FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended June 30, 1999

Or

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

For the transition period from

Commission file number  333-41361

                       1st ATLANTIC GUARANTY CORPORATION
           .........................................................
            (Exact name of registrant as specified in its charter)

                     Maryland                         52-2064471
           .........................................................
           (State or other jurisdiction of        (I.R.S. Employer
            incorporation or organization)       Identification No.)

        7920 Norfolk Avenue, Suite 1150, Bethesda, Maryland 20814-2595
           ........................................................
                   (Address of principal executive offices)
                                  (Zip Code)

                                (301) 656-4200
           ........................................................
             (Registrant's telephone number, including area code)

           4847 Cordell Avenue, Suite 200, Bethesda, Maryland 20814
           ........................................................
                      (Former address since last report)


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

      As of June 30, 1999,  there were 10,000,000  shares of the  registrant's
common stock outstanding.


<PAGE>

                                   FORM 10-Q
                1st ATLANTIC GUARANTY CORPORATION "Registrant"
                         PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

The  following  financial  statement  represents  the  activities  of the  1st
Atlantic  Guaranty  Corporation  (the  "Registrant")  for the third  effective
quarter from April 1, 1999 through June 30, 1999. The Registrant's  Management
has concluded that the following  financial  statements  fairly  represent all
activities of the Registrant during this period.


                       1st Atlantic Guaranty Corporation
                                 BALANCE SHEET


<TABLE>
<CAPTION>
                                                     June 30, 1999       March 31, 1999
                                                      Un-Audited          Un-Audited
<S>                                                   <C>                   <C>
ASSETS

  CASH/ INVESTMENTS                                     240,004                11,770

  ACCOUNTS RECEIVABLE                                   124,167                68,274

  TOTAL QUALIFIED RESERVE ASSETS                        911,920               914,367

  OTHER ASSETS                                           70,437                36,553

      TOTAL ASSETS                                    1,346,528             1,030,964


LIABILITIES

  CERTIFICATES ISSUED                                   635,396               352,407

  CERTIFICATES PENDING ISSUANCE                         278,500                78,000

  ACCOUNTS PAYABLE                                       58,921                82,560

  OTHER LIABILITIES                                      62,411                65,852
    Due to Officers

      TOTAL LIABILITIES                               1,035,228               578,819


SHAREHOLDERS EQUITY

  Common Stock, $.01 par value, 14.5 million            100,000               100,000
  Shares authorized-10 million shares issued

  Additional paid-in-capital                            877,899               877,377

  Retained Earnings                                    (666,599)             (447,232)

  Total Liabilities Stockholders' Equity              1,346,528             1,030,964
</TABLE>


<TABLE>
<CAPTION>
                           STATEMENTS OF OPERATIONS

                              Fiscal Quarter        Fiscal Year-to-Date
<S>                               <C>                       <C>
Investment Income                   21,156                    85,827

Investment expenses                 (1,578)                   (3,626)

Investment income-net               19,578                    82,201

Other Expense                     (244,729)                 (660,092)

Net income or loss                (225,151)                 (577,891)
</TABLE>


<PAGE>

Item 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            THE RESULTS OF OPERATIONS

Liquidity:

The Registrant  anticipates its liquidity to increase  significantly  over the
next  year.  Because  the  sales  of  Registrant's   face-amount  certificates
("Certificates")  are  expected to increase  significantly,  the  Registrant's
investable   assets  should  likewise   increase.   The  proceeds  from  these
Certificate sales will be invested primarily in liquid securities.


Capital Resources:

The Registrant has no material commitments for capital expenditures other than
the budgeted items included in the Registrant's current financial  statements.
(See accompanying Financial Statement above)

Because the  Registrant is capitalized  through its issuance of  Certificates,
the  Registrant's  debt  capitalization   relative  to  equity  capitalization
increases  as sales of these  securities  increase.  The  Registrant  does not
intend to pursue any additional capitalization through issuance of equity.


Results of operations:

The  Registrant's  earnings are derived  primarily from the after-tax yield on
invested assets less investment  expenses and interest credited on Certificate
reserve liabilities.  Changes in earnings' trends occur largely due to changes
in the rates of return on  investments,  the  rates of  interest  credited  to
Certificate  owner accounts,  and the mix of fully taxable and  tax-advantaged
investments in the Registrant's portfolio.

As of June 30,  1999,  total  assets  increased  by $315,564  and  Certificate
reserves  increased  by $360,950  from March 31,  1999.  The increase in total
assets and Certificate  reserves was primarily the result of Certificate sales
totaling $882,444 and Certificate  redemptions and maturities totaling $8,962.
The Registrant's accounts payable and short-term  liabilities decreased during
the quarter.


Year 2000:

The Year 2000 issue is the result of computer  programs  having  been  written
using two digits  rather than four digits to define a year.  Some programs may
recognize  a  date  using  "00"  as the  year  1900  rather  than  2000.  This
misinterpretation   could   result  in  the   failure  of  major   systems  or
miscalculations,   which  could  adversely   impact  the  Registrant  and  its
businesses  or  subsidiaries   through  business   interruption  or  shutdown,
financial loss,  reputational  damage and legal  liabilities to third parties.
The  Registrant  began  addressing  the  Year  2000  issue   immediately  upon
registration with the SEC. By the end of 1998, all relevant systems, mid-range
and  desktop  computers,   application  software,  operating  systems,  system
software,  date backup and archiving/retrieval  services,  telephone and other
communication  systems,  and hardware  peripherals  and other  facilities that
could be affected  have all been  updated with the latest  available  software
and/or replaced. A committee was formed in 1998 which continues to monitor all
above stated items to ensure that the Registrant  continues to monitor the Y2K
issues.  The  committee  primarily  focuses on proactive  steps to prevent Y2K
failures  from  occurring,  or if such failures  should occur,  to detect them
quickly,  minimize  their  impact and  expedite  their  repair.  The Year 2000
contingency plan will continue to be refined throughout 1999 as necessary.


<PAGE>

Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Registrant's  balance sheet includes a substantial  amount of assets whose
fair values are subject to market risks. Due to the  Registrant's  significant
level of investments in real estate loans,  fluctuations  in the values of the
underlying  real estate  represent  the largest  market risk factor  currently
affecting the Registrant's financial position.

Strategically, the Registrant strives to invest in real estate loans that have
a history of producing  income,  are of high quality by industry  standards or
have  underlying  properties that represent  excellent  values relative to the
market. The Registrant  attempts to minimize the risk associated with its loan
portfolio  due to  fluctuations  of  property  values  by  only  investing  in
mortgages  that  represent  a  maximum  of 75% of the  property's  value  thus
building  an  equity   "cushion"  to  counteract   value   fluctuations.   The
Registrant's  investable  assets have  increased  only since it began to offer
Certificates   on  November  25,  1998.   Accordingly,   its  investments  are
concentrated in relatively few real estate loans.

The  Registrant's   primary   investment   strategy   contemplates  that  most
investments  in real  estate  loans  will be held for  between  three  and six
months.  Historically  the  value of a real  estate  loan  does not  fluctuate
significantly  over  such a short  term,  provided  that the  underlying  real
estate,  borrower  financial  strength and market economic  conditions  remain
constant. Additionally, the values of fixed income investments like such loans
are primarily based on a fixed stream;  therefore they retain value as long as
the loans are performing.

The Registrant's most significant risk in implementing its investment strategy
is its ability to market these loans to other real estate loan  investors,  or
on the secondary market.  Before any investment is made in a real estate loan,
that loan's marketability in the secondary market is evaluated. The Registrant
mostly  invests  in  loans  which  it  perceives   have  excellent   secondary
marketability  characteristics.  Occasionally  the  Registrant  will invest in
loans  that  may  not  be  as  easily  secondarily  marketed.  For  such  loan
investments,  the  loan to  value  ratio,  or LTV,  must be low  enough  for a
substantial  investment  gain on the sale of the  underlying  property  should
foreclosure on that loan be necessary.

Various forward-looking  statements have been made in this Form 10-Q Quarterly
Report. In addition,  from time to time, the Registrant through its management
may make  oral  forward-looking  statements.  Forward-looking  statements  are
subject to uncertainties  that could cause actual results to differ materially
from such  statements.  Readers are cautioned  not to place undue  reliance on
these  forward-looking  statements,  which  speak only as of the date on which
they are made.  Registrant  undertakes  no  obligation  to update  publicly or
revise any forward-looking statements.


<PAGE>

                       1st ATLANTIC GUARANTY CORPORATION

                          PART II. OTHER INFORMATION

Item 1.     Legal Proceedings.
            None.

Item 2.     Changes in Securities and Use of Proceeds.
            None.

Item 3.     Defaults Upon Senior Securities.
            None.

Item 4.     Submission of Matters to a Vote of Security Holders.
            None.

Item 5.     Other Information.
            None.

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

Exhibits:

      2.    Not Applicable.

            (a)   Articles of Incorporation,  incorporated herein by reference
                  to Exhibit 3(i) to Registrant Registration Statement on Form
                  S-1 No. 333-41361, filed December 1, 1997.

            (b)   Articles of Amendment,  incorporated  herein by reference to
                  Exhibit  3(a)(ii)  to  Pre-Effective   Amendment  No.  1  to
                  Registration  Statement No.  333-41361,  filed September 14,
                  1998.

            (c)   By-Laws,  incorporated  herein by reference to Exhibit 3(ii)
                  to  Registrant   Registration  Statement  on  Form  S-1  No.
                  333-41361, filed December 1, 1997.

       4.   (a)   Form of  Application,  incorporated  herein by  reference to
                  Exhibit   4(a)  to   Pre-Effective   Amendment   No.   3  to
                  Registration  Statement No.  333-41361,  filed  November 25,
                  1998.

            (b)   Form of Account Statement,  incorporated herein by reference
                  to  Exhibit  4(b)  to  Pre-Effective   Amendment  No.  1  to
                  Registration  Statement No.  333-41361,  filed September 14,
                  1998.


<PAGE>

      10.   (a)   The Investment Advisory Agreement between Registrant and Key
                  Asset Management,  Inc., incorporated herein by reference to
                  Exhibit   10(a)  to   Pre-Effective   Amendment   No.  1  to
                  Registration  Statement No.  333-41361,  filed September 14,
                  1998.

            Custody  Agreement  by  and  between   Registrant  and  Key  Trust
                  Registrant  of Ohio,  incorporated  herein by  reference  to
                  Exhibit   10(b)  to   Pre-Effective   Amendment   No.  1  to
                  Registration  Statement No.  333-41361,  filed September 14,
                  1998.

            Subscription  Agreement  by and  between  Registrant  and  John J.
                  Lawbaugh,   incorporated  herein  by  reference  to  Exhibit
                  10(c)(1) to  Pre-Effective  Amendment No. 1 to  Registration
                  Statement No. 333-41361, filed September 14, 1998.

            Subscription  Agreement  by and  between  Registrant  and Brian P.
                  Smith,  incorporated herein by reference to Exhibit 10(c)(2)
                  to Pre-Effective  Amendment No. 1 to Registration  Statement
                  No. 333-41361, filed September 14, 1998.

      11.   Not Applicable.

      15.   Not Applicable.

      18.   Not Applicable.

      19.   Not Applicable.

      22.   Not Applicable.

      23.   Not Applicable.

      24.   Not Applicable.

      27.   (a)   Financial Data Schedule.
                  Not Applicable.

      No reports on Form 8-K have been filed during the quarter for which this
            report is filed.


<PAGE>

                                  Signatures

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

                                    1ST ATLANTIC GUARANTY CORPORATION
                                              (Registrant)

Date August 15, 1999               /s/JOHN J. LAWBAUGH
                                   -------------------
                                   John J. Lawbaugh
                                   (President and Principal Financial Officer)