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 March 31, 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 March 31, 1999,  there were 14,500,000  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 second effective
quarter  from  January  1, 1999  through  March  31,  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>
                                                    March 31, 1999    September 30, 1998
                                                      Un-Audited          Un-Audited
<S>                                                   <C>                   <C>
ASSETS

  CASH                                                   11,770              29,601

  ACCOUNTS RECEIVABLE                                    68,274                 -0-

  TOTAL QUALIFIED ASSETS                                914,367             915,528

  OTHER ASSETS                                           36,553              15,455


      TOTAL ASSETS                                    1,030,964             959,584


LIABILITIES

  CERTIFICATE RESERVES                                  352,407                 -0-

  ACCOUNTS PAYABLE                                       82,560              10,962

  OTHER LIABILITIES                                      65,852
    Due to Officers                                                          89,243

      TOTAL LIABILITIES                                 500,814             100,205


SHAREHOLDERS EQUITY

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

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

  Retained Earnings                                    (447,232)            (96,299)

  Total Liabilities Stockholders' Equity              1,030,964             981,283
</TABLE>


<TABLE>
<CAPTION>
                           STATEMENTS OF OPERATIONS

                              Fiscal Quarter        Fiscal Year-to-Date
<S>                               <C>                       <C>
1. Investment Income              43,385                    69,181

2. Investment expenses            (2,148)                   (2,048)

3. Investment income-net          42,237                    67,274

4. Other Expense                (217,564)                 (417,708)

5. Net income or loss           (176,237)                 (350,934)
</TABLE>


<PAGE>

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


Liquidity:

The Registrant"  anticipates its liquidity to increase  significantly over the
next year. Because the sales of Certificates will increase significantly,  the
Registrant's investable assets will 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 or
fixed income  securities,  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 March 31,  1999,  total  assets  increased  by $71,380  and  certificate
reserves  increased by $301,705 from  September 30, 1998.  The increase  total
assets and certificate  reserves was primarily the result of certificate sales
totaling  $120,000  and  no  certificate   redemptions  and  maturities.   The
Registrant's accounts payable and short-term  liabilities decreased during the
quarter. The Registrant's certificates were not registered for sale during the
first quarter of 1998.


Year 2000:

The Y2K 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 Y2K
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 Y2K  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 it's 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 its approval to issue
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  it's  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.

(a)   Exhibits:

      2.          Not Applicable.

      3.    (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.

    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.

            (b)   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.


<PAGE>

            (c)   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.

            (d)   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.

            (b)   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 May 24, 1999                  /s/JOHN J. LAWBAUGH
                                   -------------------
                                   John J. Lawbaugh
                                   (President and Principal Financial Officer)