumer, unsecured                       9,167,623        8,821,508
       Automobiles                                 562,093        1,191,572
       Mobile homes                              3,877,140        3,985,900
       Other                                     4,490,414        3,309,547
                                          -----------------  ---------------
                                               113,610,782      116,573,463
       Less:
         Joint venture participation              (360,395)        (448,966)
         Purchase discount                     (18,160,403)     (28,708,043)
         Allowance for loan losses             (23,604,810)     (20,420,311)
                                          -----------------  ---------------
                                          $     71,485,174   $   66,996,143
                                          =================  ===============
</TABLE>

                                  Page 40 F-12
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

As of December 31, 1996, contractual maturities of notes receivables net of
the allowance for loan losses were as follows:

<TABLE>
            <S>                                          <C>

           Year Ending December 31,                      Amount
         ----------------------------------------- ---------------
           1997                                     $  19,944,597
           1998                                        17,395,706
           1999                                        15,610,970
           2000                                         4,963,957
           2001                                         3,785,320
           Thereafter                                  13,622,653
                                                   --------------
                                                    $  75,323,203
                                                   --------------

</TABLE>


Excluded from the contractual maturities reflected above are the notes
receivable acquired during the last quarter of 1996 with approximately
$14,700,000 of aggregate principal balances net of allowance for loan losses.
Management is in the process of performing the analyses to determine the final
classification of the notes receivable, the related discount allocation and the
initial determination of the allowance for loan losses associated with these
purchases which are necessary to develop the related contractual maturities
of the underlying notes receivable.

It is the Company's experience that a portion of the note 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, 1996 and 1995, cash collections
of principal amounts totaled approximately $19,000,000 and $14,000,000,
respectively, and the ratios of these cash collections to average principal
balances were approximately 16.5%  and 14%, respectively.

Changes in the allowance for loan losses for the years ended December 31, 1996
and 1995 are as follows:
<TABLE>
      <S>                                         <C>             <C>

                                                  1996            1995
                                           --------------- --------------
    Balance, beginning                     $   20,420,311   $  12,267,546
    Initial allowance allocated on
       purchased portfolios                    10,084,115      15,506,639
    Loans charged to allowance                 (7,412,988)     (8,444,356)
    Provision for loan losses                     513,372       1,090,482
                                           --------------- --------------
    Balance, ending                        $   23,604,810   $  20,420,311
                                           =============== ==============
</TABLE>

At December 31, 1996 and 1995, principal amounts of notes receivable included
approximately $61,000,000 and $71,000,000, respectively, of notes for which
there was no accrual of interest income.  At December 31, 1996 and 1995
approximately $16,000,000 and $34,000,000 of such notes at principal amounts

                                  Page 41 F-13
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

relate to recent portfolio acquisitions whose performance and collection
classification by management is currently in the process of being determined.

The following information relates to impaired notes receivable which include
all nonaccrual loans as of and for the year ended December 31, 1996 and 1995:
<TABLE>
       <S>                                          <C>            <C>

                                                    1996           1995
                                              --------------- ---------------
    Impaired notes receivable for
      which there is a related allowance
      for loan losses determined:
        Based on discounted cash flows         $  68,028,844  $   36,862,525

    Impaired notes receivable for
      which there is no related allowance
      for loan losses                                   -               -
                                              --------------- ---------------
    Total impaired notes receivable            $  68,028,844  $   36,862,525
                                              =============== ===============

    Allowance for loan losses related to
      impaired notes receivable                $  21,180,533  $   18,574,418
                                               ============== ===============

    Average balance of impaired
      notes receivable                         $  50,257,848  $   32,486,853
                                               ============== ===============

    Interest income recognized                 $   1,810,654  $    2,000,714
                                               ============== ===============
</TABLE>


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

Note 3.  Building, Property and Equipment

At December 31, 1996 and 1995, building and improvements, and furniture and
equipment consisted of the following:
<TABLE>
     <S>                                            <C>            <C>

                                                    1996           1995
                                               -------------- --------------

    Building and improvements                  $     603,563  $     619,125
    Furniture and equipment                          221,209        196,958
                                               -------------- --------------
                                                     824,772        816,083
    Less accumulated depreciation                    184,023        117,665
                                               -------------- --------------
                                               $     640,749  $     698,418
                                               ============== ==============
</TABLE>


                                  Page 42 F-14

<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Note 4.   Investments in Limited Partnerships

During 1994, the Company  purchased the interest of certain limited partners and
liquidated the associated limited partnerships.  During 1995, the Company
purchased the interests of the remaining limited partners and liquidated all of
the remaining limited partnerships.  Loss upon liquidation for 1995 was
$247,105.  Limited partnership interests purchased from limited partners who
also had an ownership interest in the Company were treated as additional paid-in
capital.

NOTE 5.   Notes Payable

Notes payable consists of bank loans made to the Company or a subsidiary
primarily to acquire portfolios of notes receivable.  All notes payable are
secured by a security interest in the notes receivable, payments to be received
under the notes and the underlying collateral securing the notes.
<TABLE>
     <S>                                            <C>              <C>

                                                     1996             1995
                                              ---------------- ----------------

     Note payable with monthly principal
       installments of $66,868 currently,
       plus interest at prime plus 2.5%
       per annum with an 8% floor
       (currently 10.75%) through April
       1997, guaranteed by a stockholder
       of the Company.                        $     267,472    $     635,960

     Note payable with monthly principal
       installments of $113,585 currently,
       plus interest at prime plus 2.25%
       per annum (currently 10.5%) through
       July 1997, guaranteed by a
       stockholder of the Company.                  795,816        1,659,140

     Note payable with monthly principal
       installments of $17,243 currently,
       plus interest at prime plus 2%
       per annum (currently 10.25%)
       through December 1997.                        627,239       1,241,556

     Note payable with monthly principal
       installments of $102,403 currently,
       plus interest at prime plus 3% per
       annum (currently at 11.25%) through
       December 2000.                              4,579,304       6,041,773

     Note payable with monthly principal
       installments of $91,667 currently,
       plus interest at prime plus 3%
       per annum (currently at 11.25%)
       through April 2000.                         6,664,523       8,580,871


                                  Page 43 F-15
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

     Note payable with monthly principal
       installments of $121,184 currently,
       plus interest at prime plus 2.5%
       per annum (currently at 10.75%)
       through December 1999.                      8,474,302      11,249,609

     Note payable with monthly principal
       installments starting July 1996,
       of $10,270 currently, plus interest
       at a rate of prime plus 2.5% per
       annum (currently 10.75%) through
       May 2000.                                   1,104,979       1,228,229

     Note payable with monthly installments
       of $61,822 currently, plus interest
       at a rate of prime plus 1.5% per
       annum (currently 9.75%) through
       May 2005.                                   8,337,680      13,891,244

     Note payable with monthly installments
       of $31,426 currently, plus interest
       at a rate of prime plus 1.5% per
       annum (currently 9.75%) through
       April 2003.                                 1,850,811       2,535,919

     Note payable with monthly installments,
       starting July 1996, of $22,280
       currently, plus interest at a rate
       of prime plus 2.0% per annum (currently
       10.25%) through January 1999.               2,672,401       4,010,442

     Note payable with monthly installments
       starting July 1996, of $24,405
       currently, plus interest at a rate of
       prime plus 2.0% per annum (currently
       10.25%) through January 1999.               3,340,485       4,393,038

     Note payable with monthly installments
       of $45,141 currently, plus interest
       at a rate of prime plus 2.0% per
       annum (currently 10.25%) through
       December 1998.                              7,590,632       8,125,450

     Note payable with monthly installments
       of $78,171 currently, plus interest
       at a rate of prime plus 2.0% per
       annum (currently 10.25%) through
       December 2001.                              4,685,560       5,628,344


                                  Page 44 F-16
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

     Note payable with monthly installments
       of $3,758, plus interest at a rate
       of prime plus 1% per annum (currently
       9.25%) through May 1999.                      832,787            -

     Note payable with monthly installments
       of $3,758, plus interest at a rate
       of prime plus 1.5% per annum (currently
       9.75%) through June 1999.                   1,915,774            -

     Note payable with monthly installments
       of $11,355, plus interest at a rate
       of prime plus 1% per annum (currently
       9.25%) through September 1999.              2,659,333            -

     Note payable with quarterly principal
       payments of $34,483, plus interest
       payable monthly at a rate of prime
       plus 1.5% per annum (currently 9.75%)
       through August 1999.                        1,895,896            -

     Note payable with monthly installments
       of $11,500, plus interest at a rate
       of prime plus 1/2% per annum
       (currently 8.75%) through
       August 1999.                                2,716,748            -

     Note payable with monthly installments
       of $14,083 beginning June 1997,
       plus interest at a rate of prime
       plus 1% per annum (currently 9.25%)
       through October 1999.                       3,370,000            -

     Note payable with monthly installments
       of $9,714 beginning June 1997,
       plus interest at a rate of
       prime plus 1.5% per annum
       (currently 9.75%) through
       October 1999.                               2,325,947            -

     Note payable with monthly installments
       of $19,840 beginning August 1997,
       plus interest at a rate of prime
       plus 1.5% per annum (currently 9.75%)
       through December 1999.                      4,761,795            -

     Note payable with monthly installments
       of $5,633, plus interest at a rate
       of prime plus 1.5% per annum
       (currently 9.75%) through
       December 1999.                              1,352,000            -

                                  Page 45 F-17

<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

     Note payable with monthly installments
       of $1,550, plus interest at a rate
       of prime plus 1.5% per annum
       (currently 9.75%) through
       December 1999.                                372,142            -

     Note payable with monthly installments
       of $3,511, with interest at a rate
       of 8.75% per annum through
       August 2011.                                  345,239            -

     Other                                              -             94,342
                                               --------------  --------------
                                               $  73,538,865   $  69,315,917
                                               ==============  ==============
</TABLE>


The above financing agreements also provide for additional monthly principal
reductions based on cash collections received by the Company.  Substantially
all notes receivable are pledged as collateral on the above debt.

Certain agreements require that a noninterest-bearing cash account be
established at the closing of the loan and may require additional deposits based
on a percentage of monthly collections up to a specified dollar limit.  The
aggregate balance of restricted cash at December 31, 1996 and 1995 was $828,845
and $617,111, respectively.

Substantially all of the Company's outstanding financing with respect to its
notes receivable portfolio acquisition activities is provided by one financial
institution.

Aggregate maturities of all long-term debt at currently effective principal
payment requirements, including subordinated debentures (Note 7), financing
agreement (Note 9) and notes payable to affiliates (Note 8), at December 31,
1996 are as follows:
<TABLE>
<S>               <C>          <C>          <C>        <C>           <C>

                                                      Notes
Year Ending      Notes     Subordinated  Financing   Payable,
December 31,    Payable     Debentures   Agreement   Affiliate      Total
------------ ------------- ------------ ---------- ------------ -------------
 1997        $ 10,196,808  $  201,066   $ 583,916  $  373,218   $ 11,355,008
 1998          14,705,306     245,467        -           -        14,950,773
 1999          35,011,871     245,467        -           -        35,257,338
 2000           6,861,115     333,000        -           -         7,194,115
 2001           1,925,265        -           -           -         1,925,265
 Thereafter     4,838,500        -           -           -         4,838,500
             ------------- ------------ ---------- ------------ -------------
             $ 73,538,865  $ 1,025,000  $ 583,916  $  373,218   $ 75,520,999
             ============= ============ ========== ============ =============

</TABLE>

                                  Page 46 F-18
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Note 6.    Convertible Subordinated Debentures

During 1993 the Company issued $2,000,000 of 15% convertible subordinated
debentures and during 1995, the Company fully repaid the remaining outstanding
obligation of $526,600.  The debentures were convertible into common stock of
the Company at the rate of $2.00 per share.  Warrants, exercisable to the extent
that conversion rights have not been exercised, to purchase common stock at the
rate of $2.00 per share, were issued on principal repayment dates and were due
to expire one year thereafter.  During December 1996, the Company extended the
warrant provision, due to expire on December 31, 1996, through December 31,
1997.

As a result of the one-for-five reverse stock split, the exercise price of the
extended  warrants was adjusted to $10.00 per share.

Warrants to purchase 22,026 shares, at $10.00 per share of common stock, and
warrants to purchase 174,514 shares of common stock at $2.00 per share were
outstanding as of December 31, 1996 and 1995, respectively.

Note 7.   Subordinated Debentures

In connection  with the acquisition of a loan portfolio, the Company offered
$750,000 in subordinated debentures of which  $705,000  were issued.  As of
December 31, 1996 and 1995, $470,000 and $705,000 respectively, of these
debentures were outstanding. The debentures bear interest at 12% per annum
payable in quarterly installments. The principal is payable over 4 years in
16 equal quarterly installments of $44,062 which commenced March 31, 1996.
The debentures are secured by a lien on the Company's interest in certain notes
receivable and are subordinate to a note payable with a December 31, 1996
balance of $4,685,560  (see Note 5) encumbering the notes receivable portfolio.

In connection with the acquisition of a notes  receivable  portfolio  during
1995, the Company offered $800,000 in subordinated  debentures. As of December
31, 1996 and 1995, $555,000 of these debentures had been issued and were
outstanding.  The debentures bear interest at a rate of 12% per annum payable
in quarterly installments. The principal is payable over 3 years in 10 equal
quarterly installments of $22,200 commencing September 30, 1997 with the
remaining balance of $333,000 payable on June 30, 2000.  The debentures are
secured by a lien on the Company's interest in certain notes receivable and are
subordinate to a note payable with a December 31, 1996 balance of $8,337,680
(see Note 5) encumbering the note receivable portfolio.

                                  Page 47 F-19

<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Note 8.   Notes Payable, Affiliates and Stockholders

Notes payable, affiliates and stockholders consist of the following at
December 31, 1996 and 1995:
<TABLE>
      <S>                                             <C>            <C>

                                                     1996            1995
                                               ---------------- ---------------

     Note payable to a stockholder of the
       Company, payable in quarterly
       installments of $6,000 plus interest
       at a rate of 10% per annum through
       August 31, 1997.                        $      79,247    $    114,804

     Note payable to a company affiliated
       through certain common ownership,
       due on demand, with interest
       payable monthly at a rate of
       10% per annum.                                100,000          75,000

     Note payable to a company affiliated
       through certain common ownership,
       payable in two monthly installments
       of $32,500 plus interest at a rate
       of 9.5% per annum through
       February 1997.                                 65,000            -

     Note payable to a stockholder of the
       Company, due on demand, with
       interest payable monthly at a rate
       of 10% per annum.                              82,139          82,139

     Note payable to a stockholder of the
       Company, payable in monthly
       installments of $4,155 including
       interest at a rate of 10% per annum.           46,832          90,034

     Note payable to a company affiliated
       through certain common ownership,
       payable in monthly principal
       payments of $1,805 plus interest
       at a rate of 10.75% per annum
       through June 1, 2008.                            -            272,639

     Note payable to a company affiliated
       through certain common ownership,
       due on demand, with interest
       payable monthly at a rate of
       prime plus 1/2% per annum
       (currently 8.75%), the note was
       paid in full in 1996.                            -            125,000

     Note payable to a company affiliated
       through certain common ownership,
       due on demand, with interest
       payable monthly at a rate of
       10% per annum.                                   -             75,000


                                  Page 48 F-20
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

     Note payable to a company affiliated
       through certain common ownership,
       due on demand, with interest
       payable monthly at a rate of
       10% per annum.                                   -             75,000
                                               ---------------- ---------------
                                               $     373,218    $    909,616
                                               ================ ===============
</TABLE>


Note 9.   Financing Agreements

The Company has a financing agreement with a bank. The agreement provides the
Company with the ability to borrow a maximum of $1,500,000 at a rate equal to
the bank's prime rate plus two percent per annum.  The credit facility is to be
utilized through a series of loans made to purchase the underlying collateral of
certain non-performing real estate secured loans.  Principal repayment of each
resulting loan is due six months from the date of each advance and interest is
payable monthly.  As of December 31, 1996 and 1995, $583,916 and $1,324,128,
respectively, is outstanding on this credit facility.

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

The Company has an additional credit facility with the same bank.  The facility
provides the Company with the ability to borrow a maximum of $100,000,000 at
rates ranging from prime plus one to prime plus two percent per annum. The
facility is to be utilized through a series of loans made to purchase note
receivable portfolios. The term of each resulting loan will be thirty-six months
calling for a balloon payment at the end of such term.

The facility is secured by a first priority security interest in the note
receivable portfolio, the respective collateral for each loan purchased and a
lien on certain other note receivable portfolios.  As of December 31, 1996, no
amount is outstanding on this facility.


                                  Page 49 F-20
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Note 10.   Income Tax Matters

The components of income tax provision (benefit) for the years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
       <S>                                            <C>         <C>

                                                       1996       1995
                                                  ------------ -----------
      Current  provision (benefit):
        Federal                                    $    -      $    -
        State and local                               68,234      (5,027)
                                                   ----------- -----------
                                                      68,234      (5,027)
                                                   ----------- -----------
      Deferred provision:
        Federal                                      394,247     120,072
        State and local                              144,075      61,856
                                                   ----------- -----------
                                                     538,322     181,928
                                                   ----------- -----------
                                                  $  606,556   $ 176,901
                                                   =========== ===========
</TABLE>


A reconciliation of the anticipated income tax expense (computed by applying the
Federal statutory income tax rate of 35% to income before income tax expense)
to the provision for income taxes in the statements of income for the years
ended December 31, 1996 and 1995 follows:
<TABLE>
     <S>                                               <C>         <C>

                                                       1996       1995
                                                   ----------- -----------

    Tax at federal statutory rate                  $  502,498  $  121,173
    Increase (decrease) in taxes resulting from:
      State and local income taxes, net of
        Federal benefit                               231,815      37,506
      Nondeductible expenses                           32,987      15,492
      Benefit of operating loss carryforwards        (174,673)       -
      Other                                            13,929       2,730
                                                   ----------- -----------
                                                   $  606,556  $  176,901
                                                   =========== ===========
</TABLE>

                                  Page 50 F-22
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

The tax effects of temporary differences that give rise to significant
components of deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:

<TABLE>
      <S>                                              <C>         <C>
                                                       1996       1995
                                                   ----------- -----------
    Deferred tax liabilities:
      Interest receivable                          $     -     $  348,108
      Purchase discount                             2,042,772   1,176,551
      Joint venture participation                      64,928        -
                                                   ----------- -----------
      Gross deferred tax liabilities                2,107,700   1,524,659
                                                   ----------- -----------

    Deferred tax assets:
      Accounts payable and accrued expenses            45,291      62,418
      Debt issuance costs                              22,635      50,713
      Inventory, repossessed collateral               260,912     170,988
      Net operating loss carryforward                 184,320        -
                                                   ----------- -----------
      Gross deferred tax assets                       513,158     284,119
      Less valuation allowance                        184,320        -
                                                   ----------- -----------
      Deferred tax assets-net of
        valuation allowance                           328,838     284,119
                                                   ----------- -----------
                                                   $1,778,862  $1,240,540
                                                   =========== ===========
</TABLE>


During 1996, net operating loss carryforwards originating in prior years were
determined to be available to the Company and accordingly a deferred tax asset
was recorded for the benefit of the net operating loss carryforward not utilized
in 1996.

A valuation allowance has been recognized to reduce deferred tax assets to an
amount considered by management to be more likely than not to be realized.

The Company has net operating loss carryforwards of approximately $385,000 for
Federal purposes, available to reduce future taxable income.  Such net operating
loss carryforwards expire through 2010.

Note 11.   Stock Option Plan

During  1996 the Company  adopted an  incentive  stock  option plan (the "Plan")
for certain of its officers and employees.  Under the terms of the Plan, options
to purchase an aggregate of up to 120,000 shares of the Company's common stock
may be granted.  Each option has an exercise price at least equal to the fair
market value of the shares of common stock at the time the option is granted.
Options become exercisable at various times after the date granted and will
expire ten years after the date granted.

                                  Page 51 F-23
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

During 1996 the Company granted 41,900 options to employees and directors.

The Company adopted Statement of Financial Accounting Standards No.123,
"Accounting for Stock-Based Compensation" ("SFAS No.123"), on January 1, 1996.
SFAS No.123 established new standards for stock-based compensation plans under
which employees or others receive shares of stock or other equity instruments,
such as stock options, of the employer.  This Statement established a fair value
based method of expense recognition for stock-based compensation plans and
encouraged, but did not require, entities to adopt that method in place of
existing generally accepted accounting principles.  As permitted by SFAS No.123,
the Company has elected to continue under existing generally accepted accounting
principles and to account for options granted under APB Opinion No.25, and
accordingly, no compensation cost has been recognized in the statements of
income for grants under the option plan.  Had compensation cost for the stock
option plan been recognized based on the grant date fair values of awards, the
method described in SFAS No.123, reported net income would have been reduced to
the pro forma amounts shown below:
<TABLE>
         <S>                                            <C>
                                                        1996
                                                    ------------

        Net earnings - as reported                  $  829,153
        Net earnings - pro forma                       770,635

        Earnings per share - as reported                  0.72
        Earnings per share - pro forma                    0.67


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996:

                                                         1996
                                                      ----------

        Dividend rate                                        0%
        Expected volatility                                 48%
        Risk-free interest rate                           6.15%
        Weighted average expected lives                10 years
</TABLE>


                                  Page 52 F-24
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Information regarding options is as follows:
     <S>                                          <C>         <C>

                                                         1996
                                              ------------------------
                                                             Weighted
                                                              Average
                                                             Exercise
                                                 Shares        Price
                                               ---------   -----------

     Options outstanding, beginning of year        -        $    -
     Granted                                     41,900          7.80
     Exercised                                     -             -
     Expired                                       -             -
                                               ---------   -----------
     Options outstanding, end of year            41,900     $    7.80
                                               =========   ===========

     Weighted average fair value per option of
       options granted during the year                      $    2.10
                                                            ==========
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
December 31, 1996:
     <S>            <C>           <C>         <C>           <C>        <C>

                                 Options Outstanding      Options Exercisable
                            -------------------------  ------------------------
                                Weighted
                                 Average    Weighted                  Weighted
                                Remaining    Average                   Average
   Range of        Options     Contractual  Exercise    Exercisable   Exercise
Exercise Prices  Outstanding   Life (Yrs.)    Price     At 12/31/96     Price
---------------  -----------  ------------ ----------   -----------   ---------
    $7.80           41,900         9.50       $7.80        28,200       $7.80
===============  ===========  ============ ==========   ===========   =========

</TABLE>


Note 12.   Sale of Notes Receivable

In June 1996, the Company sold notes receivable with a net carrying value of
approximately $5.4 million for approximately $6.4 million to the Company's
primary lender and retained the servicing rights. Such loans were sold with
recourse. The recourse provision amounted to approximately $600,000 and provides
that the Company either buy back or replace a note with a note that is
approximately equivalent to the outstanding principal and accrued interest
should the note receivable become sixty days past due.  At December 31, 1996,
the remaining obligation under the recourse provision was approximately
$425,000. In addition, the buyer of the notes has the right to proceed to
foreclose on the delinquent note and, after sale of the collateral, require the
Company to pay any deficiency balance on the note. The Company recognized a gain
of approximately $980,000 on this sale. As of December 31, 1996, the unpaid

                                  Page 53 F-25
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

principal balances of mortgage loans serviced for others was $5,500,000.
Mortgage loans serviced for others are not included in the Company's
consolidated balance sheet.

Note 13.   Reverse Stock Split

On December 9, 1996, shareholders approved a one-for-five reverse stock split of
the issued and outstanding common stock of the Company with no corresponding
change in par value of the common stock.  Accordingly, $44,113 was transferred
from the common stock account to the paid-in capital account to record the
transaction.  All remaining fractional shares in connection with the reverse
split were purchased by the Company and paid to shareholders subsequent to
year-end.  All per share amounts have been restated to reflect this reverse
stock split.

Note 14.   Subsequent Events

Subsequent to year-end, the Company entered into an agreement with its primary
lender to refinance all of its outstanding debt.  The agreement reduces the
annual interest rate charged on the outstanding debt to a rate of prime plus one
and three-fourths percent and eliminates all servicing fees to be paid by the
Company.  In addition, the new agreement provides the Company with the ability
to borrow at an interest rate equal to the prime rate on any new debt.

In addition, subsequent to year-end, the Company has purchased approximately
$7,800,000 in notes receivable at a cost of approximately $6,300,000.

Note 15.   Certain Concentrations

Geographic Concentrations of Notes Receivable

Approximately 50% of the Company's secured consumer real estate notes receivable
are with customers in the northeastern region of the U.S., which includes the
New York metropolitan area. Such real estate notes receivable are collateralized
by real estate with a concentration in this region.  Accordingly, the collateral
value of a substantial portion of the Company's real estate notes receivable and
real estate acquired through foreclosure is susceptible to changes in market
conditions.  In the event of sustained adverse economic conditions, it is
possible that the Company could experience a negative impact in its ability to
collect on existing loans, or liquidate foreclosed assets in this region which
could impact the Company's related loan loss estimates.

                                  Page 54 F-26
<PAGE>
FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Years Ended December 31, 1996 and 1995
-------------------------------------------------------------------------------

Financing

Substantially all of the Company's existing debt and available credit facilities
are with one financial institution.  Management believes that alternative
financing on similar terms and conditions is available in the event this
institution is unable or unwilling to continue to provide the credit facilities
to the Company.

Note 16.   Commitments and Contingencies

Contingency

In September 1995, a civil action was commenced against the Company alleging
trademark infringement.  Discovery in the civil action is completed and the
Company anticipates that the trial will commence in the second or third quarter
of 1997. The Company believes, after consultation with legal counsel, that the
eventual outcome of the civil action will have no material impact on the
Company's financial condition or results of operations.

Employment Agreement

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

Note 17.   Related Party Transactions

In addition to the notes payable, affiliates and stockholders disclosed in
Note 8, the Company eceived approximately $90,000 and $130,000, respectively,
for the year ended December 31, 1996 and 1995, from a company related through
common ownership, for the use of the Company's facilities.

At December 31, 1995, the Company purchased the interest of a commonly owned
office condominium from two entities that are affiliated through certain common
ownership.  At December 31, 1996 and 1995, $75,000 and $150,000, respectively is
due to the affiliates in connection with this transaction.


                                  Page 55 F-27
<PAGE>
                                Exhibit 10(c)
                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into in the State, City and
County of New York, as of the 4th day of December, 1996, by and between FRANKLIN
CREDIT MANAGEMENT CORPORATION, a Delaware corporation maintaining its offices at
6 Harrison Street, New York, NY 10013 ("Corporation") and MARCIA B. VACACELA,
residing at 130 West 80th Street, New York, New York 10024 ("Vacacela").

     WHEREAS, the Corporation intends to engage in the business of initiating
direct mortgage loans to individuals in the Greater New York Metropolitan Area
(the "Business") and intends to operate the Business through a newly formed
division to be established for such purposes (the "Division"); and,

     WHEREAS, the Corporation desires to employ Vacacela and Vacacela desires to
accept such employment for the term hereof under the terms and conditions
hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows:

1. Engagement. (a) The Corporation hereby agrees to employ Vacacela as the
principal operating executive of the Division and Vacacela hereby accepts such
employment. Vacacela shall devote her full working time and efforts to, and
shall be vested with substantial control and responsibility over, the affairs of
the Division in order to further the formation, organization, development,
marketing and management of the affairs and prospects of Business. Vacacela's
duties shall include, but not be limited to, the promotion of the Business,
management of the collection process, supervision of the Corporation's employees
dedicated to the Business and, if requested, arranging participation in loan
pools by other lenders and/or the sale of loan pools to third parties.

(b) Vacacela shall at all times report to, be subject to the direction of, and
the reasonable exercise of authority by, the President, Chief Executive Officer
and/or Chief Financial Officer of the Corporation. Vacacela shall perform such
executive, managerial or administrative functions as shall be specified and
designated by such officers of the Corporation and as shall be in furtherance of
the foregoing employment purposes.

2. Term. (a) The term of this Agreement shall commence upon the date first above
written and continue through December 31, 1999 (the "Initial Term").

     (b) In the event that the Corporation desires to extend the Initial Term
hereof beyond December 31, 1999, it shall give Vacacela written notice, no later
than August 31, 1999 of its desire to extend the Initial Term for an additional
period of four (4) years (such term being referred to herein as the "Extended
Term"). The compensation and benefits to be paid during such Extended Term shall
be no less than that provided to Vacacela during the last year of the Initial
Term hereof. Within thirty (30) days following her receipt of such notice,

                                    Page 56

<PAGE>

Vacacela shall notify the Corporation as to whether or not she elects to accept
employment hereunder for the Extended Term. In the event Vacacela elects to so
extend her employment, such employment shall continue hereunder for the Extended
Term, upon the applicable terms and conditions set forth herein. In the event
that Vacacela elects not to so extend her employment for the Extended Term, the
employment of Vacacela hereunder shall terminate upon expiration of the Initial
Term and Vacacela shall thereupon be subject to the non-competition provisions
set forth in Section 12 hereof (except that the non-competition period shall be
extended to twelve (12) months) as well as any other applicable provisions of
this Agreement.

3. Compensation and Benefits. (a) The Corporation agrees to pay Vacacela, as and
for her compensation for all services to be rendered by her during the Term, the
amount of $104,000.00 per annum (the "Salary"). Such compensation shall be paid
in bi-weekly installments on the Corporation's regular pay periods.

     (b) As additional compensation, the Corporation shall pay Vacacela
$12,000.00 upon the commencement of her employment hereunder.

     (c) Vacacela shall be entitled to participate in any 401K or similar
Retirement Plan, and in any health and/or life insurance plan, available to
employees of the Corporation upon the same terms as same are made available to
the other executives of the Corporation.

4. Bonus Compensation. (a) The Corporation shall pay to Vacacela as additional
compensation with respect to each fiscal year of the Corporation during the
Initial or Extended Terms hereof, cash in an amount equal to ( i) one and
one-half (1.5%) percent of the Post-Tax Profit (as hereinafter defined)generated
for the Corporation by the Business in excess of Two Hundred Fifty Thousand
($250,000) Dollars but less than Two Million ($2,000,000) Dollars and (ii) one
(1%) percent of the Post-Tax Profit generated for the Corporation by the
Business in excess of Two Million ($2,000,000) Dollars (the "Bonus
Compensation").

     (b) The determination of the amount of Bonus Compensation payable for each
such fiscal year shall be made in reliance upon the Accountant's Statement (as
hereinafter defined). The Bonus Compensation payable with respect to any fiscal
year shall be paid to Vacacela within thirty (30) days after the Accountant's
Statement pertaining to such fiscal year is deemed final in accordance with
Section 4(e) below.

     (c) As used herein, the term "Post-Tax Profit" shall mean the aggregate net
income of the Corporation, determined on a "cash" basis in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis,
after all deductions for taxes based upon income and all adjustments of asset
values. For the purposes of this Agreement, the "Post-Tax Profits" shall be
calculated based upon the income and expenses generated by, or related to, the
Business and the Division.

     (d) As soon as available, but in no event later than ten (10) days after
the date that the Corporation shall issue its annual financial statement, the
Corporation shall deliver to Vacacela a statement prepared by its regular
certified public accountants, setting forth the Post-Tax Profit during such
preceding fiscal year (the "Accountant's Statement").

                                    Page 57
<PAGE>

     (e) Promptly upon receipt of each such Accountant's Statement, Vacacela
shall be entitled, through an independent public accountant of her choice, to
examine the books and records of the Corporation as they relate to the
Accountant's Statement. Any objections by Vacacela to the Accountant's Statement
shall be set forth in writing in reasonable detail and delivered to the
President of the Corporation within thirty (30) days after receipt thereof by
Vacacela. Any objection unresolved fifteen (15) days after delivery thereof to
the President shall be submitted to an independent public accountant mutually
agreeable to the parties hereto for their determination of the issue in dispute,
which determination shall be conclusive upon the parties. Each such Accountant's
Statement shall be deemed final upon the expiration of the thirty (30) day
period referred to above if no objections are raised by Vacacela or if raised
have not then been resolved. Vacacela shall bear the cost of her independent
public accountant and of the "arbitrating" independent public accountant, unless
the Bonus Compensation is $10,000 or more greater than the Bonus Compensation
originally determined by the Corporation's then regularly retained independent
public accountants, in which case the Corporation shall bear the cost of all the
accountants.

     (f) The payment of the Bonus Compensation shall be subject to Vacacela's
being employed by the Corporation at the completion of each such fiscal year of
the Corporation.

     5. Stock Options. (a) In addition to the Salary and Bonus Compensation,
the Corporation shall also grant to Vacacela five (5) non-negotiable and
non-transferable options (the "Options"), each of which shall provide Vacacela
with the right to purchase up to 10,000 shares of the Corporation's Common Stock
at a price of $1.57 per share.

     (b) Each of the Options shall be deemed vested with Vacacela on the first
day of each year during the term hereof, commencing January 1, 1999 and each of
the next four (4) January 1st through January 1, 2003 ("Vesting Dates"),
provided that at each respective Vesting Date Vacacela shall then be employed by
the Corporation. The Options not theretofore vested shall be automatically
deemed void in the event that (i) the Corporation shall offer to extend the
Initial Term hereof in accordance with Section 2(b) above and Vacacela elects
not to so extend her employment for the Extended Term or (ii) Vacacela's
employment hereunder is terminated in accordance herewith prior to such
Vesting Date.

     6. Termination. (a) Except as otherwise expressly set forth herein, the
employment of Vacacela hereunder shall not be terminated unless for good and
valid cause only, which determination shall be made by the Corporation's board
of directors. Vacacela shall be provided with at least thirty (30) days prior
notice prior to the effective date of such termination and shall be entitled to
receive all of her Salary through the effective date of such termination.

     (b) In the event that Vacacela contests the existence of "good and valid
cause" for such actions by the board of directors, she may commence an
Arbitration proceeding ("Arbitration"), in accordance with Section 11 hereof,

                                    Page 58

<PAGE>

prior to the effective date of such termination. In the event that Vacacela
timely commences such an Arbitration, and pending a final Award of Arbitrators,
or the confirmation thereof, the Corporation, at its option, shall either
continue to pay Vacacela her full Salary otherwise payable during such period or
deposit same in a segregated account for the benefit of the party prevailing at
such Arbitration. In the event that the Corporation prevails in such Arbitration
proceeding, it shall then and thereafter be relieved of its obligations
hereunder. In the event Vacacela prevails in such Arbitration proceeding, the
Corporation shall be required to continue to pay Vacacela for the balance of the
Term (on the Corporation's regular pay periods) the differential between the
Salary due hereunder and Vacacela's earnings at any subsequent employment
secured by her.

     7. Disability. (a) If on account of any physical or mental disability
Vacacela shall fail or be unable to engage in her occupation and perform her
duties under this Agreement for a continuous period of sixty (60) days, or for
an aggregate period of ninety (90) days during any twelve (12) month period,
then and in that event, the Corporation may elect to terminate her employment
hereunder upon thirty (30) days prior written notice. In the event of such a
termination, Vacacela shall nevertheless be entitled to the full Salary for a
period of sixty (60) days after such termination, payable on the Corporation's
regular pay periods.

     (b) Should there be a dispute between the parties hereto as to Vacacela's
physical or mental disability for purposes of this Agreement, the issue shall be
settled by the opinion of an impartial reputable physician or psychiatrist
agreed upon for the purpose by the parties or their representatives, or if the
parties cannot agree within ten (10) days after a request for designation of
such party, then by a physician or psychiatrist approved by any reputable
medical or psychiatric association of New York County. The certification of such
physician or psychiatrist as to the issue in dispute shall be final and binding
upon the parties hereto. If Vacacela shall refuse to submit to such examination,
the judgment of the Corporation's board of directors shall be deemed conclusive.

     8. Death. In the event that Vacacela dies during the Term hereof, this
Agreement will immediately terminate and, in such event, Vacacela's legal
representative, heirs or beneficiaries shall be entitled to receive the full
Salary for a period of sixty (60) days after the date of death, payable on the
Corporation's regular pay periods. Except for the foregoing, the Corporation
shall have no further obligations to Vacacela's estate, personal
representatives, heirs or legatees whatsoever.

     9. Withholding. The Corporation shall deduct from all compensation payable
hereunder such sums, including without limitation, social security, tax and
unemployment insurance withholdings, as the Corporation is by law obligated to
deduct.

     10. Expenses. Vacacela shall be reimbursed for reasonable and actual
out-of-pocket expenses incurred by her in performance of her duties and
responsibilities hereunder, provided that Vacacela shall first furnish proper
vouchers and expense accounts setting forth the information required by the U.S.
Treasury Department for deductible business expenses.

     11. Arbitration. Any controversy or claim arising hereunder shall be
settled by arbitration in the City of New York under the auspices of the

                                    Page 59
<PAGE>

American Arbitration Association. The parties consent to the jurisdiction of the
Supreme Court of the State of New York, or any other court of competent
jurisdiction, for all purposes including the enforcement of any award and the
entry of judgment thereon, and further consent that any process or Notice of
Motion may be served either personally or by certified mail, return receipt
requested, within or outside the State of New York, provided reasonable time for
appearance is allowed. In any arbitration proceeding arising hereunder, the
arbitrators shall have the authority to make an award assessing reasonable
counsel fees but shall not have the power to change, modify or alter any express
condition, term or provision hereof or to render an award which has such effect
and to that extent the scope of their authority is limited.

     12. Non-Competition. (a) Vacacela expressly acknowledges that the knowledge
and expertise which she may hereafter develop with respect to the Business may
be as a result of the substantial investments and efforts made by the
Corporation, as well as by the Corporation having made available to her certain
proprietary information as to its business practices and relationships with
third parties. Accordingly, during the Term of this Agreement and for a period
of six (6) months after the termination thereof, Vacacela:

     (i) shall not be engaged directly or indirectly, in any manner, as partner,
officer, director, stockholder, advisor, employee or in any other capacity in
any other business competitive with the business of the Corporation; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Vacacela to make passive investments, or invest in the capital stock
or other securities of any corporation whose securities are publicly owned and
are regularly traded on any securities exchange or in the over-the-counter
market, provided Vacacela's ownership of such securities shall not exceed one
percent (1%) of the issued and outstanding securities of such corporation,

     (ii) nor shall she become interested directly or indirectly, in any manner,
as partner, officer, director, stockholder, consultant, broker, advisor,
employee or in any other capacity in any business competitive with the business
of the Corporation,

     (iii) nor shall she solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding 60 days was an
employee) of the Corporation or any other person or entity who is under contract
with, or is providing services or financing to, or for the benefit of, the
Corporation, to terminate such employment by, or relationship with, the
Corporation or to refrain from extending or renewing same or to refrain from
providing services or financing to or for the benefit of the Corporation or to
become employed by, or to enter into business relationships with, persons or
entities competitive with the Corporation's business.

     (b) Vacacela also acknowledges that in connection with her rendition of the
services hereinabove described, she may gain access to confidential and
proprietary information concerning the operation of the Corporation's business.
In order to induce the Corporation to enter into this Agreement and allow for
full disclosure of such information to her, Vacacela agrees to treat, at all
times, her relationship with the Corporation as one of confidence with respect
to such information. Vacacela agrees that she:

                                    Page 60
<PAGE>

     (i) shall hold all such confidential and proprietary information in the
strictest confidence and shall not discuss, disclose or communicate such
information to any other person or entity, nor shall she make any unauthorized
copies or use any writing containing any of such information, for any reason
other than the furtherance of the Corporation's business affairs, and

     (ii) shall take all reasonable action and precautions necessary or
appropriate to prevent unauthorized use or disclosure of, or to protect the
Corporation's interests in, such confidential and proprietary information and
shall promptly return all writings containing any such information (and all
photocopies thereof) to the Corporation upon the termination of her employment
by the Corporation.

     (c) the Corporation acknowledges that the provisions of sub-paragraph "(b)"
hereof shall not apply to (i) information that, bymeans other than Vacacela's
deliberate or inadvertent disclosure, becomes known or ascertainable to the
public or to entities which compete directly with the Corporation; nor to (ii)
disclosures compelled by judicial or administrative proceedings after Vacacela
diligently attempts to avoid each disclosure and affords the Corporation the
opportunity to obtain assurance that compelled disclosures will receive
confidential treatment.

     (d) Vacacela agrees that any breach or threatened breach of any of the
provisions of this Article shall entitle the Corporation, in addition to any
other legal or equitable remedies available to it, to apply to any Court of
competent jurisdiction to enjoin such breach or threatened breach without
posting of any bond or security. In the event that any of the restrictions
contained in this Article shall be found by any court to be too broad or
otherwise unenforceable, such court may modify or reduce such restrictions to
the extent necessary to render same enforceable in accordance with the intent
of this Agreement.

     13. Miscellaneous. (a) The parties hereto agree that Vacacela's services
are personal and that this Agreement is executed with respect thereto. This
Agreement, nor the rights and duties hereunder, may not be assigned or
transferred in any manner whatsoever by Vacacela. Except as aforementioned,
this Agreement is binding upon and shall inure to the benefit of the parties
hereto, their heirs, legatees, devises, personal representatives, assigns and
successors in interest of every kind and nature whatsoever.

     (b) This Agreement embodies the entire Agreement and understanding between
the Corporation and Vacacela with respect to the subject matters hereof and
supersedes any and all negotiations, discussions and agreements entered or taken
relating to the subject matter hereof. This Agreement and all rights,
obligations, and liabilities arising hereunder shall be construed and enforced
in accordance with the laws of the State of New York.

                                    Page 61
<PAGE>


     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first set forth above.

FRANKLIN CREDIT MANAGEMENT
CORPORATION


By: Thomas J. Axon
Thomas J. Axon, President


Marcia B. Vacacela
Marcia B. Vacacela

                                    Page 62
<PAGE>

                                 Exhibit 10(d)
                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into in the State, City and
County of New York, as of the 25th day of March, 1996, by and between FRANKLIN
CREDIT MANAGEMENT CORPORATION, a Delaware corporation maintaining its offices at
6 Harrison Street, New York, NY 10013 ("Corporation") and JOSEPH CAIAZZO,
residing at 395 East 5th Street, Brooklyn, New York 11218 ("Caiazzo").

     WHEREAS, the Corporation desires to employ Caiazzo and Caiazzo desires to
accept such employment for the term hereof under the terms and conditions
hereinafter set forth.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:

     1. Engagement and Term. (a) The Corporation hereby agrees to employ Caiazzo
as its Chief Operating Officer and Caiazzo hereby accepts such employment.
Caiazzo shall devote his full time and efforts to the affairs of the Corporation
as shall be required in order to further the business prospects of the
Corporation and shall perform such executive, managerial or administrative
functions as shall be specified and designated by the President and Chief
Executive Officer of the Corporation. Caiazzo shall at all times report to, be
subject to the direction of, and the reasonable exercise of authority by, the
President, Chief Executive Officer and/or Chief Financial Officer of the
Corporation.

     (b) The term of this Agreement shall be five (5) years, commencing on
March 25, 1996 and continuing through March 24, 2001 (the "Term").

     2. Compensation and Benefits. (a) The Corporation agrees to pay Caiazzo as
and for his compensation for all services to be rendered by him during the Term,
including all services to be rendered as an officer and director of the
Corporation, the annual amount of a minimum of $125,000.00. The Corporation
shall review Caiazzo's compensation annually.

     (b) Caiazzo shall be entitled to participate in any health insurance plan
available to employees of the Corporation upon the same terms as same are made
available to the officers of the Corporation. Caiazzo shall also be entitled to
the use of a parking space at a location reasonably close to the Corporation's
offices at no cost to him. Caiazzo shall also be entitled to receive three (3)
weeks paid vacation during each year of the Term.

     (c) Caiazzo shall be entitled to receive an annual bonus equal to 3.5%
percent of the Corporation's Net Profit in excess of Five Hundred Thousand
($500,000) Dollars. The determination of the amount of the Corporation's Net
Profit shall be made in reliance upon the audited year-end financial statement
prepared by the certified public accountants then retained by the Corporation.
The term "Net Profit" shall mean the aggregate net income of the Corporation,
determined in accordance with generally accepted accounting principles, after


                                    Page 63


<PAGE>

deduction for taxes based upon income and all adjustments of asset values. The
bonus shall be paid as soon as reasonably practical after the completion of such
financial statements, but subject to the then cash requirements and liquidity of
the Corporation. Such bonus compensation shall be subject to Caiazzo's being
employed by the Corporation at the completion of each such fiscal year of the
Corporation.

     3. Termination. (a) Except as otherwise expressly set forth herein, the
employment of Caiazzo hereunder shall not be terminated unless for good and
valid cause only, which determination shall be made by the Corporation's board
of directors. Caiazzo shall be provided with at least thirty (30) days prior
notice prior to the effective date of such termination and shall be entitled to
receive all of his Salary through the effective date of such termination.

     (b) In the event that Caiazzo contests the existence of "good and valid
cause" for such actions by the board of directors, he may commence an
Arbitration proceeding ("Arbitration"), in accordance with paragraph 8 hereof,
prior to the effective date of such termination. In the event that Caiazzo
timely commences such an Arbitration, and pending a final Award of Arbitrators,
or the confirmation thereof, the Corporation, at its option, shall either
continue to pay Caiazzo his full Salary otherwise payable during such period or
deposit same in a segregated account for the benefit of the party prevailing at
such Arbitration. In the event that the Corporation prevails in such Arbitration
proceeding, it shall then and thereafter be relieved of its obligations
hereunder. In the event Caiazzo prevails in such Arbitration proceeding, the
Corporation shall be required to continue to pay Caiazzo for the balance of the
Term (on the Corporation's regular pay periods) the differential between the
Salary due hereunder and Caiazzo's earnings at any subsequent employment secured
by him.

     4. Disability. (a) If on account of any physical or mental disability
Caiazzo shall fail or be unable to engage in his occupation and perform his
duties under this Agreement for a continuous period of sixty (60) days, or for
an aggregate period of ninety (90) days during any twelve (12) month period,
then and in that event, the Corporation may elect to terminate his employment
hereunder upon thirty (30) days prior written notice. In the event of such a
termination, Caiazzo shall nevertheless be entitled to the full Salary for a
period of ninety (90) days after such termination, payable on the Corporation's
regular pay periods.

     (b) Should there be a dispute between the parties hereto as to Caiazzo's
physical or mental disability for purposes of this Agreement, the issue shall be
settled by the opinion of an impartial reputable physician or psychiatrist
agreed upon for the purpose by the parties or their representatives, or if the
parties cannot agree within ten (10) days after a request for designation of
such party, then by a physician or psychiatrist approved by any reputable
medical or psychiatric association of either New York or Kings counties. The
certification of such physician or psychiatrist as to the issue in dispute shall
be final and binding upon the parties hereto. If Caiazzo shall refuse to submit
to such examination, the judgment of the Corporation's board of directors shall
be deemed conclusive.

     5. Death. In the event that Caiazzo dies during the Term hereof, this
Agreement will immediately terminate and, in such event, Caiazzo's legal

                                    Page 64
<PAGE>

representative, heirs or beneficiaries shall be entitled to receive the full
Salary for a period of ninety (90) days after the date of death, payable on the
Corporation's regular pay periods. Except for the foregoing, the Corporation
shall have no further obligations to Caiazzo's estate, personal representatives,
heirs or legatees whatsoever.

     6. Withholding. The Corporation shall deduct from all compensation payable
hereunder such sums, including without limitation, social security, tax and
unemployment insurance withholdings, as the Corporation is by law obligated to
deduct.

     7. Expenses. Caiazzo shall be reimbursed for reasonable and actual
out-of-pocket expenses incurred by him in performance of his duties and
responsibilities hereunder, provided that Caiazzo shall first furnish proper
vouchers and expense accounts setting forth the information required by the U.S.
Treasury Department for deductible business expenses.

     8. Arbitration. Any controversy or claim arising hereunder shall be settled
by arbitration in the City of New York under the auspices of the American
Arbitration Association. The parties consent to the jurisdiction of the Supreme
Court of the State of New York, or any other court of competent jurisdiction,
for all purposes including the enforcement of any award and the entry of
judgment thereon, and further consent that any process or Notice of Motion may
be served either personally or by certified mail, return receipt requested,
within or outside the State of New York, provided reasonable time for appearance
is allowed. In any arbitration proceeding arising hereunder, the arbitrators
shall have the authority to make an award assessing reasonable counsel fees
but shall not have the power to change, modify or alter any express condition,
term or provision hereof or to render an award which has such effect and to that
extent the scope of their authority is limited.

     9. Non-Competition. (a) Caiazzo expressly acknowledges that he was not
heretofore engaged in, or employed by an entity engaged in, the business of the
corporation and that the knowledge and expertise which he may hereafter develop
in such areas may be as a result of the substantial investments and efforts
made by the Corporation, as well as by the Corporation having made available to
him certain proprietary information as to the structure, nature, business
practices and relationships related thereto. Accordingly, during the Term of
this Agreement and for a period of six (6) months after the termination thereof,
Caiazzo:

     (i) shall not be engaged directly or indirectly, in any manner, as partner,
officer, director, stockholder, advisor, employee or in any other capacity in
any other business competitive with the business of the Corporation; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Caiazzo to make passive investments, or invest in the capital stock or
other securities of any corporation whose securities are publicly owned and are
regularly traded on any securities exchange or in the over-the-counter market,
provided Caiazzo's ownership of such securities shall not exceed one percent
(1%) of the issued and outstanding securities of such corporation,

     (ii) nor shall he become interested directly or indirectly, in any manner,
as partner, officer, director, stockholder, consultant, broker, advisor,
employee or in any other capacity in any business competitive with the business
of the Corporation,

                                    Page 65
<PAGE>

     (iii) nor shall he solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding 60 days was an
employee) of the Corporation or any other person or entity who is under contract
 with, or is providing services or financing to, or for the benefit of, the
Corporation, to terminate such employment by, or relationship with, the
Corporation or to refrain from extending or renewing same or to refrain from
providing services or financing to or for the benefit of the Corporation or to
become employed by, or to enter into business relationships with, persons or
entities competitive with the Corporation's business.

     (b) Caiazzo also acknowledges that in connection with his rendition of the
services hereinabove described, he may gain access to confidential and
proprietary information concerning the operation of the Corporation's business.
In order to induce the Corporation to enter into this Agreement and allow for
full disclosure of such information to him, Caiazzo agrees to treat, at all
times, his relationship with the Corporation as one of confidence with respect
to such information. Caiazzo agrees that he:

     (i) shall hold all such confidential and proprietary information in the
strictest confidence and shall not discuss, disclose or communicate such
information to any other person or entity, nor shall he make any unauthorized
copies or use any writing containing any of such information, for any reason
other than the furtherance of the Corporation's business affairs, and

     (ii) shall take all reasonable action and precautions necessary or
appropriate to prevent unauthorized use or disclosure of, or to protect the
Corporation's interests in, such confidential and proprietary information and
shall promptly return all writings containing any such information (and all
photocopies thereof) to the Corporation upon the termination of his employment
by the Corporation.

     (c) the Corporation acknowledges that the provisions of sub-paragraph
"(b)" hereof shall not apply to ( i) information that, by means other than
Caiazzo's deliberate or inadvertent disclosure, becomes known or ascertainable
to the public or to entities which compete directly with the Corporation; nor to
(ii) disclosures compelled by judicial or administrative proceedings after
Caiazzo diligently attempts to avoid each disclosure and affords the Corporation
the opportunity to obtain assurance that compelled disclosures will receive
confidential treatment.

     (d) Caiazzo agrees that any breach or threatened breach of any of the
provisions of this Article shall entitle the Corporation, in addition to any
other legal or equitable remedies available to it, to apply to any Court of
competent jurisdiction to enjoin such breach or threatened breach without
posting of any bond or security. In the event that any of the restrictions
contained in this Article shall be found by any court to be too broad or
otherwise unenforceable, such court may modify or reduce such restrictions to
the extent necessary to render same enforceable in accordance with the intent
of this Agreement.

     10. Miscellaneous. (a) The parties hereto agree that Caiazzo's services are
personal and that this Agreement is executed with respect thereto. This
Agreement, nor the rights and duties hereunder, may not be assigned or
transferred in any manner whatsoever by Caiazzo. Except as aforementioned, this
Agreement is binding upon and shall inure to the benefit of the parties hereto,
their heirs, legatees, devises, personal representatives, assigns and successors
in interest of every kind and nature whatsoever.

                                    Page 66
<PAGE>

     (b) This Agreement embodies the entire Agreement and understanding between
the Corporation and Caiazzo with respect to the subject matters hereof and
supersedes any and all negotiations, prior discussions and preliminary and all
prior agreements entered or taken relating to the subject matter hereof. This
Agreement and all rights, obligations, and liabilities arising hereunder shall
be construed and enforced in accordance with the laws of the State of New York.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
 on the day and year first set forth above.

FRANKLIN CREDIT MANAGEMENT
CORPORATION

By: Thomas J. Axon
    Thomas J. Axon, President


Joseph Caiazzo
Joseph Caiazzo


                                     Page 67

<PAGE>

                                 Exhibit 10 (e)

                                   AGREEMENT

     This Agreement entered into this 20th day of March, 1997 between The
Citizens Banking Company, an Ohio banking corporation, hereinafter referred to
 as "Citizens", and Franklin Credit Management Corporation, a New York
corporation, hereinafter referred to as "Franklin", for the purpose of
clarifying certain understandings and agreements which the parties have entered
into as a result of ongoing negotiations regarding present and future financing
arrangements between Citizens and Franklin.

     Wherefore, the parties agree that, at the present time, Franklin and
various subsidiary corporations and partnerships of Franklin have financing
arrangements with Citizens pursuant to which funds have been borrowed, accounts
have been maintained, collateral has been pledged, and terms and conditions have
been outlined in various loan agreements, notes, and other loan documents.

     For valuable consideration received by both parties, it is the agreement of
the parties that the loans identified on the attached Exhibit "A" shall be
modified as hereinafter set forth and that a prior agreement entered into
between Citizens and Franklin, which is identified as a Commitment Letter, (a
copy of which is attached hereto and marked Exhibit "B"), shall no longer be in
effect and that the terms as hereinafter set forth will control for each of the
transactions listed on the referenced Exhibit "A" and that said Commitment
Letter shall also cease to be effective as the same relates to those
transactions entered into between Citizens and Franklin or various subsidiaries
of Franklin, as identified on the attached Exhibit "C".

                                    Page 68
<PAGE>

A. Wherefore, the parties agree to the following: For the loan transactions
identified on Exhibit "A":

     1. Interest rates as applied to each of these loans shall, effective as of
March 1, 1997, be adjusted to reflect a rate equal to prime rate plus one and
three-quarters percent (1 3/4%), which as of the date of this Agreement shall be
equal to 10%. The interest rate on said loans shall adjust daily as changes to
prime occurs and the Prime Rate shall be identified as the higher rate of
interest published daily in the "Money Rates" section of the Wall Street Journal
as titled "Prime Rate"; and

     2. That there are various fees to which Citizens was entitled pursuant to
the existing loan documents, which fees are set forth on Exhibit "A". The
parties agree that the fees for such transactions shall be modified to an amount
equal to 1% of the current principal loan amount for each transaction. The fees
shall be collected after the underlying loan has been paid in full; Citizens
shall be entitled to retain 50% of all such monies paid from funds thereafter
collected from the underlying collateral for each respective transaction until
the fee referenced hereinabove has been paid in full; provided however, should
the funds collected from the underlying collateral for a given transaction be
insufficient to satisfy the fee referenced herein, any shortfall shall be
forgiven; and

     3. Refinancing or prepayments by Franklin of the transactions identified in
Exhibit "A" will not be permitted; provided however, that the following shall be
permissible: (1) individual loan portfolio sales of loans, at their fair market
value, to entities not affiliated with Franklin, provided Citizens has a
reasonable opportunity to bid as a purchaser for such loans; and (2) prepayments
received for individual note makers within the collateral i.e. customer

                                    Page 69
<PAGE>

initiated prepayments; (3) or payments as a result of liquidation by Franklin of
the collateral pledged by a respective defaulted note maker; and (4) Franklin
may refinance, with an unaffiliated party of Franklin. Amortization or
satisfaction of any individual loan portfolio under the terms of the Note shall
not incur any cost or penalties. Provided, however, that in consideration for
Citizens permitting such refinancing, Franklin agrees that it would replenish
such refinanced Loans from the next available transactions to which Franklin,
or its subsidiaries are a party, and Franklin agrees that such replacement Loans
shall be transacted under and upon the same terms and conditions as the
remaining Exhibit "A" Loans, provided that such shall be subject to only a
one-half percent (1/2%)exit fee, and shall upon closing become part of the
Exhibit "A" portfolio of Loans; and

B. For the loan transactions identified in Exhibit "C", and for future
transactions entered into by and between the parties:

     1. Loan transactions would be originated at an interest rate equal to
prime; and

     2. All loans shall be subject to a one point closing fee and payment
of Citizens' legal fees; and

     3. Refinances of said loans within one year of the loan origination date
would require an exit fee equal to 1% of the original principal amount of the
loan. After one year, Franklin may pay off that respective loan in full and at
the time of such payoff, Citizens shall be entitled to and shall be paid an exit
fee equal to one-half (1/2) percent of the original principal amount of the
loan; and

                                    Page 70
<PAGE>

C. Miscellaneous Agreements:

     1. Franklin agrees that it shall use its best efforts to maintain an
average aggregate loan balance with Citizens from Franklin, or its subsidiaries,
in an amount equal to no less than Seventy Million Dollars ($70,000,000.00); and

     2. The term of this Agreement shall be from March 1, 1997 through February
28, 2000; and

     3. The parties hereto agree that prepayment of any loan would include any
unscheduled payments received other than normal repayments from the underlying
collateral, individual customer prepayments, collateral liquidation; and
individual portfolio sales under Section A(3)(1) above.

     4. The parties hereto agree that Franklin shall not breach this Agreement
during its term by prepaying or refinancing the loans identified herein, in any
manner not specifically permitted herein; and

     5. The parties hereto agree that on or about February 28, 2000 the term of
this Agreement shall continue for up to an additional two years on all Exhibit
"A" loans or replacement loans under Section A(3)(1)above;

D. All other terms and conditions of the existing loan transactions previously
entered into between the parties as identified on Exhibits "A" and "C", shall
remain intact and unmodified by this Agreement, including but not limited to
priority of cash flow payments and collateral pledges.

     The execution, delivery, and performance of this Agreement by Citizens and
Franklin are within the power of each, and have been duly authorized by all

                                    Page 71


<PAGE>

necessary action on behalf of each respective party. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Provided, however, Franklin will not, and will not
permit any subsidiary to, merge or consolidate with or into any corporation, or
sell, lease, transfer, or otherwise dispose of all or any substantial part of
its assets (except in the ordinary course of business), whether now owned or
hereafter acquired, unless Franklin has given Citizens at least thirty days
written notice prior to the effectiveness of such acquisition, and the Board of
Directors of Citizens, has determined, in good faith, that such acquisition,
does not materially alter the financial condition of Franklin, or its
subsidiaries, or effect Citizens rights pursuant to this Agreement.

     This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Ohio.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

THE CITIZENS BANKING COMPANY

    Marty E. Adams
BY: MARTY E. ADAMS, PRESIDENT



FRANKLIN CREDIT MANAGEMENT
CORPORATION PRESIDENT

    Thomas J. Axon
BY: THOMAS J. AXON, PRESIDENT

                                    Page 72
<PAGE>
                                   Exhibit 11
<TABLE>
<CAPTION>
Computation of earnings per share fiscal 1995.
<S>             <C>               <C>         <C>        <C>           <C>
                                                                   Restated for
                                                                     effect of
                             No. Of Shares    Weight                stock split
12/31/94   Common stock        5,247,871
                               ----------
                               5,247,871      20.00%   1,049,365     209,873.0

3/31/95    Common stock        5,247,871
           Redeemable C/S        254,457
                               ----------
                               5,502,328      20.00%   1,100,465     220,093.0

6/30/95    Common stock        5,247,871
           Warrants exercised      1,045
           Redeemable C/S        254,457
                               ----------
                               5,503,373      20.00%   1,100,674     220,134.8

9/30/95    Common stock        5,247,871
           Warrants exercised      1,045
           Warrants exercised        523
           Redeemable C/S        254,457
                               ----------
                               5,503,896      20.00%   1,100,779     220,155.8

12/31/95   Common stock        5,247,871
           Warrants exercised      1,045
           Warrants exercised        523
           Redeemable C/S        254,457
                               ----------
                               5,503,896      20.00%   1,100,779     220,155.8
                                                       ----------    -----------
           Weighted average number of shares           5,452,062      1,090,412
</TABLE>
<TABLE>
<S>                                      <C>              <C>           <C>

Earnings per Common share:
  Income before minority interest      $179,494           $0.03         $0.16
  Minority interest in net income       (54,791)         ($0.01)       ($0.05)
     Net income                        $124,703           $0.02         $0.11

</TABLE>


                                    Page 73

<PAGE>

Exhibit 11
<TABLE>
<CAPTION>
Computation of earnings per share fiscal 1996.
<S>            <C>                 <C>         <C>       <C>           <C>

                                                                   Restated for
                                                                     effect of
                             No. Of Shares    Weight                stock split
12/31/95   Common stock        5,503,896
           O/S warrants          137,674
                               ----------
                               5,641,470      20.00%   1,128,294     225,658.8

3/31/96    Common stock        5,503,896
           O/S warrants          127,349
           warrants exercised     10,225
                               ----------
                               5,641,470      20.00%   1,128,294     225,658.8

6/30/96    Common stock        5,503,896
           O/S warrants          127,349
           warrants expired      (17,216)
           Stock options         209,500
                               ----------
                               5,823,529      20.00%   1,164,706     232,941.16

9/30/96    Common stock        5,503,896
           O/S warrants          110,133
           Stock options         209,500
                               ----------
                               5,823,529      20.00%   1,164,706     232,941.16

12/31/96   Common stock        5,503,896
           O/S warrants
           (Extened for 1 yr)    110,133
           Stock options         209,500
                               ----------
                               5,823,529      20.00%   1,164,706     232,941.16
                                                       ----------    -----------
           Weighted average number of shares           5,750,705      1,150,141
</TABLE>
<TABLE>
<S>                                       <C>              <C>           <C>
Earnings per Common share:
  Income before minority interest      $829,153           $0.14         $0.72
  Minority interest in net income             0           $0.00         $0.00
     Net income                        $829,153           $0.14         $0.72

</TABLE>

                                    Page 74

<PAGE>
                                   Exhibit 21

Listing of Franklin Credit Management Subsidiaries:


Rockwell Drilling Corporation
Hudson Management Corporation
Six Harrison Associates, Inc.
Tribeca First Corporation
Tribeca Funding Corporation
Greenwich First Corporation
Greenwich Management Corporation
Harrison Financial Corporation
Harrison First Corporation
6 Harrison Corporation
Harrison Financial Associates, Inc.
Harrison Funding Corporation
Greenwich Funding Corporation
Beach Funding Corporation
Ericsson Associates Inc.
Reade Funding Corporation
Worth Management Corporation
Tribeca Associates, Inc.
Walker Funding Corporation
Ark 38 Corporation
Kearny 39 Corporation
New Haven 40 Corporation
North Fork 41 Corporation
Norwich 42 Corporation
St. Pete 43 Corporation
Rontext 1617 Corporation
Fort Granite 44 Corporation
Jersey 45 Corporation
Shelton 46 Corporation
CAPT 47 Corporation
Liberty Lending Group

                                    Page 75
<PAGE>