================================================================================


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


                                    FORM 10-Q


              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2005

                |_| Transition report pursuant to Section 13 or
                        15(d) of the Securities Exchange
       For the transition period from ________ to ___________ Act of 1934


                       Commission file number 0-17771


                     FRANKLIN CREDIT MANAGEMENT CORPORATION
             (Exact name of Registrant as specified in its charter)


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


                               Six Harrison Street
                            New York, New York 10013
                                 (212) 925-8745
                    (Address of principal executive offices)


      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 |X|  No |_|.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.

As of November 11, 2005 the issuer had 7,579,295 of shares of Common Stock, par
value $0.01 per share, outstanding.

================================================================================


<PAGE>

                     FRANKLIN CREDIT MANAGEMENT CORPORATION

                                    FORM 10-Q

                                      INDEX

                                 C O N T E N T S
                                 ---------------


PART I. FINANCIAL INFORMATION                                               Page
                                                                            ----

Item 1. Financial Statements (unaudited)

            Consolidated Balance Sheets at September 30, 2005 and
            December 31, 2004                                                  3

            Consolidated Statements of Income for the three and nine
            months ended September 30, 2005 and September 30, 2004             4

            Consolidated Statement of Changes in Stockholders' Equity
            for the nine months ended September 30, 2005                       5

            Consolidated Statements of Cash Flows for the nine
            months ended September 30, 2005 and September 30, 2004             6

            Notes to Consolidated Financial Statements                      7-17

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations                                          18-52

Item 3. Quantitative and Qualitative Disclosures about Market Risk            53

Item 4. Controls and Procedures                                               55

PART II. OTHER INFORMATION

Item 1. Legal Proceedings                                                     56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds           56

Item 3. Defaults Upon Senior Securities                                       56

Item 4. Submission of Matters to a Vote of Security Holders                   56

Item 5. Other Information                                                     56

Item 6. Exhibits and Reports on Form 8-K                                   57-58

SIGNATURES                                                                    59

CERTIFICATIONS                                                             60-63


<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                          September 30, 2005    December 31, 2004
                                                ------------------    -----------------
<S>                                             <C>                   <C>
Cash and cash equivalents                       $       30,955,578    $      19,648,271
Short-term investments                                  11,782,171                   --
Notes Receivable:
  Principal                                            843,050,111          811,885,856
  Purchase discount                                    (21,712,793)         (32,293,669)
  Allowance for loan losses                            (71,798,576)         (89,628,299)
                                                ------------------    -----------------

           Net notes receivable                        749,538,742          689,963,888

Originated loans held for sale                          12,445,385           16,851,041

Originated loans held for investment - net             296,757,967          110,496,274

Accrued interest receivable                             11,413,166            8,506,252

Other real estate owned                                 16,576,369           20,626,156

Other receivables                                        8,509,305            5,366,500

Deferred tax asset                                         517,166              583,644

Other assets                                            11,426,635           10,577,344

Building, furniture and equipment - net                  3,478,299            1,290,442

Deferred financing costs - net                           9,326,456            7,600,942
                                                ------------------    -----------------

Total assets                                    $    1,162,727,239    $     891,510,754
                                                ==================    =================

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued expenses         $       15,602,698    $      11,572,764
  Financing agreements                                  39,125,109           39,540,205
  Notes payable                                      1,052,684,209          807,718,038
  Deferred tax liability                                 5,425,663            3,123,865
                                                ------------------    -----------------

           Total liabilities                         1,112,837,679          861,954,872
                                                ------------------    -----------------

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock, $.001 par value; authorized
    3,000,000; issued - none
  Common stock, $.01 par value, 22,000,000
     authorized shares;                                         --                   --
     issued and outstanding: 7,579,29
     in 2005 and 6,062,295 in 2004                          75,793               60,623
  Additional paid-in capital                            20,650,995            7,354,778
  Retained earnings                                     29,162,772           22,140,481
                                                ------------------    -----------------

           Total stockholders' equity                   49,889,560           29,555,882
                                                ------------------    -----------------

Total liabilities and stockholders' equity      $    1,162,727,239    $     891,510,754
                                                ==================    =================
</TABLE>

                See notes to consolidated financial statements.


                                     Page 3
<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          Three Months Ended             Nine Months Ended
                                                             September 30,                  September 30,
                                                          2005          2004            2005           2004
                                                     ------------   ------------    ------------   ------------
<S>                                                  <C>            <C>             <C>            <C>
REVENUES:
    Interest income                                  $ 24,563,184   $ 16,628,125    $ 71,418,710   $ 38,618,733
    Purchase discount earned                            3,146,839      2,969,825       8,266,115      6,039,002
    Gain on sale of notes receivable                      644,985        229,840       1,310,887      1,074,742
    Gain on sale of originated loans held for sale        542,588      1,026,372       2,232,681      3,171,801
    Gain (loss) on sale of other real estate owned        535,308       (145,846)      1,191,692        227,551
    Prepayment and other income                         2,245,954      1,257,141       6,291,800      3,680,559
                                                     ------------   ------------    ------------   ------------
                                                       31,678,858     21,965,457      90,711,885     52,812,388
                                                     ------------   ------------    ------------   ------------

OPERATING EXPENSES:
    Interest expense                                   18,018,930      9,939,303      47,319,051     20,733,508
    Collection, general and administrative              7,600,208      5,974,354      23,368,940     16,167,756
    Provision for loan losses                           1,080,155        728,504       3,331,087      2,436,763
    Amortization of deferred financing costs            1,233,089        584,916       2,938,810      1,738,043
    Depreciation                                          365,170        118,590         779,998        368,214
                                                     ------------   ------------    ------------   ------------
                                                       28,297,552     17,345,667      77,737,886     41,444,284
                                                     ------------   ------------    ------------   ------------


Income before provision for income taxes                3,381,306      4,619,790      12,973,999     11,368,104
                                                     ------------   ------------    ------------   ------------

Provision for income taxes                              1,538,506      2,102,004       5,951,708      5,176,004
                                                     ------------   ------------    ------------   ------------

Net income                                           $  1,842,800   $  2,517,786    $  7,022,291   $  6,192,100
                                                     ============   ============    ============   ============

Net income per common share:
    Basic                                            $       0.26   $       0.43    $       1.09   $       1.05
    Diluted                                          $       0.24   $       0.37    $       1.00   $       0.92
                                                     ============   ============    ============   ============
Weighted average number of shares
    outstanding, basic                                  7,158,406      5,916,527       6,444,943      5,916,527
                                                     ============   ============    ============   ============
Weighted average number of shares
    outstanding, diluted                                7,825,406      6,815,141       7,043,554      6,749,544
                                                     ============   ============    ============   ============
</TABLE>

                See notes to consolidated financial statements.


                                     Page 4
<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2005 (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                          Common Stock       Additional
                                   ------------------------    Paid-In       Retained
                                    Shares        Amount       Capital       Earnings       Total
-----------------------------------------------------------------------------------------------------
<S>                                <C>         <C>           <C>           <C>           <C>
Balance, January 1, 2005           6,062,295   $    60,623   $ 7,354,778   $22,140,481   $29,555,882

     Net income                                                              7,022,291     7,022,291
     Issuances of common stock       252,000         2,520       652,855            --       655,375
     Stock offering, net           1,265,000        12,650    12,643,362            --    12,656,012

                                   ------------------------------------------------------------------
Balance, September 30, 2005        7,579,295   $    75,793   $20,650,995   $29,162,772   $49,889,560

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

                See notes to consolidated financial statements.


                                     Page 5
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               Nine Months Ended September 30,
                                                                  2005                2004
                                                             ---------------    ---------------
<S>                                                          <C>                <C>
Cash flows from operating activities:
  Net income                                                 $     7,022,291    $     6,192,100
  Adjustments to reconcile income to net cash
    provided by (used in) operating activities:
      Gain on sale of notes receivable                            (1,310,887)        (1,074,742)
      Gain on sale of other real estate owned                     (1,191,692)          (227,551)
      Gain on sale of originated loans held for sale              (2,232,681)        (3,171,801)
      Depreciation                                                   779,998            368,214
      Amortization of deferred financing costs                     2,938,810          1,738,043
      Origination of loans held for sale                         (47,379,995)      (130,834,004)
      Non-cash compensation expense                                  430,190                 --
      Proceeds from the sale of and principal collections
       on loans held for sale                                     51,352,615         86,497,788
      Purchase discount earned                                    (8,266,115)        (6,039,002)
      Provision for loan losses                                    3,331,087          2,436,763
 Changes in operating assets and liabilities:
      Accrued interest receivable                                 (2,906,914)        (3,432,190)
      Other receivables                                           (3,142,805)        (1,770,765)
      Deferred tax asset                                              66,478             67,232
      Other assets                                                  (849,291)          (774,720)
      Current tax liability                                               --             61,011
      Deferred tax liability                                       2,301,798             91,115
      Accounts payable and accrued expenses                        4,029,934          2,108,823
                                                             ---------------    ---------------
       Net cash provided by (used in) operating activities         4,972,820        (47,763,686)
                                                             ---------------    ---------------

Cash flows from investing activities:
  Decrease in restricted cash                                             --            299,986
  Purchase of notes receivable                                  (291,141,892)      (438,971,026)
  Principal collections on notes receivable
    and loans held for investment                                260,096,623        143,954,741
  Investment in short-term securities                            (11,764,000)                --
  Originations of loans held for investment                     (251,985,682)                --
  Acquisition and loan fees                                       (2,481,179)        (4,223,652)
  Proceeds from sale of other real estate owned                   25,649,992         15,077,792
  Proceeds from sale of loans held for investment                  8,375,669                 --
  Proceeds from sale of notes receivable                          15,120,539          8,625,688
  Purchase of building, furniture and equipment                   (2,967,855)          (456,636)
                                                             ---------------    ---------------
       Net cash used in investing activities                    (251,097,785)      (275,693,107)
                                                             ---------------    ---------------

Cash flows from financing activities:
  Proceeds from notes payable                                    556,081,930        494,919,071
  Principal payments of notes payable                           (311,115,759)      (175,212,350)
  Proceeds from financing agreements                             301,055,917        134,886,080
  Principal payments of financing agreements                    (301,471,013)      (123,021,049)
  Proceeds from issuance of common stock                          12,656,012                 --
  Exercise of stock options                                          225,185                 --
                                                             ---------------    ---------------
       Net cash provided by financing activities                 257,432,272        331,571,752
                                                             ---------------    ---------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                           11,307,307          8,114,959

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                    19,648,271         14,418,876
                                                             ---------------    ---------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                     $    30,955,578    $    22,533,835
                                                             ===============    ===============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash payments for interest                                   $    45,253,723    $    19,210,233
                                                             ===============    ===============
Cash payments for taxes                                      $     3,367,101    $     4,739,000
                                                             ===============    ===============
</TABLE>

                See notes to consolidated financial statements.


                                     Page 6
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------

1.  Business

      As used herein  references to the "Company,"  "FCMC," "we," "our" and "us"
      refer to Franklin Credit  Management  Corporation,  collectively  with its
      subsidiaries.

      We are a  specialty  consumer  finance  company  primarily  engaged in two
      related lines of business:  (1) the acquisition,  servicing and resolution
      of performing,  reperforming and nonperforming  residential mortgage loans
      and real estate  assets;  and (2) the  origination  of non-prime  mortgage
      loans,  both for our portfolio and for sale into the secondary  market. We
      specialize  in acquiring  and  originating  loans secured by 1-to-4 family
      residential  real  estate that  generally  fall  outside the  underwriting
      standards of Fannie Mae and Freddie Mac and involve  elevated  credit risk
      as a result of the  nature or  absence  of income  documentation,  limited
      credit   histories,   higher  levels  of  consumer  debt  or  past  credit
      difficulties.  We typically  purchase loan  portfolios at a discount,  and
      originate  loans with  interest  rates and fees,  calculated to provide us
      with a rate of  return  adjusted  to  reflect  the  elevated  credit  risk
      inherent  in the types of loans we acquire and  originate.  Unlike many of
      our competitors, we generally hold for investment the loans we acquire and
      a significant portion of the loans we originate.

      From inception through September 30, 2005, we had purchased and originated
      in excess of $2.6 billion in mortgage  loans. As of September 30, 2005, we
      had total assets of $1.16 billion and our  portfolios of notes  receivable
      and loans held for investment, net, totaled $1.05 billion.

      In early August 2005,  we  completed  the public  offering of 1,265,000 of
      shares of our common stock at a public  offering price of $11.50 per share
      (including an exercise in full of the underwriter's  over allotment option
      to purchase 165,000 shares).  The offering  resulted in net proceeds to us
      and the addition to equity of approximately  $12.6 million. As a result of
      the additional equity raised, in combination with retained earnings, total
      stockholders' equity was $49.9 million at September 30, 2005 compared with
      $29.6  million  at  December  31,  2004.  In  conjunction  with the public
      offering,   the  Company's  common  stock  ceased  to  be  quoted  on  the
      Over-the-Counter  Bulletin  Board  under the symbol  "FCSC" and  commenced
      trading on The NASDAQ National Market under the symbol "FCMC."

            Loan Acquisitions

            Since  commencing  operations  in 1990,  we have become a nationally
      recognized  buyer of portfolios  of  residential  mortgage  loans and real
      estate  assets  from a variety  of  financial  institutions  in the United
      States,  including  mortgage banks,  commercial  banks and thrifts,  other
      traditional financial  institutions and other specialty finance companies.
      These portfolios  generally  consist of one or more of the following types
      of mortgage loans:

            o     performing  loans - loans to borrowers  who are  contractually
                  current,  but may have been  delinquent  in the past and which
                  may   have   deficiencies    relating   to   credit   history,
                  loan-to-value ratios, income ratios or documentation;

            o     reperforming   loans  -  loans  to   borrowers   who  are  not
                  contractually current, but have recently made regular payments
                  and where there is a good possibility the loans will be repaid
                  in full; and



                                     Page 7
<PAGE>


            o     nonperforming  loans - loans to borrowers who are  delinquent,
                  not  expected  to cure,  and for  which a  primary  avenue  of
                  recovery  is through  the sale of the  property  securing  the
                  loan.

      We sometimes  refer  collectively  to these types of loans as "scratch and
      dent" or "S&D" loans.

      We have developed a specialized  expertise at risk-based  pricing,  credit
      evaluation and loan  servicing that allows us to effectively  evaluate and
      manage the higher risks  associated  with this segment of the  residential
      mortgage   industry,   including  the   rehabilitation  or  resolution  of
      reperforming and nonperforming loans.

            We refer to the S&D loans we acquire as "notes  receivable."  During
      the first nine  months of 2005,  we  purchased  notes  receivable  with an
      aggregate  unpaid  principal  balance of $315.2  million  at an  aggregate
      purchase price equal to 92% of the face amount of the notes.  In the third
      quarter of 2005, we purchased notes  receivable  with an aggregate  unpaid
      principal  balance of $121.6 million at an aggregate  purchase price equal
      to 97% of the face amount of the notes.

            Loan Originations

            We conduct our loan  origination  business  through our wholly owned
      subsidiary,  Tribeca Lending Corp., or Tribeca, which we formed in 1997 in
      order to leverage our  experience in evaluating  and managing  residential
      mortgage loans and our loan servicing capabilities. We originate primarily
      non-prime  residential  mortgage loans to individuals whose documentation,
      credit histories,  income and other factors cause them to be classified as
      non-prime  borrowers  and to  whom,  as a  result,  conventional  mortgage
      lenders will often not make loans.  Most lenders in the  non-prime  market
      generate a majority of their  origination  volume from "Alt-A"  borrowers,
      meaning  borrowers  with a credit profile in the level  immediately  below
      prime. As a result of the extensive competition in this subcategory of the
      non-prime  market,  the ability for lenders to generate a risk  premium is
      limited and  profitability  is more dependent upon an ability to originate
      and/or service a high volume of loans. In contrast, fewer lenders focus on
      originating  loans to borrowers  with credit  profiles  below  "Alt-A." We
      focus our  marketing  efforts on this segment given our knowledge of these
      borrowers  and our  ability to service  loans to them  through  the entire
      credit cycle.

      During the first nine  months of 2005,  we  originated  $299.4  million in
      non-prime mortgage loans. We originated  approximately 48% of our mortgage
      loans on a retail  basis  and  approximately  52%  through  our  wholesale
      network  of  mortgage  brokers  during  2005.  We hold  the  mortgages  we
      originate  for our  portfolio  or sell  them  for cash in the  whole  loan
      market,  depending on market  conditions and our own portfolio goals. From
      our inception  through September 30, 2005, we originated loans with a face
      value of $745  million,  $309.2  million of which we retained  for sale or
      investment as of September 30, 2005.

            Loan Servicing

      We have invested  heavily to create a loan  servicing  capability  that is
      focused  on  collections,  loss  mitigation  and  default  management.  In
      general,  we seek to ensure  that the loans we acquire and  originate  are
      repaid in  accordance  with the  original  terms or  according  to amended
      repayment terms negotiated with the borrowers. Because we expect our loans
      will experience above average delinquencies,  erratic payment patterns and
      defaults,  our servicing operation is focused on maintaining close contact
      with  our  borrowers  and  as  a  result  is  more  labor  intensive  than
      traditional mortgage servicing operations.  Through frequent communication
      we are able to encourage  positive payment  performance,  quickly identify
      those  borrowers who are likely to move into seriously  delinquent  status
      and promptly apply appropriate loss mitigation  strategies.  Our servicing
      staff employs a variety of collection strategies that we have developed to
      successfully  manage serious  delinquencies,  bankruptcy and  foreclosure.
      Additionally,   we  maintain  a  real  estate  department  with  extensive
      experience in property management and the sale of residential properties.



                                     Page 8
<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation - The consolidated  financial statements include the
      accounts of the Company and its wholly owned subsidiaries. All significant
      intercompany   accounts  and   transactions   have  been   eliminated   in
      consolidation.

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

      The condensed  consolidated  financial  statements  (unaudited)  have been
      prepared by the Company in accordance  with the rules and  regulations  of
      the Securities  and Exchange  Commission and should be read in conjunction
      with the Company's  consolidated  financial  statements  and notes thereto
      included in the  Company's  most recent Annual Report on Form 10-K for the
      year  ended  December  31,  2004.  The  condensed  consolidated  financial
      statements  reflect all adjustments  (consisting  only of normal recurring
      adjustments)  that are, in the opinion of  management,  necessary  for the
      fair  statement  of the  results for the  interim  period.  The results of
      operations for interim periods are not  necessarily  indicative of results
      for the entire year.

      Reclassification-  Certain prior period amounts have been  reclassified to
      conform to the current period presentation.

      Operating Segments- Statement of Financial  Accounting  Standards ("SFAS")
      No.  131,   Disclosures  about  Segments  of  an  Enterprise  and  Related
      Information   requires  companies  to  report  financial  and  descriptive
      information about their reportable  operating segments,  including segment
      profit or loss,  certain  specific  revenue and expense items, and segment
      assets. The Company has two reportable  operating segments:  (i) portfolio
      asset acquisition and resolution; and (ii) mortgage banking. The portfolio
      asset acquisition and resolution segment acquires performing, reperforming
      or  nonperforming  notes  receivable and  promissory  notes from financial
      institutions,  mortgage and finance  companies,  and services and collects
      such notes receivable  through  enforcement of terms of the original note,
      modification of original note terms and, if necessary,  liquidation of the
      underlying   collateral.   The  mortgage-banking   segment  originates  or
      purchases,  sub prime  residential  mortgage loans from individuals  whose
      credit histories,  income and other factors cause them to be classified as
      sub-prime borrowers.

      The Company's  management  evaluates the performance of each segment based
      on profit or loss from operations before unusual and  extraordinary  items
      and income taxes. The accounting  policies of the segments are the same as
      those described in the summary of significant accounting policies. [OBJECT


                                     Page 9
<PAGE>

                                               Three Months Ended September 30,
                                                     2005         2004
                                                 -----------   -----------
CONSOLIDATED REVENUE
    Portfolio asset acquisition and resolution   $23,042,339   $18,607,190
    Mortgage banking                               8,636,519     3,358,267
                                                 -----------   -----------
  Consolidated Revenue                           $31,678,858   $21,965,457
                                                 ===========   ===========

CONSOLIDATED INCOME BEFORE INCOME TAXES
    Portfolio asset acquisition and resolution   $ 1,642,314   $ 3,517,400
    Mortgage banking                               1,738,992     1,102,390
                                                 -----------   -----------
  Consolidated Income before income taxes        $ 3,381,306   $ 4,619,790
                                                 ===========   ===========

<TABLE>
<CAPTION>
                                                     Nine Months Ended September 30,
                                                        2005                2004
                                                 ------------------   ------------------
<S>                                              <C>                  <C>
CONSOLIDATED REVENUE
    Portfolio asset acquisition and resolution   $       69,562,213   $       44,361,474
    Mortgage banking                                     21,149,672            8,450,914
                                                 ------------------   ------------------
  Consolidated Revenue                           $       90,711,885   $       52,812,388
                                                 ==================   ==================

CONSOLIDATED INCOME BEFORE INCOME TAXES
    Portfolio asset acquisition and resolution   $        8,464,377   $        9,239,730
    Mortgage banking                                      4,509,622            2,128,374
                                                 ------------------   ------------------
Consolidated Income before income taxes          $       12,973,999   $       11,368,104
                                                 ==================   ==================

<CAPTION>
                                                 September 30, 2005    December 31, 2004
                                                 ------------------   ------------------
<S>                                              <C>                  <C>
CONSOLIDATED ASSETS
    Portfolio asset acquisition and resolution   $      828,319,874   $      754,234,144
    Mortgage banking                                    334,407,365          137,276,610
                                                 ------------------   ------------------
  Consolidated Assets                            $    1,162,727,239   $      891,510,754
                                                 ==================   ==================
</TABLE>

      Earnings per share - Basic  earnings per share is  calculated  by dividing
      net income by the weighted  average  number of common  shares  outstanding
      during the year.  Diluted earnings per share is calculated by dividing net
      income  by the  weighted  average  number of  common  shares  outstanding,
      including  the  dilutive  effect,  if any, of stock  options  outstanding,
      calculated under the treasury stock method.

      Cash and Cash  Equivalents - Cash and cash  equivalents  includes cash and
      certain investments with original maturities of three months or less, with
      the exception of restricted cash, if any. The Company  maintains  accounts
      at banks,  which at times may exceed federally insured limits. The Company
      has not experienced any losses from such concentrations.


                                    Page 10
<PAGE>

      Short-term Investments - The Company's short-term investments include U.S.
      treasury  bills  and  investment-grade  commercial  paper.  The  Company's
      short-term investment policy is structured to provide an adequate level of
      liquidity in order to meet normal  working  capital needs and expansion of
      the loan portfolio.

      Notes Receivable and Income  Recognition - The notes receivable  portfolio
      consists  primarily of secured real estate  mortgage loans  purchased from
      financial  institutions,   mortgage  and  finance  companies.  Such  notes
      receivable are performing, non-performing or sub-performing at the time of
      purchase  and are  generally  purchased at a discount  from the  principal
      balance  remaining.  Notes  receivable  are stated at the amount of unpaid
      principal,  reduced by purchase  discount and  allowance  for loan losses.
      Notes  purchased  after  December 31, 2004 that meet the  requirements  of
      AICPA Statement of Position (SOP) No. 03-3,  "Accounting for Certain Loans
      or Debt Securities  Acquired in a Transfer" ("SOP 03-3") are stated net of
      purchase  discount.  The  Company has the ability and intent to hold these
      notes until maturity,  payoff or liquidation of the  collateral.  Impaired
      notes  receivable  are  measured  based on the  present  value of expected
      future cash flows discounted at the note's effective  interest rate or, as
      a  practical  expedient,  at the  observable  market  price  of  the  note
      receivable  or the fair value of the  collateral if the note is collateral
      dependent.  The Company periodically  evaluates the collectibility of both
      interest and principal of its notes  receivable to determine  whether they
      are impaired. A note receivable is considered impaired when it is probable
      the  Company  will be unable to  collect  all  contractual  principal  and
      interest payments due in accordance with the terms of the note agreement.

      In  general,  interest  on the notes  receivable  is  calculated  based on
      contractual  interest  rates  applied to daily  balances of the  principal
      amount outstanding using the accrual method.  Accrual of interest on notes
      receivable,  including  impaired notes  receivable,  is discontinued  when
      management  believes,  after considering  economic and business conditions
      and collection  efforts,  that the borrowers'  financial condition is such
      that  collection  of  interest  is  doubtful.  When  interest  accrual  is
      discontinued,   all  unpaid  accrued  interest  is  reversed.   Subsequent
      recognition  of income  occurs  only to the extent  payment  is  received,
      subject to management's  assessment of the collectibility of the remaining
      interest  and  principal.  A  non-accrual  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.

      Discounts on Acquired  Loans - Effective  January 1, 2005,  as a result of
      the  required  adoption of SOP 03-3 the Company was required to change its
      accounting for loans  acquired  subsequent to December 31, 2004 which have
      evidence of  deterioration  of credit  quality since  origination  and for
      which it is  probable,  at the time of our  acquisition,  that the Company
      will be unable to collect all contractually  required payments.  For these
      loans,  the  excess of the  undiscounted  contractual  cash flows over the
      undiscounted  cash flows estimated by us at the time of acquisition is not
      accreted into income (nonaccretable discount). The amount representing the
      excess of cash flows  estimated  by us at  acquisition  over the  purchase
      price  is  accreted  into  interest  income  over  the  life  of the  loan
      (accretable discount).

            For loans not addressed by SOP 03-3 that are acquired  subsequent to
      December 31, 2004, the discount, which represents the excess of the amount
      of reasonably  estimable and probable  discounted  future cash collections
      over the purchase  price,  is accreted  into purchase  discount  using the
      interest  method over the term of the loans.  This is consistent  with the
      method the Company  utilizes for its accounting for loans  purchased prior
      to January 1, 2005,  except that for these loans an  allowance  allocation
      was also made at the time of acquisition.



                                    Page 11
<PAGE>

            There is judgment  involved in  estimating  the amount of the loan's
      future cash flows. The amount and timing of actual cash flows could differ
      materially from management's estimates,  which could materially affect our
      financial condition and results of operations.  Depending on the timing of
      an  acquisition,  a preliminary  allocation  may be utilized until a final
      allocation is established.  Generally, the allocation will be finalized no
      later than ninety days from the date of purchase.

            The  nonaccretable  discount is not accreted into income until it is
      determined  that the  amount  and  timing of the  related  cash  flows are
      reasonably  estimable and collection is probable.  If cash flows cannot be
      reasonably  estimated for any loan,  and  collection is not probable,  the
      cost  recovery  method of  accounting  is used.  Under  the cost  recovery
      method,  any amounts  received are applied  against the recorded amount of
      the loan.

      Subsequent to acquisition,  if cash flow  projections  improve,  and it is
      determined  that the amount  and  timing of the cash flows  related to the
      nonaccretable   discount  are  reasonably   estimable  and  collection  is
      probable,  the  corresponding  decrease in the  nonaccretable  discount is
      transferred  to the  accretable  discount  and is accreted  into  interest
      income over the remaining life of the loan on the interest method. If cash
      flow  projections  deteriorate  subsequent to acquisition,  the decline is
      accounted for through the allowance for loan losses.

      Allowance  for Loan  Losses - The  Company  performs  reviews  of its loan
      portfolio  upon  purchase,  at  loan  boarding,  and on a  frequent  basis
      thereafter to segment  impaired loans under ("SFAS") No. 114 Accounting by
      Creditors for Impairment of a Loan. A loan is considered  impaired when it
      is probable  that we will be unable to collect all  contractual  principal
      and  interest  payments  due in  accordance  with  the  terms  of the note
      agreement.  An  allowance  for  loan  losses  is  estimated  based  on our
      impairment analysis.  Management's judgment in determining the adequacy of
      the  allowance  for loan losses is based on the  evaluation  of individual
      loans within the portfolios,  the known and inherent risk  characteristics
      and size of the  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.  In
      connection  with the  determination  of the  allowance  for  loan  losses,
      management obtains  independent  appraisals for the underlying  collateral
      when considered necessary. Management believes that the allowance for loan
      losses is adequate.  The allowance for loan losses is a material estimate,
      which could change significantly in the near term.

      Effective January 1, 2005, and as a result of the required adoption of SOP
      03-3,  additions to the valuation  allowances  relating to newly  acquired
      loans reflect only those losses  incurred by us subsequent to acquisition.
      The Company no longer  increases the allowances  through  allocations from
      purchase  discount  for  loans  that  meet the  requirements  of SOP 03-3.
      Additionally,  general  risk  allocations  are no longer  applied to loans
      purchased subsequent to December 31, 2004. Consequently, the allowance for
      loan  losses  has  declined  since the  adoption  of SOP  03-3,  and it is
      anticipated  that the  allowance  will  continue to decline as credits for
      loan losses may  continue  to be recorded if loans pay off and  allowances
      related  to  these  loans  are  not  required  or  additions  due to  loan
      impairment are not required.

      Originated  Loans  Held  for  Sale - The  loans  held  for  sale  consists
      primarily of secured real estate first and second mortgages  originated by
      the Company.  Such loans held for sale are  performing  and are carried at
      lower  of cost or  market.  The  gain/loss  on  sale  is  recorded  as the
      difference  between the carrying  amount of the loan and the proceeds from
      sale on a loan-by-loan  basis.  The Company records a sale upon settlement
      and when the title transfers to the seller.



                                    Page 12
<PAGE>

      Originated   Loans  Held  for  Investment  -  Originated  loans  held  for
      investment  consists  primarily  of secured  real estate  first and second
      mortgages  originated by the Company.  Such loans are  performing  and are
      carried  at the  amortized  cost of the  loan.  In  general,  interest  on
      originated  loans held for  investment is calculated  based on contractual
      interest  rates  applied  to  daily  balances  of  the  principal   amount
      outstanding  using the  accrual  method.  Accrual  of  interest  including
      impaired loans is discontinued when management believes, after considering
      economic  and  business   conditions  and  collection   efforts  that  the
      borrower's  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 non-accrual loan
      is restored to an accrual status when the  collectibility  of interest and
      principal  is no longer in doubt and past due  interest is  recognized  at
      that time.

      Other Real Estate  Owned - Other real estate  owned  ("OREO")  consists of
      properties   acquired  through,  or  in  lieu  of,  foreclosure  or  other
      proceedings and are held for sale and carried at the lower of cost or fair
      value less estimated  costs to sell.  Any  write-down to fair value,  less
      cost to sell, at the time of acquisition  is charged to purchase  discount
      or  earnings  if  purchase   discount  is  not  sufficient  to  cover  the
      write-down.  Subsequent  write-downs are charged to operations  based upon
      management's  continuing  assessment  of the fair value of the  underlying
      collateral. Property is evaluated periodically to ensure that the recorded
      amount is supported by current fair values and  valuation  allowances  are
      recorded as  necessary  to reduce the  carrying  amount to fair value less
      estimated  cost to sell.  Revenue and expenses  from the operation of OREO
      and changes in the valuation allowance are included in operations.  Direct
      costs  relating to the  development  and  improvement  of the property are
      capitalized,  subject to the limit of fair value of the collateral,  while
      costs  related to holding the property are  expensed.  Gains or losses are
      included in operations upon disposal.

      Building,  Furniture and Equipment - Building,  furniture and equipment is
      recorded at cost net of accumulated depreciation. Depreciation is computed
      using the  straight-line  method over the  estimated  useful  lives of the
      assets,  which  range  from 3 to 40 years.  Maintenance  and  repairs  are
      expensed as incurred.

      Deferred  Financing  Costs  -  Deferred  financing  costs,  which  include
      origination  fees incurred in connection  with  obtaining  financing,  are
      deferred and are amortized over the term of the related loan.

      Retirement Plan - The Company  maintains a savings plan, which is intended
      to  qualify  under  Section  401(k)  of the  Internal  Revenue  Code.  All
      employees are eligible to be a participant  in the plan. The plan provides
      for voluntary  contributions by  participating  employees in amounts up to
      20%  of  their  annual  compensation,   subject  to  certain  limitations.
      Currently,  the  Company  matches  50% of the  first 3% of the  employee's
      contribution.

      Income  Taxes -  Income  taxes  are  accounted  for  under  SFAS  No.  109
      Accounting for Income Taxes which requires an asset and liability approach
      in accounting for income taxes.  This method  provides for deferred income
      tax assets or liabilities  based on the temporary  difference  between the
      income tax basis of assets and  liabilities  and their carrying  amount in
      the consolidated financial statements. Deferred tax assets and liabilities
      are measured  using enacted tax rates  expected to apply to taxable income
      in the years in which  those  temporary  differences  are  expected  to be
      recovered  or  settled.  Deferred  tax assets are  reduced by a  valuation
      allowance when management  determines that it is more likely than not that
      some  portion  or all of the  deferred  tax assets  will not be  realized.
      Deferred  tax assets  and  liabilities  are  adjusted  for the  effects of
      changes in tax laws and rates on the date of the enactment of the changes.



                                    Page 13
<PAGE>

      Prepayment  and Other  Income - Prepayment  and other  income  consists of
      prepayment penalties,  application fees on originated loans, late charges,
      and other miscellaneous income. Such income is recognized on a cash basis.

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

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

      a.    Cash,   Restricted  Cash,   Accrued  Interest   Receivables,   Other
            Receivable  and  Accrued  Interest  Payable  - The  carrying  values
            reported  in  the  consolidated  balance  sheets  are  a  reasonable
            estimate of fair value.

      b.    Short-term   Investments  -  These   investments   mature   monthly;
            therefore,  the carrying values reported in the consolidated balance
            sheets are a reasonable estimate of fair value.

      c.    Notes  Receivable - Fair value of the net note receivable  portfolio
            is estimated by  discounting  the estimated  future cash flows using
            the interest method. The fair value of notes receivable at September
            30, 2005 and  December  31, 2004 was  equivalent  to their  carrying
            value of $749,538,742 and $689,963,888, respectively.

      d.    Loans Held for Investment, Loans Held for Sale - The carrying values
            reported  in  the  consolidated  balance  sheets  are  a  reasonable
            estimate of fair value.

      e.    Short-term  Borrowings - The interest rates on financing  agreements
            and other short-term  borrowings reset on a monthly basis therefore,
            the carrying  amounts of these  liabilities  approximate  their fair
            value.  The fair value at  September  30, 2005 and December 31, 2004
            was $39,125,109 and $39,540,205, respectively.

      f.    Long-Term  Debt - The interest rate on the Company's  long-term debt
            (notes payable) is a variable rate that resets  monthly;  therefore,
            the carrying value reported in the balance sheet  approximates  fair
            value at  $1,052,684,209  and $807,718,038 at September 30, 2005 and
            December 31, 2004, respectively.

      Comprehensive  Income  - SFAS  No.  130,  Reporting  Comprehensive  Income
      defines  comprehensive  income  as the  change  in  equity  of a  business
      enterprise  during  a  period  from  transactions  and  other  events  and
      circumstances,   excluding  those   resulting  from   investments  by  and
      distributions  to  stockholders.   The  Company  had  no  items  of  other
      comprehensive   income   therefore   net   income  was  the  same  as  its
      comprehensive income for all periods presented.



                                    Page 14
<PAGE>

      Accounting for Stock Options - We have adopted the disclosure requirements
      of SFAS No. 148, Accounting for Stock-Based  Compensation--Transition  and
      Disclosure,  effective  December  2002.  SFAS No. 148 amends SFAS No. 123,
      Accounting for Stock-Based Compensation, to provide alternative methods of
      transition  for a  voluntary  change  to the fair  value  based  method of
      accounting  for  stock-based  compensation  and also amends the disclosure
      requirements  of SFAS No. 123 to  require  prominent  disclosures  in both
      annual and interim  financial  statements  about the methods of accounting
      for stock based employee compensation and the effect of the method used on
      reported  results.  As  permitted  by SFAS No.  148 and SFAS No.  123,  we
      continue to apply the accounting provisions of Accounting Principles Board
      ("APB") Opinion Number 25,  Accounting for Stock Issued to Employees ("APB
      Opinion 25"), and related interpretations,  with regard to the measurement
      of  compensation  cost for options  granted  under our Stock Option Plans.
      SFAS No. 123 and APB Opinion 25 require only that the expense  relating to
      employee  stock options be disclosed in the footnotes to the  consolidated
      financial statements.

      Our Stock  Incentive  Plan is  accounted  for under  the  recognition  and
      measurement principles of APB Opinion 25 and related interpretations.  The
      following  table  illustrates  the effect on net income and  earnings  per
      share if the fair value based method had been applied to all awards:

<TABLE>
<CAPTION>
                                                              Three Months               Three Months
                                                       Ended September 30, 2005    Ended September 30, 2004
                                                       ------------------------    ------------------------
<S>                                                    <C>                         <C>
Net income - as reported                               $            1,842,800      $            2,517,786
Net income - pro forma                                 $            1,798,836      $            2,510,661

Earnings per share:
Net income per common share - basic - as reported      $                 0.26      $                 0.43
Net income per common share - basic - pro forma        $                 0.25      $                 0.42
Net income per common share - dilutive - as reported   $                 0.24      $                 0.37
Net income per common share - dilutive - pro forma     $                 0.23      $                 0.37

<CAPTION>
                                                              Nine Months                 Nine Months
                                                       Ended September 30, 2005    Ended September 30, 2004
                                                       ------------------------    ------------------------
<S>                                                    <C>                         <C>
Net income - as reported                               $            7,022,291      $            6,192,100
Net income - pro forma                                 $            6,940,982      $            6,170,725

Earnings per share:
Net income per common share - basic - as reported      $                 1.09      $                 1.05
Net income per common share - basic - pro forma        $                 1.08      $                 1.04
Net income per common share - dilutive - as reported   $                 1.00      $                 0.92
Net income per common share - dilutive - pro forma     $                 0.99      $                 0.91
</TABLE>

      In December 2004, the FASB issued SFAS No. 123(R),  a revision of SFAS No.
      123.  SFAS No.  123(R)  requires  that the  compensation  cost relating to
      share-based  payment   transaction,   including  employee  stock  options,
      restricted  share  plans,  performance-based  awards,  share  appreciation
      rights,  and employee share purchase plans, be recognized as an expense in
      our consolidated financial statements.  Under SFAS No. 123(R), the related
      compensation cost will be measured based on the fair value of the award at
      the time of grant.

      We are  required  to adopt SFAS No.  123(R) on  January  1,  2006.  We are
      currently  evaluating  the  prospective  effect of SFAS  No.123(R)  on our
      results of operations.



                                    Page 15
<PAGE>

      There  were  106,500  options  granted  to  management  and the  board  of
      directors  during the nine months ended  September  30, 2005. In addition,
      221,000  shares of common  stock  were  issued  upon  exercise  of options
      previously  issued  to  management  and  certain  members  of the board of
      directors.  The options  had an average  exercise  price of  approximately
      $1.02 per share.

      Recent Accounting Pronouncements

      Effective January 1, 2005, and as a result of the required adoption of SOP
      03-3 the Company  changed its discount  accounting  as it relates to loans
      that were acquired subsequent to December 31, 2004 and which have evidence
      of deterioration of credit quality since  origination and, for which it is
      probable,  at acquisition,  that the Company will be unable to collect all
      contractually required payments. For such loans, the excess of contractual
      cash  flows  over  cash  flows   estimated  at  the  time  of  acquisition
      (nonaccretable  discount)  is not  accreted  into  income.  The  remaining
      amount,  representing  the excess of the loan's  estimated cash flows over
      the purchase price (accretable  discount) is accreted into income over the
      life of the loan).  Adoption  of SOP 03-3 may result in an increase in our
      provision  for loan  losses in future  periods  and may also  result in an
      increase in purchase discount earned in future periods.

      SOP 03-3 addresses  accounting for differences  between  contractual  cash
      flows and cash flows expected to be collected  from an investor's  initial
      investment  in loans or debt  securities  acquired  in a transfer if those
      differences are  attributable,  at least in part, to credit quality.  This
      SOP limits the yield that may be accreted to the excess of the  investor's
      estimate of  undiscounted  expected  principal,  interest,  and other cash
      flows  over the  investor's  initial  investment  in the loan.  Subsequent
      increases  in cash  flows  expected  to be  collected  generally  would be
      recognized  prospectively  through adjustment of the loan's yield over its
      remaining life.  Decreases in cash flows expected to be collected would be
      recognized as  impairment  on the statement of income and a  corresponding
      valuation  allowance  would be created  against  the  investment  in notes
      receivable on the balance  sheet.  The Company  adopted the  provisions of
      this SOP in the first quarter of 2005.

      This statement prohibits investors from displaying discount on the face of
      its  balance  sheet  or  creating  valuation  allowances  at the  time  of
      acquisition when such loans are within the scope of this statement.



                                    Page 16
<PAGE>

      The  following  table  sets  forth  certain  information  relating  to the
      activity in the accretable and  nonaccretable  discount in accordance with
      SOP 03-3 for the periods indicated:

<TABLE>
<CAPTION>
                                                         Three Months Ended      Nine Months Ended
                                                                       September 30,
Accretable Discount                                              2005                   2005
------------------------------------------               ------------------    ------------------
<S>                                                      <C>                   <C>
Balance, beginning of period                             $        6,721,220    $               --
New Acquisitions                                                  4,250,315            19,233,009
Accretion                                                          (460,587)             (717,572)
Transfers to non-accretable portion upon initial
  allocation adjustments                                         (1,286,072)           (9,221,874)
Net reductions relating to loans sold                              (165,732)             (234,419)
                                                         ------------------    ------------------
Balance, 9/30/2005                                       $        9,059,144    $        9,059,144
                                                         ==================    ==================

<CAPTION>
                                                         Three Months Ended     Nine Months Ended
                                                                       September 30,
Non-Accretable Discount                                          2005                  2005
------------------------------------------               ------------------    ------------------
<S>                                                      <C>                   <C>
Balance, beginning of period                             $       13,338,079    $               --
New Acquisitions                                                    124,147             5,586,080
Transfers from accretable portion upon
  initial allocation adjustments                                  1,286,072             9,221,874
Net reductions relating to loans sold                               (94,327)             (153,983)
                                                         ------------------    ------------------
Balance, 9/30/2005                                       $       14,653,971    $       14,653,971
                                                         ==================    ==================
</TABLE>


                                    Page 17
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

General

Safe Harbor Statements. Statements contained herein that are not historical fact
may be  forward-looking  statements  within the  meaning  of Section  27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act  of  1934,  as  amended,  that  are  subject  to  a  variety  of  risks  and
uncertainties.  There are a number of important  factors that could cause actual
results  to  differ   materially   from  those   projected   or   suggested   in
forward-looking  statements made by the Company.  These factors include, but are
not limited to: (i) unanticipated changes in the U.S. economy, including changes
in  business  conditions  such as  interest  rates,  and changes in the level of
growth in the finance and housing markets; (ii) the status of our relations with
our sole lender and the lender's  willingness to extend additional credit to us;
(iii) the availability for purchases of additional  loans; (iv) the availability
of sub-prime  borrowers for the origination of additional loans; (vi) changes in
the statutes or regulations  applicable to our business or in the interpretation
and  enforcement  thereof by the relevant  authorities;  (vii) the status of our
regulatory compliance;  and (viii) other risks detailed from time to time in our
SEC reports and filings.  Additional  factors that would cause actual results to
differ  materially  from those  projected or  suggested  in any  forward-looking
statements  are  contained  in the  Company's  filings with the  Securities  and
Exchange  Commission,  including,  but not limited to, those  factors  discussed
under the caption  "Interest  Rate Risk" and "Real Estate Risk" in the Company's
Annual  Report on Form 10-K and  Quarterly  Reports on Form 10-Q,  and under the
heading "Risk  Factors" set forth herein,  which the Company urges  investors to
consider. The Company undertakes no obligation to publicly release the revisions
to  such  forward-looking  statements  that  may be made to  reflect  events  or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrences  of
unanticipated  events,  except as otherwise  required by  securities,  and other
applicable  laws.  Readers are  cautioned  not to place undue  reliance on these
forward-looking statements, which speak only as of the date thereof. The Company
undertakes  no  obligation  to  release  publicly  the  results on any events or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated events.

Overview

      Net income  totaled $1.8 million for the third  quarter of 2005,  compared
with $2.5  million  for the third  quarter of 2004.  The  decrease in 2005 third
quarter  net income was driven  largely by a decrease  in net  interest  income,
which was the result of the rise in short-term  interest  rates since  mid-2004.
Earnings per common  share for the third  quarter of 2005 was $0.24 on a diluted
basis and $0.26 on a basic basis, compared to $0.37 and $0.43, respectively, for
the third  quarter of 2004.  Earnings per common share for the third  quarter of
2005 was affected in part by the increase in the number of shares outstanding as
a result of the Company's  stock  offering,  which was completed in August.  Our
third quarter revenues increased by 44% to $31.7 million from third quarter 2004
revenues of $22.0 million.  The third quarter revenue increase was the result of
growth in our portfolio of notes receivable and loans held for investment during
the last  seven  months of 2004 and the first  nine  months of 2005.  During the
third quarter, we acquired loans with an aggregate face amount of $121.6 million
and we originated  $106.1 million of non-prime  residential  mortgage loans. Our
total portfolio of net notes receivable,  loans held for sale and loans held for
investment  at the end of the third  quarter of 2005 had grown to $1.06  billion
from $817.3 million at the end of 2004. Our total debt outstanding grew to $1.09
billion at  September  30,  2005 from  $847.3  million  at the end of 2004.  Our
average cost of funds during the third  quarter of 2005  increased to 6.86% from
5.26% during the third  quarter of 2004.  Stockholders'  equity at September 30,
2005 had  increased by 69% since  year-end  2004 to $49.9  million,  or 4.29% of
September 30, 2005 assets,  due to the company's  common stock  offering and the
retention of net income.



                                    Page 18
<PAGE>

Application of Critical Accounting Policies and Estimates

      The following  discussion and analysis of financial  condition and results
of operations  is based on the amounts  reported in our  consolidated  financial
statements,   which  are  prepared  in  accordance  with  accounting  principles
generally  accepted in the United  States of America,  or GAAP. In preparing the
consolidated  financial  statements,  management  is  required  to make  various
judgments,  estimates and assumptions  that affect the financial  statements and
disclosures.  Changes in these estimates and  assumptions  could have a material
effect on our consolidated  financial statements.  The following is a summary of
the  accounting  policies  believed by  management  to be most critical in their
potential  effect on our  financial  position  or  results  of  operations.  The
Company's  significant  accounting  policies  are  described  in  Note  1 to the
December 31, 2004 consolidated financial statements filed on Form 10-K, and have
not been changed in 2005 except for adoption of SOP 03-3 as described below.

      Notes Receivable and Income  Recognition - Our notes receivable  portfolio
consists  primarily  of  secured  real  estate  mortgage  loans  purchased  from
financial institutions,  mortgage banks and finance companies.  Notes receivable
are performing,  reperforming or  nonperforming  at the time of purchase and are
usually  purchased at a discount from the  principal  balance  remaining.  Notes
receivable  are stated at the amount of unpaid  principal,  reduced by  purchase
discount and allowance for loan losses. Notes purchased after December 31, 2004,
under AICPA Statement of Position ("SOP") No. 03-3, Accounting for Certain Loans
or Debt Securities  Acquired in a Transfer ("SOP 03-3"), are stated at amortized
cost. We have the ability and intent to hold these notes until maturity,  payoff
or liquidation of the collateral.  Impaired notes  receivable are measured based
on the present  value of expected  future  cash flows  discounted  at the note's
effective interest rate or, as a practical  expedient,  at the observable market
price of the note  receivable or the fair value of the collateral if the note is
collateral  dependent.  We  periodically  evaluate  the  collectibility  of both
interest and  principal of our notes  receivable  to determine  whether they are
impaired.  A note receivable is considered  impaired when it is probable that we
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the note agreement.

      In  general,  interest  on the notes  receivable  is  calculated  based on
contractual  interest  rates applied to daily  balances of the principal  amount
outstanding  using the accrual method.  Accrual of interest on notes receivable,
including impaired notes receivable,  is discontinued when management  believes,
after considering economic and business conditions and collection efforts,  that
the  borrowers'  financial  condition  is such that  collection  of  interest is
doubtful. When interest accrual is discontinued,  all unpaid accrued interest is
reversed.  Subsequent recognition of income occurs only to the extent payment is
received,  subject  to  management's  assessment  of the  collectibility  of the
remaining  interest and principal.  A non-accrual note is restored to an accrual
status when the  collectibility of interest and principal is no longer in doubt,
and past due interest is recognized at that time.

         Discounts on Acquired Loans - Effective January 1, 2005, as a result of
the  required  adoption  of SOP 03-3,  the  Company  was  required to change our
accounting for loans acquired subsequent to December 31, 2004 that have evidence
of  deterioration  of  credit  quality  since  origination  and for  which it is
probable, at the time of our acquisition,  that we will be unable to collect all
contractually required payments. For these loans, the excess of the undiscounted
contractual cash flows over the  undiscounted  cash flows estimated by us at the
time  of  acquisition  is  not  accreted  into  income,  and is  referred  to as
nonaccretable  discount.  The  amount  representing  the  excess  of cash  flows
estimated by us at acquisition over the purchase price is accreted into interest
income over the life of the loan, and is referred to as accretable discount.



                                    Page 19
<PAGE>

      For  loans  not  addressed  by SOP 03-3 that are  acquired  subsequent  to
December 31, 2004,  the discount,  which  represents the excess of the amount of
reasonably  estimable and probable  discounted  future cash collections over the
purchase  price,  is accreted into purchase  discount using the interest  method
over the term of the loans.  This is  consistent  with the  method  the  Company
utilizes for its accounting for loans purchased prior to January 1, 2005, except
that  for  these  loans an  allowance  allocation  was also  made at the time of
acquisition.

      There is  judgment  involved in  estimating  the amount of the future cash
flows.  The amount and timing of actual cash flows could differ  materially from
management's  estimates,  which could materially affect our financial  condition
and  results  of  operations.  Depending  on the  timing  of an  acquisition,  a
preliminary  allocation may be utilized until a final allocation is established.
Generally,  the allocation  will be finalized no later than ninety days from the
date of purchase.

      The  nonaccretable  discount  is not  accreted  into  income  until  it is
determined  that the amount and timing of the related cash flows are  reasonably
estimable  and  collection  is  probable.  If cash  flows  cannot be  reasonably
estimated for any loan, and collection is not probable, the cost recovery method
of accounting is used. Under the cost recovery method,  any amounts received are
applied against the recorded amount of the loan.

      Subsequent to acquisition,  if cash flow  projections  improve,  and it is
determined  that  the  amount  and  timing  of the  cash  flows  related  to the
nonaccretable  discount are reasonably estimable and collection is probable, the
corresponding  decrease  in the  nonaccretable  discount is  transferred  to the
accretable discount and is accreted into interest income over the remaining life
of the  loan on the  interest  method.  If  cash  flow  projections  deteriorate
subsequent  to  acquisition,  the decline is accounted for through the allowance
for loan losses.

      Allowance  for Loan  Losses - The  Company  performs  reviews  of our loan
portfolio upon purchase, at loan boarding, and on a frequent basis thereafter to
segment  impaired  loans  under  Statement  of  Financial  Accounting  Standards
("SFAS") No. 114. A loan is considered impaired when it is probable that we will
be unable to collect all  contractual  principal  and  interest  payments due in
accordance with the terms of the note agreement. An allowance for loan losses is
estimated based on our impairment analysis. Management's judgment in determining
the  adequacy of the  allowance  for loan losses is based on the  evaluation  of
individual   loans  within  the   portfolios,   the  known  and  inherent   risk
characteristics  and size of the 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. In connection
with the  determination  of the  allowance for loan losses,  management  obtains
independent  appraisals for the underlying collateral when considered necessary.
Management  believes  that  the  allowance  for loan  losses  is  adequate.  The
allowance  for  loan  losses  is  a  material   estimate,   which  could  change
significantly in the near term.

Effective January 1, 2005, and as a result of the required adoption of SOP 03-3,
additions to the valuation  allowances  relating to newly acquired loans reflect
only those  losses  incurred by us  subsequent  to  acquisition.  The Company no
longer increases the allowance  through  allocations from purchase  discount for
loans acquired subsequent to December 31, 2004. Consequently,  the allowance for
loan losses has declined  since the adoption of SOP 03-3,  and it is anticipated
that the allowance  will continue to decline as an allowance for loan loss is no
longer  established  at time of  acquisition,  as loans  pay off and  allowances
related  to these  loans may not be  required  or future  additions  due to loan
impairment may decline or are no longer required.



                                    Page 20
<PAGE>



Portfolio Characteristics

      Loan Acquisitions

We  purchased  $121.6  million  of loans  during the third  quarter of 2005,  as
compared with approximately  $120.6 million in loans during the third quarter of
2004. For the nine months ended September 30, 2005, we purchased  $315.2 million
of loans as compared with $536.7  million for the same 2004 period.  On June 30,
2004, the Company purchased a $310.4 million pool of performing,  sub-performing
and non-performing  first and second,  residential mortgage loans from Bank One.
The  following  table sets forth the unpaid  principal  balance at  acquisition,
purchase  price and purchase price as a percentage of unpaid  principal  balance
for the  Company's  loan  acquisitions  during the three and nine month  periods
ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                      Three Months Ended September 30,       Nine Months Ended September 30,
                                           2005              2004               2005               2004
                                     ---------------    ---------------    ---------------    ---------------
<S>                                  <C>                <C>                <C>                <C>
Aggregate unpaid principal balance   $   121,637,069    $   120,605,382    $   315,220,868    $   536,662,897
    at acquisition
Purchase price                       $   117,734,210    $    87,266,354    $   291,141,892    $   438,971,026
Purchase price percentage                         97%                72%                92%                82%
</TABLE>

      Loan Dispositions

In the ordinary  course of our loan  servicing  process and through the periodic
review of our portfolio of purchased  loans,  there are certain loans that,  for
various reasons, we determine to sell. We typically sell these loans for cash on
a  whole-loan,  servicing-released  basis.  The  following  table sets forth our
dispositions  of purchased loans during the three and nine month periods of 2005
and 2004:

<TABLE>
<CAPTION>
                                      Three Months Ended September 30,      Nine Months Ended September 30,
                                           2005              2004             2005               2004
                                     ---------------   ---------------   ---------------    ---------------
<S>                                  <C>               <C>               <C>                <C>
Sale of Performing Loans
Aggregate unpaid principal balance   $     6,236,508   $     2,059,205   $    13,573,871    $    10,721,666
Gain on sale                         $       644,985   $       229,840   $     1,263,866    $     1,074,742

Sale of Non-Performing Loans
Aggregate unpaid principal balance   $            --   $            --   $    23,491,405*   $            --
Gain on sale                         $            --   $            --   $        47,021    $            --
</TABLE>

*Sale of credit card  portfolio;  allowance  for loan  losses  amounted to $22.3
million.



                                    Page 21
<PAGE>

      Other Real Estate Owned

      The following  table sets forth our other real estate owned,  or OREO, and
OREO sales at and for the three and nine month periods ended  September 30, 2005
and September 30, 2004:

<TABLE>
<CAPTION>
                                        Three Months Ended September 30,        Nine Months Ended September 30,
                                            2005                2004               2005               2004
                                       ---------------    ---------------     ---------------    ---------------
<S>                                    <C>                <C>                 <C>                <C>
Other real estate owned                $    16,576,369    $    16,684,155     $    16,576,369    $    16,684,155
OREO as a percentage of total assets              1.43%              2.04%               1.43%              2.04%
OREO sold                              $     8,571,344    $     4,585,013     $    24,458,300    $    14,809,477
Gain (loss) on sale                    $       535,308    $      (145,846)    $     1,191,692    $       227,551
</TABLE>

      Loan Originations

The  following  table  sets forth  loan  originations  during the three and nine
months ended September 30, 2005 and 2004, as well as loan sales. During 2004, we
began to originate loans,  principally,  adjustable rate loans with a fixed rate
for the first two years, to be held in our portfolio.

<TABLE>
<CAPTION>
                                         Three Months Ended September 30,       Nine Months Ended September 30,
                                              2005               2004              2005               2004
                                        ---------------    ---------------    ---------------    ---------------
<S>                                     <C>                <C>                <C>                <C>
Number of loans originated                          476                288              1,349                804
Amount of loans originated              $   106,058,640    $    50,655,663    $   299,365,677    $   130,834,004
Average loan amount                     $       222,812    $       175,888    $       221,917    $       162,729

Originated as fixed                     $    11,347,840    $     7,172,888    $    28,624,745    $    43,676,197
Originated as ARM *                     $    94,710,800    $    44,432,775    $   270,740,932    $    88,107,807

Number of loans sold                                 69                177                254                509
Amount of loans sold                    $    14,276,617    $    26,493,727    $    50,879,175    $    76,902,520
Gain on sale                            $       542,588    $     1,026,372    $     2,232,681    $     3,171,801
Gain on sale percentage                            3.80%              3.87%              4.39%              4.12%
</TABLE>

*  Originated ARM loans are  principally  fixed rate for the first two years and
   six-month adjustable rate for the remaining term.



                                    Page 22
<PAGE>

Notes Receivable Portfolio

As of September 30, 2005,  our notes  receivable  portfolio,  which  consists of
purchased loans,  included 20,210 loans with an aggregate  principal  balance of
$843.1  million and a net balance of $771.3  million  (after  allowance for loan
losses of $71.8 million).  Impaired loans comprise and will continue to comprise
a significant portion of our portfolio.  Many of the loans that we have acquired
were  impaired at the time of  purchase.  We  generally  purchase  such loans at
discounts and have considered the payment status,  underlying  collateral  value
and expected cash flows when  determining  our purchase  price.  While  interest
income is not accrued on impaired  loans,  interest  and fees are  received on a
portion  of loans  classified  as  impaired.  The  following  table  provides  a
breakdown  between  performing loans and impaired loans for the notes receivable
portfolio as of September 30, 2005 and December 31, 2004:

<TABLE>
<CAPTION>
                                                    September 30, 2005    December 31, 2004
                                                    ------------------   ------------------
<S>                                                 <C>                  <C>
Performing loans                                    $      475,908,322   $      436,366,894
Allowance for loan losses                                   17,210,854           19,154,311
                                                    ------------------   ------------------
Total performing loans,
  net of allowance for loan losses                  $      458,697,468   $      417,212,583
                                                    ------------------   ------------------

Impaired loans                                      $      250,933,677   $      280,078,060
Allowance for loan losses                                   44,454,594           57,889,091
                                                    ------------------   ------------------
Total impaired loans,
  net of allowance for loan losses                  $      206,479,083   $      222,188,969
                                                    ------------------   ------------------

Not recorded onto servicing system                  $      139,921,227   $       95,440,903
Allowance for loan losses                                   10,133,128           12,584,898
                                                    ------------------   ------------------
Not recorded onto servicing system,
  net of allowance for loan losses                  $      129,788,099   $       82,856,005
                                                    ------------------   ------------------
Total notes, net of allowance for loan losses       $      794,964,650   $      722,257,557
                                                    ------------------   ------------------

*Accretable Discount                                $        9,059,144   $               --
                                                    ------------------   ------------------
*Non-Accretable Discount                            $       14,653,971   $               --
                                                    ------------------   ------------------

Notes receivable, net of allowance for
loan losses and accretable/nonaccretable discount   $      771,251,535   $      722,257,557
                                                    ==================   ==================
</TABLE>

At September 30, 2005,  $278.1 million of loans acquired after December 31, 2004
are  included  in the table  above at their face  value,  inclusive  of purchase
discount.

*Purchase  discount not  reflected on the face of the  statement of condition in
accordance with SOP 03-3.


                                    Page 23
<PAGE>


The  following  table  provides a breakdown  of the balance of our  portfolio of
notes receivable  between fixed rate and adjustable rate loans, net of allowance
for loan losses and  excluding  loans  purchased  but not yet  boarded  onto our
servicing  operations  system as of September 30, 2005 and December 31, 2004, of
$129,788,099 and $82,856,005 respectively:

<TABLE>
<CAPTION>
                                                            September 30, 2005    December 31, 2004
                                                            ------------------   ------------------
<S>                                                         <C>                  <C>
Performing Loans:
Fixed Rate Performing Loans                                 $      326,564,829   $      300,286,566
                                                            ------------------   ------------------
Adjustable Rate Performing Loans                                   132,132,639   $      116,926,017
                                                            ------------------   ------------------
Total Performing Loans                                      $      458,697,468   $      417,212,583
                                                            ==================   ==================

Impaired Loans:
Fixed Rate Impaired Loans                                   $      169,332,711   $      184,312,204
                                                            ------------------   ------------------
Adjustable Rate Impaired Loans                                      37,146,372   $       37,876,765
                                                            ------------------   ------------------
Total Impaired Loans                                        $      206,479,083   $      222,188,969
                                                            ==================   ==================
Total Notes                                                 $      665,176,551   $      639,401,552
                                                            ==================   ==================

*Accretable Discount                                        $        6,754,981   $               --
                                                            ==================   ==================
*Non-Accretable Discount                                    $       14,653,971   $               --
                                                            ==================   ==================
Total Notes Receivable, net of allowance for loan losses,
excluding loans not boarded onto servicing systems          $      643,767,599   $      639,401,552
                                                            ==================   ==================
</TABLE>


*Purchase  discount not  reflected on the face of the  statement of condition in
accordance with SOP 03-3.

*Accretable and non-accretable  discount for loans not recorded in the servicing
system amounted to $2,304,163.



                                    Page 24
<PAGE>

The decrease in the amount of impaired loans principally reflects payoffs ($45.0
million) and transfers to OREO ($33.9 million).

      Overall Portfolio

At September  30,  2005,  our  portfolio  (excluding  OREO)  consisted of $866.8
million of notes  receivable,  inclusive of purchase  discount (not shown on the
face of the balance sheet) for loans  acquired in 2005,  $297.5 million of loans
held for investment,  inclusive of allowance for loan losses,  and $12.4 million
of loans held for sale.  Our total loan portfolio grew 25.2% to $1.18 billion at
September 30, 2005,  from $939.2 million at December 31, 2004. Not boarded loans
represent  purchased  loans  serviced  by the  seller on a  temporary  basis and
recently  originated  loans that have been funded but have not yet been  entered
into the servicing system.

Property Type. The following table sets forth information regarding the types of
properties securing our loans as of September 30, 2005.

<TABLE>
<CAPTION>
                                                                         Percentage of Total
Property Types                                   Principal Balance        Principal Balance
---------------------------                      -----------------        -----------------
<S>         <C>  <C>                             <C>                            <C>
Residential 1-to-4 family                        $     879,411,311              74.70%
Condos, coops, PUD dwelling                             77,931,709               6.62%
Manufactured homes                                      18,056,559               1.53%
Multi-family                                             1,623,795               0.14%
Commercial                                               2,475,638               0.21%
Unsecured loans                                         39,072,200               3.32%
Other                                                      204,306               0.02%
Not boarded                                            158,500,814              13.46%
                                                 -----------------        ------------
Total                                            $   1,177,276,332             100.00%
                                                 =================        ============
</TABLE>

Geographic Dispersion.  The following table sets forth information regarding the
geographic  location  of  properties  securing  the  loans in our  portfolio  at
September 30, 2005:

<TABLE>
<CAPTION>
                                                                         Percentage of Total
Location                                         Principal Balance        Principal Balance
---------------------------                      -----------------        -----------------
<S>                                              <C>                            <C>
New York                                         $     117,841,831              10.01%
New Jersey                                             104,371,647               8.87%
Ohio                                                    79,532,731               6.76%
Florida                                                 70,016,750               5.95%
California                                              65,862,848               5.59%
Pennsylvania                                            54,691,048               4.65%
Texas                                                   47,727,543               4.05%
Georgia                                                 44,856,670               3.81%
Michigan                                                36,066,620               3.06%
Indiana                                                 32,885,066               2.79%
All Others                                             523,423,578              44.46%
                                                 -----------------        ------------
                                                 $   1,177,276,332             100.00%
                                                 =================        ============
</TABLE>

Amounts  included  in the tables  above under the  heading  "Principal  Balance"
represent  the  aggregate   unpaid  principle   balance   outstanding  of  notes
receivable, loans held for investment and loans held for sale.



                                    Page 25
<PAGE>

      Asset Quality

Delinquency.  The following tables provide a breakdown of the delinquency status
of our notes  receivable,  loans  held for  investment  and loans  held for sale
portfolios  as of  the  dates  indicated,,  by  principal  balance.  Because  we
specialize in acquiring and servicing loans with erratic payment patterns and an
elevated level of credit risk, a substantial portion of the loans we acquire are
in various stages of  delinquency,  foreclosure  and bankruptcy  when we acquire
them. We monitor the payment status of our borrowers  based on both  contractual
delinquency and recency  delinquency.  By contractual  delinquency,  we mean the
delinquency of payments relative to the contractual obligations of the borrower.
By recency  delinquency,  we mean the recency of the most  recent  full  monthly
payment  received  from  the  borrower.  By way of  illustration,  on a  recency
delinquency basis, if the borrower has made the most recent full monthly payment
within the past 30 days,  the loan is shown as current  regardless of the number
of contractually  delinquent payments. In contrast, on a contractual delinquency
basis, if the borrower has timely made the most recent full monthly payment, but
has missed an earlier  payment or payments,  the loan is shown as  contractually
delinquent. We classify a loan as in foreclosure when we determine that the best
course of action to maximize  recovery if unpaid  principal  balance is to begin
the  foreclosure  process.  We classify a loan as in  bankruptcy  status when we
receive notice of a bankruptcy filing from the bankruptcy court.

<TABLE>
<CAPTION>
                                                   September 30, 2005
                                     ------------------------------------------------
                                    Contractual Delinquency      Recency Delinquency
                                     --------------------       ---------------------
                                         Amount        %            Amount        %
                                     --------------   ---       --------------   ---
<S>                 <C>              <C>               <C>      <C>               <C>
Current              0 - 30 days     $  561,303,618    48%      $  661,978,017    56%
Delinquent          31 - 60 days         67,181,959     6%          28,614,906     2%
                    61 - 90 days         17,816,021     2%          17,888,226     2%
                        90+ days         94,186,531     8%          32,006,979     3%

Bankruptcy           0 - 30 days         34,807,691     3%         100,792,190     9%
Delinquent          31 - 60 days          9,837,005     1%           5,444,101    --
                    61 - 90 days          5,869,542    --            6,596,933     1%
                        90+ days         91,750,955     8%          29,431,969     3%

Foreclosure          0 - 30 days          1,343,291    --           10,545,183     1%
Delinquent          31 - 60 days            981,482    --            2,458,151    --
                    61 - 90 days            911,806    --            2,722,252    --
                        90+ days        132,533,379    11%         120,044,373    10%

Not Boarded(1)                          158,753,052    13%         158,753,052    13%
                                     --------------   ---       --------------   ---
Total                                $1,177,276,332   100%      $1,177,276,332   100%
                                     ==============   ===       ==============   ===

Total 0 - 30 days                    $  597,454,600    51%      $  773,315,390    66%
                                     ==============   ===       ==============   ===
</TABLE>

----------

(1)   Not boarded represents recently acquired loans serviced by the seller on a
      temporary  basis and recently  originated  loans that have been funded but
      have not yet been  entered  into the  servicing  system.  A portion of not
      boarded loans has been included in the appropriate  delinquency categories
      based  on  information  provided  by the  seller-servicer.  The  remaining
      portion of not boarded loans,  for which  information has not been entered
      into our servicing system, is shown in the not boarded category.


                                    Page 26
<PAGE>

<TABLE>
<CAPTION>
                                                   December 31, 2004
                                     ------------------------------------------------
                                    Contractual Delinquency     Recency Delinquency
                                         Amount        %            Amount        %
                                     --------------   ---       --------------   ---
<S>                 <C>              <C>               <C>      <C>               <C>
Current             0 - 30 days      $  416,776,407    44%      $  511,114,197    54%
Delinquent          31 - 60 days         56,218,696     6%          21,442,086     2%
                    61 - 90 days         16,233,919     2%           5,058,905     1%
                    90+ days             72,245,504     8%          23,859,338     3%

Bankruptcy          0 - 30 days          32,807,860     3%          99,962,317    11%
Delinquent          31 - 60 days         16,086,359     2%           9,380,912     1%
                    61 - 90 days          7,262,679     1%           1,950,460    --
                    90+ days             91,503,223    10%          36,666,432     4%

Foreclosure         0 - 30 days             168,426    --           19,264,407     2%
Delinquent          31 - 60 days          1,617,959    --            4,030,963    --
                    61 - 90 days          1,347,135    --            5,112,161     1%
                    90+ days            132,247,363    14%         106,973,352    11%

Not Boarded(1)                           95,440,903    10%          95,440,903    10%
                                     --------------   ---       --------------   ---
Total                                $  939,956,433   100%      $  939,956,433   100%
                                     ==============   ===       ==============   ===
Total 0 - 30 days                    $  449,752,693    48%      $  630,340,921    67%
                                     ==============   ===       ==============   ===
</TABLE>

----------

(1)   Not boarded represents recently acquired loans serviced by the seller on a
      temporary  basis and recently  originated  loans that have been funded but
      have not yet been  entered  into the  servicing  system.  A portion of not
      boarded loans has been included in the appropriate  delinquency categories
      based  on  information  provided  by the  seller-servicer.  The  remaining
      portion of not boarded loans,  for which  information has not been entered
      into our servicing system, is shown in the not boarded category.

Hurricanes Katrina and Rita. In order to determine  potential losses, if any, as
a result of the recent hurricanes,  Katrina and Rita, the Company has identified
its loans in the FEMA-designated areas, and continues to contact these borrowers
to assess the overall effect that the hurricanes will have on the collectibility
of the identified  loans.  Management does not consider the net balances of such
loans to be significant  and has not  identified a material  number of loans for
which the collateral was  significantly  damaged by the  hurricanes.  Management
currently  believes that the existing  allowance is adequate to cover  potential
losses,  if any,  that may be identified in the future as a result of hurricanes
Katrina and Rita.  However,  additional  provisions  for loan losses for a small
number of such loans may be required  in the future,  and we cannot at this time
determine if other borrowers near the  FEMA-designated  areas may be affected in
the future.



                                    Page 27
<PAGE>

Results of Operations

Three Months Ended  September 30, 2005 Compared to Three Months Ended  September
30, 2004

      Overview.  Net income  totaled $1.8 million for the third quarter of 2005,
compared with $2.5 million for the third quarter of 2004.  Net income  decreased
27% in the third quarter of 2005,  compared with the third quarter of 2004.  The
decrease in 2005 third  quarter  net income was driven  largely by a decrease in
net interest income,  which principally was the result of the rise in short-term
interest rates since  mid-2004.  Earnings per common share for the third quarter
of 2005 was $0.24 on a diluted  basis and $0.26 on a basic  basis,  compared  to
$0.37 and  $0.43,  respectively,  for the third  quarter of 2004.  Earnings  per
common share for the third  quarter of 2005 was affected in part by the increase
in the number of shares outstanding as a result of the Company's stock offering,
which was completed in August.  Our third quarter  revenues  increased by 44% to
$31.7  million from third  quarter 2004  revenues of $22.0  million.  During the
third  quarter,  we acquired  residential  mortgage loans with an aggregate face
amount of $121.6 million and we originated  $106.1  million of non-prime  loans.
Due to more competitive purchase market conditions in the third quarter of 2005,
and the availability of portfolios of generally higher credit quality offered to
us, our third quarter acquisitions were at higher prices (less discount) than in
the past.  Our total  portfolio  of net notes  receivable,  loans held for sale,
loans held for  investment  and OREO at the end of the third quarter of 2005 had
grown to $1.08  billion from $837.9  million at the end of 2004.  Our total debt
outstanding  grew to $1.09 billion at September 30, 2005 from $847.3  million at
the end of 2004.  Our  average  cost of funds  during the third  quarter of 2005
increased to 6.86% from 5.26% during the third quarter of 2004.

      Revenues.  Total  revenues  increased  by $9.7  million,  or 44%, to $31.7
million  during the three months ended  September  30, 2005,  from $22.0 million
during the three months ended  September  30, 2004.  Revenues  include  interest
income, purchase discount earned, gain on sale of notes receivable, gain on sale
of originated loans held for sale, gain on sale of OREO and prepayment and other
income.

      Interest income increased by $7.9 million, or 48%, to $24.6 million during
the three  months  ended  September  30,  2005,  from $16.6  million  during the
corresponding  period of 2004.  The increase in interest  income  reflected  the
significant growth in the portfolio of gross notes receivable and loans held for
investment  during the third  quarter of 2005  compared to the third  quarter of
2004.

      Purchase  discount  earned  increased by $177,000,  or 6%, to $3.1 million
during the three months ended  September 30, 2005,  from $3.0 million during the
third quarter of 2004. This increase resulted primarily from increased principal
payments  due  both to the  growth  in our  portfolio  of notes  receivable  and
increased  prepayments  during the third  quarter  of 2005,  which  resulted  in
accelerated income recognition of the associated purchase discount compared with
the third quarter of 2004. We received $70.8 million of principal  payments from
notes  receivable in the third  quarter of 2005,  compared with $42.1 million of
principal payments in the third quarter of 2004.

      During the three months ended September 30, 2005, we sold notes receivable
with an outstanding  principal amount,  which we refer to as face value, of $6.2
million and we recognized a gain of $645,000 as compared to the same period last
year where we sold $2.1 million for a gain of $230,000.

      Gain on sale of originated  loans held for sale decreased by $484,000,  or
47%, to $543,000  during the third quarter of 2005, from $1.0 million during the
corresponding  quarter of 2004. This decrease reflected a decrease in the volume
of originated  loans sold during the period.  Until mid-year of 2004, our policy
was to sell substantially all loans originated.  We sold $14.3 million and $26.5
million of loans that were  specifically  originated  for sale in the  secondary
market during the three months ended  September 30, 2005 and September 30, 2004,
respectively.  The average gain on loans sold was 3.80% and 3.87%, respectively,
during the three months ended September 30, 2005 and 2004.



                                    Page 28
<PAGE>

      Gain on sale of OREO  increased by $681,000,  or 467%, to $535,000  during
the quarter  ended  September  30, 2005 compared with a loss of $146,000 for the
third  quarter of 2004. A total of 125 and 62 OREO  properties  were sold during
the three months ended September 30, 2005 and September 30, 2004,  respectively.
The  increase  in the number of  properties  sold  reflected  growth in our OREO
inventory  due to both an  increase  in  foreclosures  as our  notes  receivable
portfolio  grew and the  purchase of loans  during 2004 that were already in the
foreclosure process.

      Prepayment and other income (prepayment  penalties and other servicing and
origination fees) increased by $989,000 or 79%, to $2.2 million during the three
months ended  September 30, 2005,  from $1.3 million during the third quarter of
2004.  The increase was  primarily  due to an increase in  prepayment  penalties
received  as a result of an  increase in loan  payoffs  during the three  months
ended  September 30, 2005,  as compared  with the same period in 2004,  which is
primarily  attributable  to the  increased  size  of  our  portfolios  of  notes
receivable  and loans held for  investment  and continued low mortgage  interest
rates.  Increased late charges,  resulting primarily from the growth in the size
of our loan portfolios,  and increased loan application  fees, due to the growth
in the volume of Tribeca's non-prime loan originations,  also contributed to the
increase.

      Operating  Expenses.  Total operating expenses increased by $11.0 million,
or 63%, to $28.3 million  during the third  quarter of 2005,  from $17.3 million
during the third quarter of 2004.  Total  operating  expenses  include  interest
expense,  collection,  general and administrative  expenses,  provision for loan
losses, amortization of deferred financing costs and depreciation.

      Interest  expense  increased  by $8.1  million,  or 81%, to $18.0  million
during the three months ended  September 30, 2005,  from $9.9 million during the
three months  ended  September  30,  2004.  This  increase  reflected  the large
increase  in the  balance of total debt used to fund the growth in total  assets
during the past year,  to $1.09  billion as of September  30, 2005,  as compared
with $782.3 million, as of September 30, 2004. In addition,  our average cost of
funds during the three months ended September 30, 2005 increased to 6.86%,  from
5.26% during the three months ended September 30, 2004, reflecting the effect of
the rise in  short-term  interest  rates  during the past  twelve  months on the
monthly adjustable rate composition of our borrowed funds.

      Collection, general and administrative expenses increased by $1.6 million,
or 27%, to $7.6 million during the three months ended  September 30, 2005,  from
$6.0  million  during the three  months  ended  September  30,  2004.  Personnel
expenses increased by $266,000,  or 9%, and reflected  increases in personnel in
certain  areas in order to meet the demands of the  significant  asset growth of
our business.  We ended the third quarter of 2005 with 206 employees as compared
to 166 at the end of the third quarter of 2004. Legal fees relating to increased
activity  with respect to  foreclosures  increased by $460,000,  or 80%, to $1.0
million from $577,000 during the same period last year. This increase  reflected
increases in foreclosure  activity as a result of the growth of our portfolio of
notes  receivable  and certain loans  purchased in various stages of delinquency
and  foreclosure.  Office expenses  increased by $531,000,  or 153%, to $877,000
during the three months ended September 30, 2005, from $346,000 during the three
months of 2004.  This  increase  was  primarily  due to occupancy  costs,  which
increased  $494,000  during the third quarter of 2005,  principally due to lease
termination  costs of $294,000 and other expenses  incurred in the relocation of
administrative and operating functions to our new office facility in New Jersey.
All other collection, general and administrative expenses increased $369,000, or
17%, to $2.5 million from $2.1 million  during the three months ended  September
30,  2005,  and  reflected  the  overall  increase  in  our  business  activity.
Collection,  general  and  administrative  expenses as a  percentage  of average
assets  increased  slightly from 2.93% during the third quarter of 2004 to 2.96%
in the current quarter.



                                    Page 29
<PAGE>

      The  provision  for loan losses  increased  by  $352,000,  or 48%, to $1.1
million during the three months ended  September 30, 2005,  from $729,000 during
the third quarter of 2004. This increase was primarily due to reserve  increases
in specific  portfolios of notes receivable that were acquired in the first nine
months of 2004 and, to a lesser extent, loans held for investment as a result of
an increase in impaired loans.

      Amortization of deferred  financing costs increased by $648,000,  or 111%,
to $1.2 million during the third quarter of 2005, from $585,000 during the third
quarter  of 2004.  This  increase  resulted  primarily  from the  growth  in our
outstanding  debt and increased  prepayments on our  portfolios of loans,  which
accelerated  the pay  down of our  debt  and  thereby  the  amortization  of the
deferred fees paid to our lender.

      Depreciation  expense  increased by $247,000,  or 208%,  to $365,000  from
$119,000  during the three  months ended  September  30, 2005 as compared to the
three months ended September 30, 2004. This increase resulted primarily from the
write off of the remaining  undepreciated balance of improvements in our vacated
New York City  locations,  due to the  termination  of related  leases,  and the
addition of capital improvements, computer equipment and office furniture at our
new office facility in New Jersey.

      Our pre-tax  income  decreased  by $1.2  million,  or 27%, to $3.4 million
during the third  quarter of 2005 from $4.6 million  during the third quarter of
2004.

      During the third  quarter of 2005,  we had a provision for income taxes of
$1.5 million as compared to a provision of $2.1 million in the third  quarter of
2004.  The effective tax rate for the three months ended  September 30, 2005 and
September 30, 2004 was 45.5%.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30,
2004

      Overview.  Net income  totaled  $7.0  million for the nine months of 2005,
compared with $6.2 million for the first nine months of 2004. Revenues increased
by 72% to $90.7  million,  from  $52.8  million  during  the nine  months  ended
September  30,  2004.  The  increase  in net income  was  driven  largely by the
significant  growth in our  portfolio  of notes  receivable  and loans  held for
investment during the last seven months of 2004 and during the first nine months
of 2005.  Earnings per common share for the nine months ended September 30, 2005
was $1.00 on a diluted  basis and $1.09 on a basic basis,  compared to $0.92 and
$1.05,  respectively,  for 2004. Net income per common share for the nine months
ended September 30, 2005 was affected  somewhat by the increase in the number of
shares  outstanding  as a result  of the  Company's  stock  offering,  which was
completed  in August.  During the nine  months  ended  September  30,  2005,  we
acquired  S&D loans  with an  aggregate  face  amount of $315.2  million  and we
originated $299.4 million of non-prime  mortgage loans. We increased the size of
our total portfolio of net notes receivable, loans held for sale, loans held for
investment  and OREO at the end of the third  quarter  of 2005 to $1.06  billion
from  $768  million  at the end of the same  period  in  2004.  Our  total  debt
outstanding  grew to $1.09 billion at September 30, 2005 from $782.3  million at
September 30, 2004. As a result of the increase in the size of our total debt to
support our portfolio growth,  and due to the rise in short-term  interest rates
since mid-2004 and its impact on our liability-sensitive balance sheet, interest
expense  increased $26.6 million,  or 128%, during the first nine months of 2005
compared with the same period in 2004. Our average cost of funds during the nine
months ended  September  30, 2005  increased to 6.39% from 4.76% during the nine
months ended September 30, 2004.

      Revenues.  Total  revenues  increased by $37.9  million,  or 72%, to $90.7
million during 2005, from $52.8 million during 2004.



                                    Page 30
<PAGE>

      Interest  income  increased  by $32.8  million,  or 85%, to $71.4  million
during the nine months ended  September 30, 2005,  from $38.6 million during the
same period in 2004. The increase in interest  income  reflected the substantial
increase  in notes  receivable  and loans  held for  investment  during the nine
months ended September 30, 2005, compared to the nine months ended September 30,
2004,  which was the result of the growth in the  volume of loan  purchases  and
loan originations.

      Purchase  discount  earned  increased  by $2.2  million,  or 37%,  to $8.3
million  during the nine months  ended  September  30,  2005,  from $6.0 million
during  the nine  months  of 2004.  This  increase  resulted  primarily  from an
increase in average  gross notes  receivable  and increased  prepayments  in the
nine-month period ended September 30, 2005, which resulted in an acceleration of
income  recognition of the associated  purchase  discount compared with the nine
months  ended  September  30,  2004.  We received  $201.8  million of  principal
payments  from notes  receivable  during the nine months of 2005,  compared with
$144.0 million of principal  payments during the nine months of 2004,  which was
due to the  increased  size  of the  notes  receivable  portfolio  and  mortgage
interest  rates  that  remained  relatively  low,  which  facilitated   borrower
refinancings, during the 2005 nine month period.

      Gain on sale of notes  receivable  increased by $236,000,  or 22%, to $1.3
million  during the nine months  ended  September  30,  2005,  from $1.1 million
during  the nine  months  ended  September  30,  2004.  We sold a total of $13.6
million of performing  notes  receivable and credit card receivables with a face
amount of $23.5  million  during the nine months of 2005, as compared to a total
of $10.8 million in performing loans during the same period last year.

      Gain on sale of originated  loans held for sale decreased by $939,000,  or
30% to $2.2 million during the nine months ended  September 30, 2005,  from $3.2
million during the nine months ended September 30, 2004. This decrease reflected
a 34% decrease in the principal  amount of originated loans sold during the nine
months ended  September 30, 2005,  to $50.9 million  compared with $76.9 million
during the nine months ended 2004.  The average gain on loans sold was 4.39% and
4.12%,  respectively,  during the nine months ended September 30, 2005 and 2004.
During 2004 our policy was to realize the gains associated with loan origination
activities  by  selling  substantially  all of our  originated  loans  into  the
secondary  market.  In mid-2004,  we began to retain for  portfolio  most of the
adjustable-rate loans that we originate.

      Gain on sale of OREO  increased  by  $964,000,  or 424%,  to $1.2  million
during the nine months ended  September 30, 2005,  from $228,000 during the nine
months ended  September 30, 2004.  We sold 378 OREO  properties in the aggregate
amount of $24.5 million during the first nine months of 2005, as compared to 219
OREO properties in the aggregate  amount of $14.8 million during the nine months
of 2004.  The increase in the number of properties  sold reflected the growth in
our  OREO  inventory  due to both  an  increase  in  foreclosures  as our  notes
receivable  portfolio  grew and the  purchase of loans during the past year that
were already in the foreclosure process.

      Prepayment and other income (prepayment  penalties and other servicing and
origination fees) increased by $2.6 million,  or 71%, to $6.3 million during the
nine months ended September 30, 2005, from $3.7 million during the corresponding
period last year.  This  increase was primarily due to an increase in prepayment
penalties  received,  as a result of  accelerated  loan pay offs during the nine
months ended  September 30, 2005, as compared with the  corresponding  period in
2004, which was primarily attributable to the increased size of our portfolio of
purchased  loans  and loans  held for  investment  and  continued  low  mortgage
interest rates.  Increased late charges  resulting  primarily from the growth in
the size of our loan portfolios and increased loan  application  fees due to the
growth in the volume of Tribeca's  non-prime loan  originations also contributed
to the increase.



                                    Page 31
<PAGE>

      Operating  Expenses.  Total operating expenses increased by $36.3 million,
or 88%, to $77.7 million during the nine months ended  September 30, 2005,  from
$41.4 million during the nine months ended September 30, 2004.

      Interest  expense  increased by $26.6  million,  or 128%, to $47.3 million
during the nine months ended  September 30, 2005,  from $20.7 million during the
nine months  ended  September  30,  2004.  This  increase  was the result of the
increase in the balance of total debt,  which  increased to $1.09  billion as of
September  30, 2005 as compared  with $782.3  million as of September  30, 2004,
which  was used to fund the  growth  in  total  assets  during  the  period.  In
addition,  our  weighted  average  cost of funds  during the nine  months  ended
September  30, 2005,  increased to 6.39% from 4.76% during the nine months ended
September 30, 2004,  reflecting  the rise in short-term  interest  rates and its
effect on our liability-sensitive balance sheet.

      Collection, general and administrative expenses increased by $7.2 million,
or 45%, to $23.4 million during the nine months ended  September 30, 2005,  from
$16.2  million  during the nine  months  ended  September  30,  2004.  Personnel
expenses  increased by $2.0  million,  or 25%, and  reflected an increase in the
number  of  employees  in  certain  areas in order  to meet the  demands  of the
Company's  significant  asset  growth,   combined  with  expenses  arising  from
restricted stock granted to certain recently hired members of senior management.
We ended the third  quarter of 2005 with 206 employees as compared to 166 at the
end of the third quarter of 2004. Legal fees relating to increased activity with
respect to foreclosures  increased by $1.4 million, or 86%, to $3.0 million from
$1.6 million during the same period last year. This increase reflected increases
in  foreclosure  activity  as a result  of a  larger  total  portfolio  of notes
receivable  and certain loans  purchased in various  stages of  delinquency  and
foreclosure. Office expenses increased by $1.2 million, or 128%, to $2.1 million
during the nine months ended  September 30, 2005,  from $917,000 during the nine
months of 2004. This was primarily the result of $973,000 of increased occupancy
costs  incurred  during the nine months of 2005 due, for the most part, to lease
termination  and other  expenses  incurred in connection  with the relocation of
administrative and operating functions to our new office facility in New Jersey.
All other  expenses  increased  $2.6 million,  or 47%, to $8.1 million from $5.5
million  during the nine months ended  September  30, 2005,  which  reflected an
overall   increase   in  our   business   activity.   Collection,   general  and
administrative  expenses as a percentage of average assets  decreased from 3.33%
during the nine months ended  September 30, 2004 to 3.03% during the nine months
ended  September  30,  2005.  Excluding  approximately  $1.2 million of one-time
expenses of the restricted stock grants and lease  termination costs incurred in
the  second  and  third   quarters  of  2005,   the   collection,   general  and
administrative  expense  ratio to average  assets was 2.88% for the nine  months
ended September 30, 2005.

      The  provision  for loan  losses  increased  by  $894,000  or 37%, to $3.3
million  during the nine months  ended  September  30,  2005,  from $2.4 million
during the nine months ended September 30, 2004. This increase was primarily due
to reserve increases in specific  portfolios of notes receivable acquired in the
first nine months of 2004.

      Amortization of deferred  financing  costs  increased by $1.2 million,  or
69%, to $2.9 million during the nine months ended  September 30, 2005, from $1.7
million during the nine months ended September 30, 2004. This increase  resulted
primarily from the growth in outstanding  debt and increased  prepayments on our
portfolio  of  loans,  which  accelerated  the pay down of our debt and  thereby
amortization of the deferred fees paid to our lender.

      Depreciation  expense  increased  by  $412,000 or 112%,  to $780,000  from
$368,000 during the nine months ended September 30, 2005 as compared to the nine
months ended September 30, 2004. This increase resulted primarily from the write
off of remaining undepreciated capital improvements in our vacated New York City
office locations,  due to the termination of certain leases, and the addition of
capital improvements,  computer equipment and office furniture at our new office
facility in New Jersey.



                                    Page 32
<PAGE>

      Our pre-tax  income  increased by $1.6  million,  or 14%, to $13.0 million
during the nine months ended  September 30, 2005,  from $11.4 million during the
nine months ended 2004.

      During the nine months ended  September  30, 2005,  we had a provision for
income  taxes of $6.0  million as compared to a provision of $5.2 million in the
same  period  last  year.  The  effective  tax rate for the  nine  months  ended
September 30, 2005 and September 30, 2004 was 46%.

Liquidity and Capital Resources

Commencing  July 1, 2005,  our lender agreed to reduce the interest rate charged
on all new borrowings  (both new term loans and warehouse loans) by 0.50%, or 50
basis points. In addition, origination fees charged on new borrowings after June
30,  2005 have been  reduced  by between  0.25% and 0.50%,  or between 25 and 50
basis points, depending on the borrowing facility. See "- Borrowings."

We  have  one  principal  source  of  external  funding  to meet  our  liquidity
requirements,  in addition to the cash flow provided  from borrower  payments of
interest and principal on mortgage loans.  See "-  Borrowings." In addition,  we
have  the  ability  to sell  loans in the  secondary  market.  We sell  pools of
acquired  mortgage  loans from time to time and we sell loans that we  originate
specifically for sale into the secondary market on a regular basis.

As a result of the growth of the loan  portfolios and our  strengthened  balance
sheet,  management has begun to explore potential  additional sources of funding
for financing  portfolio  acquisitions and loan  originations.  During the third
quarter of 2005, we began to evaluate the  feasibility of  securitizing  certain
acquired or originated  loans in order to seek a lower cost funding  alternative
and to reduce somewhat the short-term interest sensitivity of our liabilities.

During the three months ended  September  30,  2005,  we purchased  2,329 loans,
consisting primarily of first and second mortgages, with an aggregate face value
of $121.6 million at an aggregate purchase price of $117.7 million,  or 96.8% of
face  value.  All  acquisitions  during the third  quarter  of 2005 were  funded
through  borrowings  under our master credit facility in the amount equal to the
purchase price plus a 0.75% loan  origination fee, while  acquisitions  acquired
prior to July 1, 2005 were funded with a 1% loan  origination  fee.  Due to more
competitive  purchase  market  conditions in the third quarter of 2005,  and the
availability of portfolios of generally higher credit quality offered to us, our
third quarter  acquisitions  were at higher prices (less  discount)  than in the
past.

During the nine months ended  September 30, 2005, we purchased  7,489 loans with
an  aggregate  face value of $315.2  million at an aggregate  purchase  price of
$291.1 million, or 92.4% of the face value.

During the three and nine month periods ended  September 30, 2005, we originated
$106.1  million  and  $299.4  million,   respectively,   of  loans  through  our
origination  subsidiary,  Tribeca.  Originations  are initially  funded  through
borrowings under our warehouse facility,  and loans originated for portfolio are
subsequently funded with term debt after transfer to portfolio.

Short-term  Investments.  The Company's short-term investment portfolio includes
U.S.  treasury  bills  and  investment-grade  commercial  paper.  The  Company's
investment  policy is  structured  to provide an adequate  level of liquidity in
order to meet normal working  capital needs and expansion of the loan portfolio.
At September 30, 2005, the Company had  short-term  investments of $11.8 million
in commercial paper and U.S. treasury bills.



                                    Page 33
<PAGE>

Cost of Funds.  As of  September  30,  2005,  we had total  borrowings  of $1.09
billion,  of which  $1.05  billion  was under our term  loan  facilities  and an
aggregate of $39.1 million was under our warehouse  facility.  Substantially all
of the debt under our term loan  facilities was incurred in connection  with the
purchase and origination  of, and is secured by, our acquired notes,  originated
loans  held for  investment  and OREO  portfolios.  The debt under our term loan
facilities  currently  accrues  interest  at  the  Federal  Home  Loan  Bank  of
Cincinnati  thirty-day  advance rate plus a spread of 3.25% on substantially all
of the debt incurred  before July 1, 2005, and 2.75% on debt incurred after June
30, 2005.  Borrowings  under our term loan  facilities  incurred before March 1,
2001 accrue interest at the prime rate plus a margin of between 0% and 1.75%. At
September 30, 2005, approximately $13.0 million of debt incurred before March 1,
2001 remained outstanding.  At September 30, 2005, the weighted average interest
rate on debt under our master credit facility was 6.98%. Our warehouse  facility
is utilized to fund Tribeca's originations of loans pending sale to others or to
be held for investment.

Cash Flow from Operating, Investing and Financing Activities

Liquidity  represents our ability to obtain cost  effective  funding to meet our
financial  obligations.  Our  liquidity  position is  affected by mortgage  loan
purchase and origination volume, mortgage loan payments,  including prepayments,
loan maturities and the amortization and maturity  structure of borrowings under
our term loan facilities.

As of September  30, 2005,  we had cash and cash  equivalents  of $31.0  million
compared with $19.6  million at December 31, 2004.  The increase in cash in 2005
was  primarily  due to increases  in  collections  of interest and  principal on
larger  portfolios of purchased notes  receivable and originated  loans held for
investment and cash collections during the last few days of the quarter.

Substantially  all  of our  assets  are  invested  in our  portfolios  of  notes
receivable,  loans held for  investment,  OREO and loans held for sale.  Primary
sources of our cash flow for operating and investing  activities  are borrowings
under our debt  facilities,  collections  of  interest  and  principal  on notes
receivable  and loans held for  investment  and proceeds from sales of notes and
OREO  properties.  Primary uses of cash include  purchases of notes  receivable,
origination of loans and for operating expenses.  We rely significantly upon our
lender  and the other  banks  that  participate  in the loans  made to us by our
lender to provide  the funds  necessary  for the  purchase  of notes  receivable
portfolios and the origination of loans. While we have historically been able to
finance  these  purchases  and  originations,  we have  not had  committed  loan
facilities in  significant  excess of the amount we currently  have  outstanding
under our credit facilities.

Net cash  provided by  operating  activities  was $5.0 million in the first nine
months of 2005,  compared with net cash used of $47.8  million  during the first
nine months of 2004.  The decrease in cash used in operating  activities  during
the first nine months of 2005 was due  primarily  to a decrease in the volume of
loans  originated  for sale as a result of our shift in  strategy  in the latter
part of 2004 to hold for our  portfolio  a  significant  portion  of  originated
loans.

Net cash used in  investing  activities  was $251.1  million in the nine  months
ended  September 30, 2005,  compared to $275.7  million of cash used in the nine
months ended  September 30, 2004.  The decrease  during the first nine months of
2005 was  primarily  due to a decrease of $147.8  million in  purchases of notes
receivable,  which  constituted  $291.1  million during the first nine months of
2005, and increases in principal  collections of notes receivable and loans held
for  investment  of $116.1  million  and an  increase  in sales of OREO of $10.6
million during the nine months ended September 30, 2005. These decreases in cash
used were partially  offset by an increase in the  origination of loans held for
investment  of $252.0  million (in the first nine  months of 2004 we  originated
loans primarily for sale).



                                    Page 34
<PAGE>

Net cash  provided by financing  activities  decreased to  approximately  $257.4
million  during the nine months ended  September 30, 2005,  from $331.6  million
used in financing  activities  during the nine months ended  September 30, 2004.
The decrease resulted primarily from increased prepayment activity, which caused
a  corresponding  increase  in the  repayment  of  notes  payable,  and was only
partially offset by funds provided by our common stock offering.

Offering of Common Stock

In early August 2005, we completed the public offering of 1,265,000 of shares of
our common stock at a public  offering  price of $11.50 per share  (including an
exercise in full of the underwriter's  over allotment option to purchase 165,000
shares) pursuant to a registration  statement that was declared effective by the
Securities and Exchange  Commission on July 19, 2005.  The offering  resulted in
net proceeds to us and the addition to equity of approximately $12.6 million. As
a result of the additional equity raised, in combination with retained earnings,
total stockholders' equity was $49.9 million at September 30, 2005 compared with
$29.6 million at December 31, 2004. In conjunction with the public offering, the
Company's  common  stock  ceased to be quoted on the  Over-the-Counter  Bulletin
Board  under the symbol  "FCSC"  and  commenced  trading on The NASDAQ  National
Market under the symbol "FCMC."

Borrowings

As of September  30, 2005,  we owed an aggregate of $1.09  billion under several
credit facilities with our lender.

Master Credit Facility

On October 31, 2004, the Company, and its finance  subsidiaries,  entered into a
Master Credit and Security Agreement with Sky Bank, an Ohio banking corporation,
which we refer to as our lender.  Under this master credit facility,  we request
loans to  finance  the  purchase  of  residential  mortgage  loans or  refinance
existing  outstanding  loans.  The  facility  does not include a  commitment  to
additional  lendings,  which are therefore subject to our lender's discretion as
well as any regulatory  limitations to which our lender is subject. The facility
terminates on October 13, 2006.

Interest on the loans is payable monthly at a floating rate equal to the highest
Federal Home Loan Bank of Cincinnati  30 day advance rate as published  daily by
Bloomberg  under the symbol  FHL5LBRI,  or "the 30 day  advance  rate," plus the
applicable margin as follows:

<TABLE>
<CAPTION>
-----------------------------------  -------------------------------------------------------------
                                                           For Loans Funded
-----------------------------------  ---------------------------- --------------------------------
                                        Prior to July 1, 2005        On or After July 1, 2005
-----------------------------------  ---------------------------- --------------------------------
<S>                                  <C>
If the 30 day advance rate is        the applicable margin is     the applicable margin is
-----------------------------------  ---------------------------- --------------------------------
Less than 2.01%                      350 basis points             300 basis points
-----------------------------------  ---------------------------- --------------------------------
2.01 to 4.75%                        325 basis points             275 basis points
-----------------------------------  ---------------------------- --------------------------------
Greater than 4.75%                   300 basis points             250 basis points
-----------------------------------  ---------------------------- --------------------------------
</TABLE>

In addition,  upon each closing of a subsidiary loan after June 30, 2005, we are
required  to pay an  origination  fee  equal  to  0.75%  of  the  amount  of the
subsidiary loan unless otherwise agreed to by our lender and the subsidiary. For
loans  funded  prior to July 1,  2005,  the  origination  fee paid was 1% of the
amount of the subsidiary loan unless  otherwise  agreed to by our lender and the
subsidiary. Upon repayment of subsidiary loans, our lender is generally entitled
to receive a fee equal to the lesser of (i) one half of one  percent  (0.50%) or
with respect to certain  subsidiaries  whose loans were originated  before 1996,
one percent 1% of the original  principal balance of the subsidiary loan or (ii)
50% of the remaining  cash flows of the pledged  mortgage  loans related to such
subsidiary  loan as and when  received  by the  relevant  subsidiary  after  the
repayment of the subsidiary loan. In connection with certain  subsidiary  loans,
we and our lender have agreed to specified minimum fees and fee waivers.



                                    Page 35
<PAGE>

The unpaid  principal  balance of each loan is amortized over a period of twenty
years,  but matures three years after the date the loan was made.  Historically,
our  lender has agreed to extend  the  maturities  of such loans for  additional
three-year  terms upon their maturity.  We are required to make monthly payments
of the principal on each of our outstanding loans.

Our obligations under the master credit facility are secured by a first priority
lien on loans  acquired by us that are  financed by proceeds of loans made to us
under the facility. In addition, pursuant to a lock-box arrangement,  our lender
is  entitled  to  receive  all  sums  payable  to us in  respect  of  any of the
collateral.

Warehouse Facility

On September 30, 2003, our Tribeca  subsidiary entered into a warehousing credit
and  security  agreement  with our lender.  The facility was amended on April 7,
2004. The agreement,  as amended,  provides for a commitment of $40 million that
expired on July 31, 2005.  Our lender has agreed to an increase in the amount of
the commitment to $60 million effective October 18, 2005.

Interest on advances is payable monthly at a rate per annum equal to the greater
of (i) a floating  rate  equal to the Wall  Street  Journal  Prime Rate minus 50
basis points or (ii) five percent (5%).

The  warehouse  facility  is  secured  by a lien  on all of the  mortgage  loans
delivered  to our lender or in respect of which an advance has been made as well
as by all mortgage  insurance  and  commitments  issued by insurers to insure or
guarantee  pledged mortgage loans.  Tribeca also assigns all of its rights under
third-party  purchase commitments covering pledged mortgages and the proceeds of
such  commitments  and its rights  with  respect  to  investors  in the  pledged
mortgages  to the extent  such  rights are  related  to  pledged  mortgages.  In
addition,  we have  provided  a  guaranty  of  Tribeca's  obligations  under the
warehouse  facility,  which is  secured  by a lien on  substantially  all of our
personal property.

As of September 30, 2005, Tribeca had approximately $2.3 million available under
the facility in place at that date.

Term Loans

As of September 30, 2005,  Tribeca,  through its  subsidiaries,  had borrowed an
aggregate of $270.8 million in term loans refinancing outstanding advances under
the warehouse facility. Each of the term loans is made pursuant and subject to a
term loan and security  agreement,  or term loan agreement,  between Tribeca and
our  lender  and a term  note.  Interest  on the loans is  payable  monthly at a
floating  rate equal to the highest  Federal Home Loan Bank of Cincinnati 30 day
advance rate published by Bloomberg  under the symbol  FHL5LBRI,  plus 325 basis
points for loans  funded  prior to July 1, 2005,  and 275 basis points for loans
funded after June 30, 2005. In addition, upon the closing of each term loan, the
applicable subsidiary-borrower pays an origination fee of approximately 0.50% of
the amount of the loan,  and pays certain other fees at the  termination  of the
applicable  term loan. The  origination fee was 1% of the amount of the loan for
loans  funded  prior to July 1, 2005.  The  unpaid  balance of each term loan is
amortized over a period of 20 years,  but matures three years after the loan was
made.   Each  term  loan  is  subject  to  mandatory   payment   under   certain
circumstances.  Each subsidiary-borrower is required to make monthly payments of
the principal of its  outstanding  loan.  Each term loan is secured by a lien on
certain  promissory notes and hypothecation  agreements,  as well as all monies,
securities and other property held by,  received by or in transit to our lender.
The term loan agreements  contain  affirmative and negative covenants and events
of default customary for financings of this type.



                                    Page 36
<PAGE>

Financing Activities and Contractual Obligations

Below is a schedule of the Company's contractual  obligations and commitments at
September 30, 2005:

<TABLE>
<CAPTION>
                                                                       Payment Due by Period
                               Weighted Average                   Minimum Contractual Obligations
                                Interest Rate                            (excluding interest)
                                As of 9/30/05          Total       Less Than 1 yr    1-3 yrs        3-5 yrs      Thereafter
                              -----------------    --------------   ------------   ------------   ------------   ----------
<S>                           <C>                  <C>              <C>            <C>            <C>            <C>
Contractual Obligations
  Notes Payable                            6.98%   $1,052,684,209   $ 55,108,565   $553,073,394   $443,019,559   $1,482,691
  Warehouse Line                           6.25%       39,125,109     39,125,109             --             --           --
  Rent Obligations                           --         5,622,024        371,734      2,119,419      2,141,747      989,124
  Capital Lease Obligations                  --         1,513,868         93,669        676,023        578,700      165,476
  Employment Agreements                      --         1,709,500        246,750      1,137,750        325,000           --
                                                   --------------   ------------   ------------   ------------   ----------

Total                                              $1,100,654,710   $ 94,945,827   $557,006,586   $446,065,006   $2,637,291
                                                   ==============   ============   ============   ============   ==========
</TABLE>

Interest rates on our  borrowings  are indexed to the monthly  Federal Home Loan
Bank of Cincinnati 30 day LIBOR advance rate or Prime,  as more fully  described
above, and accordingly will increase or decrease over time. Interest payments on
borrowings are not included in the above table. Minimum contractual  obligations
are based on minimum required principal  payments,  including balloon maturities
of loans under the master credit facility,  the warehouse  facility and the term
loans.  Actual payments will vary depending on actual cash  collections and loan
sales.  Historically,  our  lender  has  extended  the  maturities  and  balloon
payments, although there is no assurance that it will continue to do so.

Risks Related to Our Business

If we are not able to identify  and  acquire  portfolios  of "scratch  and dent"
residential  mortgage  loans  on  terms  acceptable  to  us,  our  revenues  and
profitability could be materially reduced.

      Our success  depends upon the  continued  availability  of  portfolios  of
scratch and dent loans, or S&D loans, that meet our purchasing criteria, and our
ability to  identify  and  successfully  bid to  acquire  such  portfolios.  The
availability of such portfolios at favorable  prices and on terms  acceptable to
us depends on a number of factors outside of our control, including:

      o     general conditions in the U.S. and regional economies;

      o     interest rates;

      o     the demand for  residential  real estate  purchases,  refinancing or
            home equity lines of credit;

      o     real estate values;

      o     underwriting criteria used by originators;

      o     the prices other acquirers are willing to pay;

      o     the securitization market; and

      o     laws and regulations governing consumer lending.



                                    Page 37
<PAGE>

      Significant  changes in any of these factors could affect the availability
and/or the cost for us to acquire S&D loans.  Any  increase in the prices we are
required  to pay for such  loans in turn will  reduce  the  profit,  if any,  we
generate from these assets. We cannot predict our future  acquisition  volume or
our ability to submit successful bids to purchase portfolios of S&D loans and we
cannot  guarantee  that we will be able to  purchase  these  assets  at the same
volume  or  with  the  same  yields  as  we  have  historically  purchased.  Our
acquisition volume has in the past varied substantially from quarter to quarter,
and we expect that it will  continue to fluctuate in the future.  As a result of
our business  strategy of purchasing  pools of mortgage loans and the volatility
of  such  purchases  in both  amount  and  timing,  our  quarter-to-quarter  and
year-to-year  net income  may be more  volatile  than  those of other  financial
services companies.  If the volume of S&D loans purchased declines or the yields
of those assets decline, we could experience a material decrease in revenues and
profitability.

We may  not be  able  to  successfully  market  our  residential  mortgage  loan
origination products to non-prime borrowers.

      The  success  of  the  loan  origination   business  of  our  wholly-owned
subsidiary,  Tribeca Lending Corp.,  depends on our ability to market  Tribeca's
loan origination  products to non-prime  borrowers seeking to obtain residential
mortgage loans.  Adverse changes in the U.S.  economy and the real estate market
could  result in a  decrease  in  borrowing  activity  generally,  as well as an
increase in competition for non-prime  borrowers among loan  originators,  which
could reduce the number of loans Tribeca is able to originate.  Further, changes
in the  regulatory  environment  that  result  in our  adopting  more  demanding
underwriting   standards  or  documentation   requirements  or  other  increased
restrictions  on loans to  non-prime  borrowers,  or the  perception  that  such
changes  are  likely,  may also  reduce the  number of loans  Tribeca is able to
originate.  A reduction  in Tribeca's  origination  business  would  curtail the
growth of the number of loans in our  portfolio  from which we generate  revenue
through  interest  and  fee  income,  loan  sales  and  servicing,  which  could
negatively affect our revenues and financial condition.

Our business is dependent on external financing, and we currently receive all of
our financing from a single source.  If that source ceases to provide  financing
to us or increases the cost to us of such  financing and we are unable to access
alternative external sources of financing on favorable terms or at all, we would
not be able to fund and grow our  operations and our business will be materially
harmed.

      We currently  receive all of our external  financing from a single source,
Sky Bank,  under a series of credit  facilities,  including  our  master  credit
facility, term loan agreements, and our warehouse credit and security agreement,
or  warehouse  facility.  We refer to our  master  credit  facility,  term  loan
agreements,  and certain other agreements under which we have immaterial amounts
of debt outstanding  collectively as our term loan  facilities,  and to our term
loan  facilities  and  our  warehouse   facility   collectively  as  our  credit
facilities.  If we lose access to this sole external source of financing for any
reason, we will not have the liquidity to fund our business operations.

      We depend on our credit facilities to:

      o     provide the cash necessary to fund our acquisition of S&D loans;

      o     fund our loan originations; and

      o     enable us to hold our loans for investment or pending sale.

      Our credit  facilities  do not obligate our lender to make any  additional
credit available to us. Accordingly, there is no guarantee that we will continue
to receive additional  financing under our current agreements or that our lender
will  enter  into new  agreements  with us upon the  expiration  of the  current
agreements on terms  favorable to us or at all. If our lender  refuses to extend
additional credit to us for any reason,  including, for example, a change in its
policies,  management or control, a change in its criteria for eligible mortgage
loans to  secure  credit  advances,  a  change  in the  regulatory  environment,
including a change in the financing of mortgage loans where the lending decision
is based entirely or primarily on the  borrower's  equity in his or her home and
not, or to a lesser extent,  on a  determination  of the  borrower's  ability to
repay the loan, or a lack of available funds, we would need to secure comparable
financing  from the two other  banks  currently  participating  with our  lender
and/or  other  sources  in  order  to  continue  to  fund  our  acquisition  and
origination activities and possibly working capital. There is no guarantee that,
in such an  event,  we would  be able to  secure  other  external  financing  on
favorable terms or at all.



                                    Page 38
<PAGE>

      Even if our lender does agree to provide additional financing to us, there
is no guarantee that such financing will be on terms as favorable as our current
facilities.  Our ability to be competitive in both  portfolio  acquisitions  and
loan  originations  depends on the cost of our  financing,  and any new facility
could bear  interest at higher rates than we currently  pay. Such an increase in
our cost of funds would adversely  affect our ability to bid  competitively  for
portfolio  acquisitions and profitably originate loans, which in turn would have
an adverse effect on our business prospects and financial condition.

Our ability to fund increased operating expenses depends on the agreement of our
lender to increases in our operating allowance.

      Under our credit  facilities,  we are  required to submit all  payments we
receive from obligors under pledged  mortgage  loans to a lockbox  maintained by
our lender, from which we receive an operating allowance,  which is renegotiated
from time to time and at least  annually,  to sustain our business.  All amounts
submitted to the lockbox in excess of the agreed upon  operating  allowance  are
used to pay down amounts outstanding under our credit facilities.  The operating
allowance  may not be  sufficient  to meet our  liquidity  needs in the  future,
particularly as we seek to grow our operations. If it is insufficient,  there is
no guarantee that our lender will increase our operating allowance,  which would
have a material adverse impact on our business.

If our lender ceases to renew our maturing loans for additional terms or provide
us with refinancing opportunities,  our indebtedness will become due and payable
upon the contractual maturity of each borrowing.

      The unpaid principal balance of each loan under our master credit facility
and term loan  agreements is amortized  over a twenty-year  period,  but matures
three  years  after the date the loan was made.  Historically,  our  lender  has
routinely agreed to renew such loans for additional  three-year terms upon their
maturity.  Similarly,  advances under our warehouse  facility are required to be
repaid  within 120 days after the date of advance (or, in some cases,  earlier).
Our  lender has  typically  allowed us to  convert  our  indebtedness  under the
warehouse  facility to term loans  outside the warehouse  facility.  There is no
guarantee  that our lender will  continue to renew our loans under the term loan
agreements  or provide us with  opportunities  to convert  borrowings  under the
warehouse  facility  into term loans  outside the  warehouse  facility,  thereby
relieving our immediate repayment  obligations.  Our lender's refusal to provide
us with such renewal and conversion  opportunities  could cause our indebtedness
to become  immediately  due and payable  upon the  contractual  maturity of such
indebtedness, which could result in our insolvency if we are unable to refinance
our debt through alternative lenders or other financing vehicles and preclude us
from  further  borrowings.  There  is no  guarantee  that  we  would  be able to
refinance  our debt through  alternative  lenders on  favorable  terms or at all
because we are highly leveraged and, even taking into consideration the proceeds
of this  offering,  our ratio of equity  to assets  and/or  our ratio of debt to
equity may not be sufficient to support traditional borrowing.



                                    Page 39
<PAGE>



Our credit facilities require us to observe certain  covenants,  and our failure
to satisfy  such  covenants  could  render us  insolvent or preclude our seeking
additional financing from this or other sources.

      Our credit facilities require us to observe certain affirmative,  negative
and  financial  covenants  customary for  financings  of this type,  including a
covenant under the master credit facility requiring that we and our subsidiaries
maintain  a minimum  consolidated  net  worth of at least  $10.0  million  and a
covenant   under  the  warehouse   facility   requiring  that  Tribeca  and  its
subsidiaries maintain a minimum consolidated net worth of at least $2.5 million.
Failure to satisfy any of these covenants could:

      o     cause our indebtedness to become  immediately  payable,  which could
            result in our insolvency if we are unable to repay our debt; and

      o     preclude us from further borrowings.

      In  addition,  under our  master  credit  facility,  Thomas J.  Axon,  our
Chairman,  ceasing to possess,  directly or indirectly,  the power to direct our
management and policies through his ownership of our voting stock constitutes an
event of  default,  which,  without a waiver  from our  lender,  would cause our
indebtedness to become immediately payable and could result in our insolvency if
we are unable to repay our debt.

Our  business is sensitive  to, and can be  materially  affected by,  changes in
interest rates.

      Our  business  may be  adversely  affected by changes in  interest  rates,
particularly  changes that are  unexpected in timing or size.  The following are
some of the risks we face related to an increase in interest rates:

      o     All of our  borrowings  bear  interest  at variable  rates,  while a
            significant majority of the loans in our portfolio have fixed rates.
            As a result, an increase in rates is likely to result in an increase
            in our interest  expense without an offsetting  increase in interest
            income.  Further,  our adjustable rate loans  typically  provide for
            less frequent  adjustments in response to rate increases than do our
            borrowings,  and sometimes  also include  interest rate caps. To the
            extent this is the case, an increase in interest  rates would result
            in a greater  increase in our interest  expense than in our interest
            income, which would adversely affect our profitability.

      o     An increase in interest rates would adversely  affect the value that
            we would  receive  upon a sale of loans that bear  interest at fixed
            rates, and our results of operations could be adversely affected.

      o     An increase in our funding costs  without an offsetting  increase in
            revenue  would  cause our cash flow to  decrease,  which in turn may
            have an  adverse  impact on our  ability  to meet our  monthly  debt
            service obligations.  In the event we are unable to meet our monthly
            debt service  obligations for this or for any other reason, we would
            be in default under the obligations of our credit facilities and our
            lender would have the right to accelerate  payments under our credit
            facilities.

      o     A substantial  and sustained  increase in interest  rates could harm
            Tribeca's loan origination  volume because  refinancings of existing
            loans,  including  cash-out  refinancings  and interest  rate-driven
            refinancings, would be less attractive and qualifying for a purchase
            loan may be more difficult.  Lower  origination  volume may harm our
            earnings  by  reducing  origination  income,  net  interest  income,
            prepayment and other servicing fees and gain on sale of loans.

      o     An increase in interest rates would result in a slowdown of borrower
            prepayments and a reduction of revenue as purchase discount accreted
            into income would  decline.  An increase in interest  rates may also
            lead to an increase in our  borrower  defaults,  if  borrowers  have
            difficulties  making their adjustable rate mortgage payments,  and a
            corresponding increase in nonperforming assets, which could decrease
            our revenues and our cash flows,  increase our loan servicing  costs
            and  our  provision  for  loan  losses,  and  adversely  affect  our
            profitability.



                                    Page 40
<PAGE>

      We are also subject to risks from decreasing  interest rates. For example,
a significant  decrease in interest rates could increase the rate at which loans
are prepaid and reduce our interest income in subsequent periods.

      We do not  currently  hedge against  changes in interest  rates because we
have determined that the costs associated with establishing  hedging  strategies
outweigh  the  potential  benefits.  Our  lack  of  hedges  means  that  we have
potentially  greater  exposure to interest rate  volatility,  particularly  as a
result  of  increases  in  interest  rates,  than we  would  if we were  able to
successfully employ hedging strategies.

A prolonged  economic  slowdown or a lengthy or severe  recession could harm our
operations, particularly if it results in a decline in the real estate market.

      The risks  associated  with our business are more acute during  periods of
economic  slowdown or recession  because  these  periods may be  accompanied  by
decreased demand for mortgage loans and decreased real estate values, as well as
an increased rate of delinquencies,  defaults and  foreclosures.  In particular,
any  material  decline in real estate  values would  increase the  loan-to-value
ratios on loans that we hold and,  therefore,  weaken our  collateral  coverage,
increase  the  likelihood  of a borrower  with little or no equity in his or her
home defaulting and increase the possibility of a loss if a borrower defaults.

The  residential  mortgage  origination  business  is a cyclical  industry,  has
recently been at its highest levels ever and may decline, which could reduce the
number of mortgage loans we originate and could adversely impact our business.

      The residential  mortgage  origination  business has  historically  been a
cyclical industry,  enjoying periods of strong growth and profitability followed
by periods of shrinking  volumes and reduced profits.  The residential  mortgage
industry has experienced  rapid growth over the past three years due to interest
rates that are low by historical standards.  The Mortgage Bankers Association of
America has predicted that residential  mortgage  originations  will decrease in
2005 due to rising  interest  rates.  During periods of rising  interest  rates,
refinancing  originations  decrease,  as higher  interest rates reduce  economic
incentives for borrowers to refinance their existing  mortgages.  We expect this
to result in a decreased volume of industry-wide originations in the foreseeable
future.  Historically,  the  non-prime  market  has  been  impacted  less by the
interest rate cycle than has the market for prime  residential  mortgage  loans.
However,  there is no  assurance  that this will  continue to be the case in the
future.  Due to decreasing  and stable  interest  rates over recent  years,  our
historical  performance  may not be indicative  of results in a rising  interest
rate  environment,  and our results of operations  may be  materially  adversely
affected if interest rates continue to rise.

When we acquire S&D loans, the price we pay is based on a number of assumptions.
A material difference between the assumptions we use in determining the value of
S&D  loans we  acquire  and our  actual  experience  could  harm  our  financial
position.

      The  purchase  price and  carrying  value of the S&D loans we  acquire  is
determined  largely by  estimating  expected  future  cash flows from such loans
based on the delinquency,  loss,  prepayment speed and discount rate assumptions
we use. If the amount and timing of actual cash flows are  materially  different
from  our  estimates,  our  cash  flow and  profitability  would  be  materially
adversely  affected  and we could be required to record  write-downs  that could
adversely affect our financial condition.



                                    Page 41
<PAGE>



We may experience  higher loan losses than we have reserved for in our financial
statements.

      Our loan losses  could exceed the  allowance  for loan losses that we have
reserved  for in our  financial  statements.  Reliance  on  historic  loan  loss
experience  may not be  indicative  of future  loan  losses.  Regardless  of the
underwriting  criteria  we  utilize,  losses may be  experienced  as a result of
various factors beyond our control,  including,  among other things,  changes in
market  conditions  affecting  the  value of our loan  collateral  and  problems
affecting the credit and business of our borrowers.

We use  estimates  for  recognizing  revenue  on a  majority  of  our  portfolio
investments  and our earnings  would be reduced if actual  results are less than
our estimates.

      We recognize  income from the purchase  discount on our portfolio of notes
receivable  using  the  interest  method.  We use  this  method  only  if we can
reasonably estimate the expected amount and timing of cash to be collected based
on historic  experience and other factors.  We reevaluate  estimated future cash
flows quarterly. If future cash collections are less than what we estimated they
would be, we would  recognize less than  anticipated  purchase  discount,  which
would reduce our earnings.

If we do not manage our growth effectively,  our financial  performance could be
harmed.

      In recent years,  we have  experienced  rapid growth that has placed,  and
will continue to place, certain pressures on our infrastructure. We will need to
continue to upgrade and expand our financial,  operational,  administrative  and
managerial systems and controls. Further, continued growth could require capital
resources  beyond what we possess  following this offering.  In particular,  our
acquisition and servicing of large "bulk" portfolios  relative to our size, such
as the two large  portfolios  acquired in 2004,  and our creation of new product
lines,  such as our  Liberty  Loan  product,  requires a  significant  amount of
financial,  operational and  administrative  resources.  As a result, we may not
able to support such bulk purchases and new product lines without  corresponding
increases  in our  general  and  administrative  costs.  If we do not manage our
growth effectively,  our expenses could increase and our business, liquidity and
financial condition could be significantly harmed.

      We have  outgrown  our current  office space and have  recently  completed
relocating most of our operating and administrative  functions to new facilities
in Jersey City,  New Jersey.  While we are taking  precautions to ensure that we
retain existing  personnel,  we may encounter  difficulties  integrating our new
facility,  identifying and hiring new personnel and preventing  interruptions in
our service, communications and other technology.

The inability to attract and retain qualified employees could significantly harm
our business.

      We continually need to attract, hire and successfully integrate additional
qualified  personnel in an intensely  competitive hiring environment in order to
manage and  operate our growing  business.  The market for skilled  acquisitions
management,  account  executives  and loan  officers is highly  competitive  and
employers have historically experienced a high rate of turnover. Competition for
qualified  personnel may lead to increased hiring and retention costs. If we are
unable to attract,  successfully  integrate  and retain a  sufficient  number of
skilled personnel at manageable costs, we will be unable to continue to acquire,
originate and service mortgage loans, which would harm our business,  results of
operations and financial condition.

We may have to outsource a portion of the  servicing of the loans we hold due to
capacity constraints or lack of sufficient personnel.

      We require  sufficient  qualified  personnel  to service the loans that we
hold.  On  occasion,  due to  capacity  constraints  or  lack of  personnel,  we
temporarily outsource the servicing of a newly acquired portfolio to a qualified
third-party servicer under a sub-servicing  agreement. In our experience, a high
quality of servicing  often has a positive  effect on lowering  delinquency  and
default  rates.  To the  extent  that we  deem it  necessary  to  outsource  the
servicing  of a portion of our loans,  we cannot  guarantee  that the  servicing
performed  by the  contracted  sub-servicers  is at the same level that we would
typically  perform or that the cash flows realized from the  sub-serviced  loans
will be as good as those we had  projected  in pricing the  acquisition  of such
loans or realized from otherwise similar loans in our portfolio that we service.



                                    Page 42
<PAGE>

We face intense competition that could adversely impact our market share and our
revenues.

      We face intense  competition in our loan  acquisition and loan origination
business from other specialty  finance  companies,  finance and mortgage banking
companies,  Internet-based  lending  companies  and, to a growing  extent,  from
traditional  bank and thrift  lenders that are entering the  non-prime  mortgage
industry.  Some of our competitors are much larger than we are, have better name
recognition than we do, and have far greater  financial and other resources than
us. Many of our  competitors  have  superior  access to capital  sources and can
arrange  or  obtain  lower  costs  of  financing,  resulting  in  a  competitive
disadvantage to us with respect to such competitors.

      Competition  in our industry can take many forms,  including the price and
other  terms  of  bids  for  portfolio   acquisitions,   the  speed  with  which
acquisitions can be completed, interest rates and costs of a loan, stringency of
underwriting  standards,  customer  service,  amount  and  term of a  loan,  and
marketing and distribution  channels.  The need to maintain mortgage loan volume
in this  competitive  environment  creates a risk of price  competition  and may
result in increased  purchase prices and reduced  profitability,  potentially to
such an extent that we believe  that prices in the market are not  supported  by
the  fundamentals.  In addition,  price  competition could cause us to lower the
interest  rates on loans  originated by Tribeca,  which could lower the value of
our loans. Any increase in these pricing and underwriting pressures could reduce
the volume of our loan acquisitions and originations and significantly  harm our
business, results of operations, liquidity and financial condition.

A significant  amount of our mortgage loan  originations are secured by property
in New York and New  Jersey,  and our  operations  could be harmed  by  economic
downturns or other adverse events in these states.

      A significant  portion of Tribeca's mortgage loan origination  activity is
concentrated in the northeastern United States, particularly in New York and New
Jersey.  Of the  loans  originated  by  Tribeca  and held for  investment  as of
September  30, 2005,  a  substantial  majority of the  aggregate  principal  was
secured by property in these two  states.  An overall  decline in the economy or
the residential  real estate market,  the occurrence of events such as a natural
disaster or an act of terrorism in the northeastern United States could decrease
the value of  residential  properties  in this  region.  This could result in an
increase in the risk of delinquency, default or foreclosure on mortgage loans in
our portfolio and restrict  Tribeca's  ability to originate new mortgage  loans,
each of which could  reduce our  revenues,  increase our expenses and reduce our
profitability.

Competition with other lenders for the business of independent  mortgage brokers
could negatively affect the volume and pricing of our originated loans.

      We depend in large measure on independent  mortgage  brokers to source our
Liberty Loan product, which currently constitutes the majority of Tribeca's loan
production.  These independent mortgage brokers have relationships with multiple
lenders and are not  obligated by contract or otherwise to do business  with us.
We compete  with other  lenders for  independent  brokers'  business on pricing,
service and other factors.  Such competition could negatively affect the volume,
quality  and  pricing  of  our  loans,   which  could  harm  our   revenues  and
profitability.



                                    Page 43
<PAGE>

We may not be  adequately  protected  against the risks  inherent  in  non-prime
residential mortgage loans.

      The vast majority of the loans we originate are underwritten  generally in
accordance with standards designed for non-prime residential mortgages. Mortgage
loans underwritten  under these underwriting  standards are likely to experience
rates  of  delinquency,  foreclosure  and  loss  that  are  higher,  and  may be
substantially  higher, than prime residential  mortgage loans. A majority of the
loans  originated  to date by Tribeca were made under a "limited  documentation"
program,   which  generally  places  the  most   significant   emphasis  on  the
loan-to-value ratio based on the appraised value of the property, and not, or to
a lesser extent, on a determination of the borrower's ability to repay the loan.
We cannot be certain that our  underwriting  and loan  servicing  practices will
afford adequate  protection  against the higher risks associated with loans made
to such  borrowers.  If we are unable to mitigate  these risks,  our cash flows,
results of  operations,  financial  condition and liquidity  could be materially
harmed.

We are subject to losses due to  fraudulent  and  negligent  acts on the part of
loan applicants, mortgage brokers, vendors and our employees.

      When we acquire and originate  mortgage  loans,  we typically rely heavily
upon information supplied by third parties,  including the information contained
in the loan  application,  property  appraisal,  title  information and, in some
cases,  employment  and income  stated on the loan  application.  If any of this
information   is   intentionally   or   negligently   misrepresented   and  such
misrepresentation  is not detected  prior to the  acquisition  or funding of the
loan, the value of the loan may be significantly lower than expected.  Whether a
misrepresentation  is made by the loan applicant,  the mortgage broker,  another
third  party  or one of our  employees,  we  generally  bear  the  risk  of loss
associated with the misrepresentation  except when we purchase loans pursuant to
contracts  that  include a right of return and the seller  remains  sufficiently
creditworthy to render such right meaningful.

An  interruption  in or breach of our  information  systems  may  result in lost
business and increased expenses.

      We rely heavily upon communications and information systems to conduct our
business.  Any failure,  interruption  or breach in security of or damage to our
information  systems  or the  third-party  information  systems on which we rely
could  cause  delays  in  performing  due  diligence,   pricing,  servicing  and
underwriting our loans. This could result in increased difficulty in effectively
identifying,  evaluating  and pricing loan  portfolios  available  for purchase,
fewer loan  applications  being  received,  slower  processing of  applications,
increased expenses and reduced efficiency in loan servicing. In addition, we are
required to comply with significant  federal and state  regulations  relating to
the handling of customer  information,  particularly with respect to maintaining
the  confidentiality of such information.  A failure,  interruption or breach of
our information systems could result in regulatory action and litigation against
us. We cannot assure you that such failures or  interruptions  will not occur or
if they do occur  that  they  will be  adequately  addressed  by us or the third
parties on which we rely.

The  success and growth of our  business  will depend on our ability to adapt to
and implement technological changes to remain competitive, and any failure to do
so could result in a material adverse effect on our business.

      Our mortgage loan  acquisition,  origination and servicing  businesses are
dependent upon our ability to effectively  interface with our sellers,  brokers,
borrowers and other third  parties and to  efficiently  process loan  purchases,
applications  and  closings.  Technological  advances,  such as the  ability  to
automate  loan  servicing,   process  applications  over  the  Internet,  accept
electronic  signatures  and  provide  instant  status  updates,  are  playing an
increasing role in our ability to effectively interact with these third parties.
The  intense  competition  in  our  industry  has  led  to  rapid  technological
developments,  evolving industry standards and frequent releases of new products
and  enhancements.  The failure to acquire  new  technologies  or  technological
solutions  when necessary  could limit our ability to remain  competitive in our
industry  and our ability to increase  the  cost-efficiencies  of our  operating
model,  which  would harm our  business,  results of  operations  and  financial
condition.  Alternatively,  adapting to technological changes in the industry to
remain  competitive may require us to make significant and costly changes to our
loan  origination  and  information  systems,  which  could in turn  reduce  our
profitability.



                                    Page 44
<PAGE>

We are  exposed  to the  risk  of  environmental  liabilities  with  respect  to
properties to which we take title.

      In the course of our  business,  we may  foreclose on  defaulted  mortgage
loans and take title to the properties underlying those mortgages. If we do take
title, we could be subject to  environmental  liabilities  with respect to these
properties. Hazardous substances or wastes, contaminants,  pollutants or sources
thereof may be  discovered on these  properties  during our ownership or after a
sale to a third party. Environmental defects can reduce the value of and make it
more  difficult  to  sell  such  properties,  and  we may be  held  liable  to a
governmental  entity or to third parties for property  damage,  personal injury,
investigation,  and cleanup costs  incurred by these parties in connection  with
environmental  contamination,  or may be  required  to  investigate  or clean up
hazardous or toxic  substances or chemical  releases at a property.  These costs
could be  substantial.  If we ever become subject to  significant  environmental
liabilities,  our  business,  financial  condition,  liquidity  and  results  of
operation  could be materially and adversely  affected.  Although we have not to
date incurred any  environmental  liabilities in connection with our real estate
owned,  there can be no guarantee that we will not incur any such liabilities in
the future.

The  loss  of any  of our  key  executive  officers  may  adversely  affect  our
operations.

      Thomas J. Axon,  our Chairman,  and Jeffrey R. Johnson,  our President and
Chief Executive  Officer,  are responsible for making  substantially  all of the
most  significant  policy and managerial  decisions in our business  operations,
including  determining  which large bulk mortgage  portfolios  to purchase,  the
purchase price and other material  terms of such portfolio  acquisitions.  These
decisions  are  paramount  to the  success  and  growth of our  business.  These
individuals are also instrumental in securing our external  financing.  The loss
of the  services  of Thomas J. Axon or  Jeffrey R.  Johnson  could  disrupt  our
operations and adversely affect our ability to successfully finance, acquire and
service mortgage portfolios, which would harm the prospects of our business.

If we do not obtain and maintain the  appropriate  state licenses we will not be
allowed to originate,  purchase and service mortgage loans in some states, which
would adversely affect our operations.

      State mortgage finance licensing laws vary  considerably.  Most states and
the District of Columbia impose a licensing obligation to originate first and/or
subordinate  residential  mortgage  loans.  In some of the states  that impose a
licensing  obligation to originate  residential  mortgage  loans,  the licensing
obligation also arises to purchase closed mortgage loans. Many of those mortgage
licensing  laws impose a licensing  obligation to service  residential  mortgage
loans.   Certain  state  collection   agency  licensing  laws  require  entities
collecting on delinquent or defaulted  loans for others or to acquire such loans
to be licensed.  If we are unable to obtain and maintain the  appropriate  state
licenses or do not qualify for an  exemption,  our  operations  may be adversely
affected.

New legislation and regulations  directed at curbing predatory lending practices
could  restrict our ability to  originate,  purchase,  price,  sell,  or finance
non-prime residential mortgage loans, which could adversely impact our earnings.

      The Federal Home Ownership and Equity Protection Act, or HOEPA, identifies
a category of residential mortgage loans and subjects such loans to restrictions
not  applicable  to other  residential  mortgage  loans.  Loans subject to HOEPA
consist of loans on which certain points and fees or the annual percentage rate,
which  is  based  on the  interest  rate and  certain  finance  charges,  exceed
specified  levels.  Laws, rules and regulations have been adopted,  or are under
consideration,  at the state and local  levels that are similar to HOEPA in that
they impose certain  restrictions on loans that exceed certain cost  parameters.
These  state  and  local  laws  generally  have  lower  thresholds  and  broader
prohibitions than under the federal law. The restrictions  include  prohibitions
on steering  borrowers  into loans with high  interest  rates and away from more
affordable  products,  selling unnecessary  insurance to borrowers,  flipping or
repeatedly   refinancing  loans  and  originating  loans  without  a  reasonable
expectation that the borrowers will be able to repay the loans without regard to
the value of the mortgaged property.



                                    Page 45
<PAGE>

      Compliance  with  some of  these  restrictions  requires  lenders  to make
subjective  judgments,  such as  whether  a loan will  provide  a "net  tangible
benefit"  to the  borrower.  These  restrictions  expose  a  lender  to risks of
litigation  and   regulatory   sanction  no  matter  how  carefully  a  loan  is
underwritten  and impact the way in which a loan is  underwritten.  The remedies
for  violations  of these laws are not based on actual harm to the  consumer and
can result in damages that exceed the loan balance.  Liability for violations of
HOEPA, as well as violations of many of the state and local  equivalents,  would
extend not only to us, but to assignees, which may include our warehouse lenders
and  whole-loan  buyers,   regardless  of  whether  such  assignee  knew  of  or
participated in the violation.

      It is our policy not to  originate  loans that are subject to either HOEPA
or these state and local laws and not to purchase  high cost loans that  violate
those  laws.  If we  miscalculate  the  numerical  thresholds  described  above,
however, we may mistakenly originate or purchase such loans and bear the related
marketplace and legal risks and  consequences.  These  thresholds below which we
try to originate  loans create  artificial  barriers to production and limit the
price at which we can offer loans to  borrowers  and our ability to  underwrite,
originate,  sell and finance  mortgage  loans.  We may cease  doing  business in
jurisdictions  in the  future  where we,  or our  counterparties,  make  similar
determinations with respect to anti-predatory  lending laws. In California,  for
example, a recently proposed amendment to its state  anti-predatory  lending law
substantially   could  broaden  the  trigger  test  for  loans  subject  to  its
restrictions. If the numerical thresholds were miscalculated, certain variations
of our Liberty  Loan  product,  where the  lending  decision is or may have been
based entirely or primarily on the borrower's equity in his or her home and not,
or to a lesser extent, on a determination of the borrower's ability to repay the
loan,  would  violate  HOEPA and many of these  state  and local  anti-predatory
lending  laws.  In the past,  we have sold a small  portion of our Liberty  Loan
production to third parties on a  servicing-released,  whole-loan  basis.  Going
forward,  however,  our ability to finance the  origination of Liberty Loans and
sell the  Liberty  Loan  product  to third  parties  could  be  impaired  if our
financing  sources or mortgage  investors are required or choose to  incorporate
prohibitions   from  certain   anti-predatory   lending   practices  into  their
eligibility  criteria,  even if the laws themselves do not specifically apply to
us.

      We may decide to  purchase  a loan that is  covered by one of these  laws,
rules or  regulations  only if, in our judgment,  the loan is made in accordance
with our strict legal  compliance  standards  and without undue risk relative to
litigation  or to the  enforcement  of the loan  according  to its terms.  If we
decide to originate loans subject to these laws, rules and regulations,  we will
be subject to greater  risks for actual or perceived  non-compliance,  including
demands  for  indemnification  or loan  repurchases  from the parties to whom we
broker or sell loans,  class action lawsuits,  increased defenses to foreclosure
of  individual  loans in default,  individual  claims for  significant  monetary
damages,  and  administrative  enforcement  actions.  Any of the foregoing could
materially harm our business, financial condition and results of operations.

      Some of our  competitors  that are national  banks or federally  chartered
thrifts and their operating  subsidiaries  may not be subject to these state and
local laws and may as a consequence  be able to capture market share from us and
other  lenders.  Federal  regulators  have  expressed  their position that these
preemption  provisions  benefit  mortgage  subsidiaries  of federally  chartered
institutions as well. In January 2004, the Comptroller of the Currency finalized
preemption  rules that confirm and expand the scope of this  federal  preemption
for national banks and their  operating  subsidiaries.  Such federal  preemption
rules and interpretations generally have been upheld in the courts. At least one
national  rating agency has announced  that, in  recognition  of the benefits of
federal preemption, it will not require additional credit enhancement by federal
institutions when they issue securities backed by mortgages from a state that it
deems to have anti-predatory lending laws with clear and objective standards. As
a  non-federal  entity,  we will  continue to be subject to such  rating  agency
requirements  arising from state or local  lending-related  laws or regulations.
Accordingly,  as a mortgage lender that is generally subject to the laws of each
state in which we do business, except as may specifically be provided in federal
rules applicable to all lenders,  we may be subject to state legal  requirements
and legal risks under state laws to which these federally regulated  competitors
are not subject,  and this disparity may have the effect of giving those federal
entities legal and competitive  advantages.  Passage of additional laws in other
jurisdictions  could  increase  compliance  costs,  lower fee  income  and lower
origination  volume,  all of which would have a material  adverse  effect on our
results of operations, financial condition and business prospects.



                                    Page 46
<PAGE>

      The 108th  United  States  Congress  considered  legislation,  such as the
Ney-Lucas  Responsible  Lending  Act  introduced  in 2003,  which,  among  other
provisions,  would limit fees that a lender is  permitted  to charge,  including
prepayment  fees,  restrict the terms  lenders are permitted to include in their
loan  agreements  and increase the amount of disclosure  required to be given to
potential   borrowers.   Similar   legislation   has  been   introduced  in  the
recently-convened  109th  Congress.  We cannot  predict  whether or in what form
Congress  or the  various  state and local  legislatures  may enact  legislation
affecting  our  business.  We are  evaluating  the  potential  impact  of  these
initiatives,  if enacted, on our lending practices and results of operations. As
a result of these and  other  initiatives,  we are  unable  to  predict  whether
federal,  state,  or local  authorities  will  require  changes  in our  lending
practices in the future,  including  reimbursement of fees charged to borrowers,
or will impose fines.  These changes,  if required,  could adversely  affect our
profitability,  particularly  if we make  such  changes  in  response  to new or
amended  laws,  regulations  or  ordinances  in  states  where  we  originate  a
significant portion of our mortgage loans.

The broad scope of our operations  exposes us to risks of noncompliance  with an
increasing and inconsistent body of complex laws and regulations at the federal,
state and local levels.

      Because we may  originate,  purchase and service  mortgage loans in all 50
states,  we must comply with the laws and  regulations  pertaining to licensing,
disclosure and  substantive  practices,  as well as judicial and  administrative
decisions,  of all of  these  jurisdictions,  as  well as an  extensive  body of
federal laws and regulations. The volume of new or modified laws and regulations
has increased in recent years, and government  agencies enforcing these laws, as
well as the courts, sometimes interpret the same law in different ways. The laws
and regulations of each of these  jurisdictions  are different,  complex and, in
some cases, in direct  conflict with each other.  As our operations  continue to
grow,  it may be more  difficult  to identify  comprehensively  and to interpret
accurately  applicable laws and regulations and to employ properly our policies,
procedures and systems and train our personnel  effectively  with respect to all
of these laws and regulations,  thereby  potentially  increasing our exposure to
the  risks of  noncompliance  with  these  laws and  regulations.  For  example,
individual cities and counties have begun to enact laws that restrict  non-prime
loan  origination  activities  in those  cities  and  counties.  State and local
governmental  authorities have focused on the lending  practices of companies in
the non-prime  mortgage lending industry,  sometimes seeking to impose sanctions
for practices such as charging  excessive fees,  imposing  interest rates higher
than  warranted by the credit risk of the borrower,  imposing  prepayment  fees,
failing to adequately disclose the material terms of loans and abusive servicing
and collection practices.

      Our failure to comply with this regulatory regimen can lead to:

      o     civil  and  criminal   liability,   including   potential   monetary
            penalties;

      o     loss of lending  licenses or approved  status required for continued
            lending and servicing operations;



                                    Page 47
<PAGE>

      o     demands for  indemnification  or loan repurchases from purchasers of
            our loans;

      o     legal defenses causing delay and expense;

      o     adverse effects on our ability, as servicer, to enforce loans;

      o     the  borrower  having  the  right  to  rescind  or  cancel  the loan
            transaction;

      o     adverse publicity;

      o     individual and class action lawsuits;

      o     administrative enforcement actions;

      o     damage to our reputation in the industry;

      o     inability to sell our loans; or

      o     inability to obtain credit to fund our operations.

      Although we have systems and procedures  directed to compliance with these
legal  requirements  and  believe  that we are in material  compliance  with all
applicable federal, state and local statutes,  rules and regulations,  we cannot
assure you that more restrictive laws and regulations will not be adopted in the
future,  or  that  governmental  bodies  will  not  interpret  existing  laws or
regulations  in a more  restrictive  manner,  which  could  render  our  current
business  practices  non-compliant or which could make compliance more difficult
or  expensive.   These   applicable   laws  and   regulations   are  subject  to
administrative  or  judicial   interpretation,   but  some  of  these  laws  and
regulations have been enacted only recently or may be interpreted  infrequently.
As a result of infrequent or sparse  interpretations,  ambiguities in these laws
and  regulations may leave  uncertainty  with respect to permitted or restricted
conduct under them.  Any ambiguity  under a law to which we are subject may lead
to regulatory investigations, governmental enforcement actions or private causes
of action,  such as class action  lawsuits,  with respect to our compliance with
applicable laws and regulations.

If financial institutions face exposure stemming from legal violations committed
by the companies to which they provide financing or underwriting services,  this
could  increase  our  borrowing  costs and  negatively  affect  the  market  for
whole-loans and mortgage-backed securities.

      In  June  2003,   a   California   jury  found  a  warehouse   lender  and
securitization  underwriter liable in part for fraud on consumers committed by a
lender to whom it provided financing and underwriting  services.  The jury found
that the investment bank was aware of the fraud and  substantially  assisted the
lender  in  perpetrating  the  fraud by  providing  financing  and  underwriting
services that allowed the lender to continue to operate,  and held it liable for
10% of the  plaintiff's  damages.  This is the first case we know of in which an
investment  bank was held  partly  responsible  for  violations  committed  by a
mortgage lender customer.  Shortly after the announcement of the jury verdict in
the California  case, the Florida  Attorney  General filed suit against the same
financial  institution,  seeking an  injunction  to  prevent  it from  financing
mortgage loans within Florida, as well as damages and civil penalties,  based on
theories of unfair and deceptive trade practices and fraud. The suit claims that
this  financial  institution  aided and abetted the same lender  involved in the
California case in its commission of fraudulent  representations in Florida.  As
of the date of this  filing,  there has been no ruling  in this  case.  If other
courts or regulators adopt this "aiding and abetting"  theory,  investment banks
may face  increased  litigation  as they are named as defendants in lawsuits and
regulatory  actions against the mortgage  companies with which they do business.
Some investment banks may exit the business,  charge more for warehouse  lending
and reduce the prices they pay for whole-loans in order to build in the costs of
this potential  litigation.  This could, in turn, have a material adverse effect
on our results of operations, financial condition and business prospects.



                                    Page 48
<PAGE>

We may be subject  to fines or other  penalties  based  upon the  conduct of our
independent brokers.

      Mortgage  brokers,  from which we source some of our Tribeca  loans,  have
parallel and separate legal  obligations to which they are subject.  While these
laws may not explicitly hold the originating  lenders  responsible for the legal
violations of mortgage  brokers,  increasingly  federal and state  agencies have
sought to impose such assignee  liability.  For example,  the FTC entered into a
settlement agreement with a mortgage lender where the FTC characterized a broker
that had placed all of its loan  production  with a single lender as the "agent"
of the  lender.  The FTC  imposed  a fine on the  lender  in  part  because,  as
"principal," the lender was legally responsible for the mortgage broker's unfair
and deceptive acts and practices.  In the past, the United States  Department of
Justice  has sought to hold a non- prime  mortgage  lender  responsible  for the
pricing practices of its mortgage brokers, alleging that the mortgage lender was
directly  responsible  for the total fees and charges paid by the borrower under
the Fair  Housing  Act even if the lender  neither  dictated  what the  mortgage
broker could charge nor kept the money for its own account.  Accordingly, we may
be subject to fines or other penalties based upon the conduct of our independent
mortgage broker customers.

We are subject to significant  legal and  reputational  risks and expenses under
federal  and  state  laws  concerning  privacy,  use and  security  of  customer
information.

      The  federal  Gramm-Leach-Bliley   financial  reform  legislation  imposes
significant privacy obligations on us in connection with the collection, use and
security  of  financial  and  other  nonpublic  information  provided  to  us by
applicants and borrowers. In addition, California has enacted, and several other
states   are   considering   enacting,    even   more   stringent   privacy   or
customer-information-security  legislation,  as  permitted  under  federal  law.
Because laws and rules concerning the use and protection of customer information
are  continuing to develop at the federal and state  levels,  we expect to incur
increased  costs in our  effort to be and remain in full  compliance  with these
requirements.  Nevertheless, despite our efforts we will be subject to legal and
reputational  risks  in  connection  with  our  collection  and use of  customer
information, and we cannot assure you that we will not be subject to lawsuits or
compliance  actions  under such state or federal  privacy  requirements.  To the
extent that a variety of inconsistent  state privacy rules or  requirements  are
enacted, our compliance costs could substantially increase.

If many of our borrowers become subject to the  Servicemembers  Civil Relief Act
of 2003, our cash flows and interest income may be adversely affected.

      Under the  Servicemembers  Civil Relief Act, which in 2003  re-enacted the
Soldiers'  and  Sailors'  Civil  Relief Act of 1940,  or the Civil  Relief  Act,
members of the military services on active duty receive certain  protections and
benefits.  Under the Civil  Relief Act, a borrower  who enters  active  military
service after the  origination  of his or her mortgage loan generally may not be
required  to pay  interest  above  an  annual  rate  of 6%,  and the  lender  is
restricted from exercising certain enforcement remedies,  including foreclosure,
during the period of the  borrower's  active duty  status.  The Civil Relief Act
also  applies  to a borrower  who was on reserve  status and is called to active
duty after  origination  of the mortgage loan.  Considering  the large number of
U.S.  Armed  Forces  personnel on active duty and likely to be on active duty in
the future,  compliance with the Civil Relief Act could reduce our cash flow and
the  interest  payments  collected  from  those  borrowers,  and in the event of
default or delay,  prevent us from  exercising  the  remedies  for default  that
otherwise would be available to us.




                                    Page 49
<PAGE>

Thomas J. Axon  effectively  controls  our company,  substantially  reducing the
influence of our other stockholders.

      Thomas  J.  Axon,  our  Chairman,  beneficially  owns more than 40% of our
outstanding  common  stock.  As a result,  Mr.  Axon  will be able to  influence
significantly the actions that require stockholder approval, including:

      o     the election of our directors; and

      o     the  approval  of  mergers,  sales  of  assets  or  other  corporate
            transactions or matters submitted for stockholder approval.

      Furthermore,  the members of the board of directors as a group  (including
Mr. Axon)  beneficially  own a substantial  majority of our  outstanding  common
stock. As a result,  our other stockholders may have little or no influence over
matters submitted for stockholder  approval.  In addition,  Mr. Axon's influence
and/or  that  of our  current  board  members  could  preclude  any  unsolicited
acquisition of us and consequently  materially adversely affect the price of our
common stock.

Our organizational  documents,  Delaware law and our credit facility may make it
harder for us to be acquired without the consent and cooperation of our board of
directors, management and lender.

      Several provisions of our organizational  documents,  Delaware law and our
credit  facility may deter or prevent a takeover  attempt,  including a takeover
attempt in which the potential purchaser offers to pay a per share price greater
than the current market price of our common stock.

      Our classified board of directors will make it more difficult for a person
seeking  to  obtain  control  of us to do so.  Also,  our  supermajority  voting
requirements  may discourage or deter a person from attempting to obtain control
of us by making it more difficult to amend the provisions of our  certificate of
incorporation  to  eliminate an  anti-takeover  effect or the  protections  they
afford minority stockholders,  and will make it more difficult for a stockholder
or  stockholder  group to put  pressure on our board of  directors  to amend our
certificate  of  incorporation  to facilitate a takeover  attempt.  In addition,
under the terms of our certificate of incorporation,  our board of directors has
the authority,  without further action by the  stockholders,  to issue shares of
preferred  stock  in one or  more  series  and to fix the  rights,  preferences,
privileges and  restrictions  thereof.  The ability to issue shares of preferred
stock could tend to discourage  takeover or acquisition  proposals not supported
by our current board of directors.

      Section 203 of the Delaware  General  Corporation  Law, subject to certain
exceptions,  prohibits a Delaware  corporation  from  engaging  in any  business
combination with any interested stockholder (such as the owner of 15% or more of
our  outstanding  common  stock) for a period of three years  following the date
that the stockholder became an interested stockholder.  The preceding provisions
of our organizational  documents, as well as Section 203 of the Delaware General
Corporation  Law, could discourage  potential  acquisition  proposals,  delay or
prevent a change of control and prevent changes in our management,  even if such
events would be in the best interests of our stockholders.

      In addition, our controlling  shareholder ceasing to possess,  directly or
indirectly,  the  power to  direct  our  management  and  policies  through  his
ownership of our voting stock  constitutes  an event of default under our master
credit  facility,  which,  without a waiver  from our  lender,  would  cause our
indebtedness to become immediately payable and could result in our insolvency if
we are unable to repay our debt.



                                    Page 50
<PAGE>



Our  quarterly  operating  results  may  fluctuate  and cause our stock price to
decline.

      Because of the nature of our business, our quarterly operating results may
fluctuate,  which may adversely affect the market price of our common stock. Our
results may fluctuate as a result of any of the following:

      o     the timing and amount of collections on loans in our portfolio;

      o     the rate of delinquency,  default, foreclosure and prepayment on the
            loans we hold and service;

      o     changes in interest rates;

      o     deviations in the amount or timing of collections on loans purchased
            from our expectations when we purchased such loans;

      o     our  inability  to identify  and acquire  additional  mortgage  loan
            portfolios or to originate loans;

      o     a decline in the estimated value of real property  securing mortgage
            loans;

      o     increases in operating  expenses  associated  with the growth of our
            operations;

      o     general economic and market conditions;

      o     the effects of state and federal tax,  monetary and fiscal policies;
            and

      o     our inability to obtain additional financing to fund our growth.

      Many of these factors are beyond our control,  and we cannot predict their
potential  effects on the price of our common stock.  If the market price of our
common  stock  declines  significantly,  you may be unable to resell your common
stock at or above the offering price. We cannot assure you that the market price
of our common  stock will not  fluctuate or decline  significantly,  including a
decline below the offering price, in the future.

Various  factors  unrelated to our performance may cause the market price of our
common  stock to become  volatile,  which  could harm our  ability to access the
capital markets in the future.

      The market price of our common stock may experience  fluctuations that are
unrelated to our operating  performance.  In particular,  our stock price may be
affected  by  general  market  movements  as well as  developments  specifically
related to the consumer  finance  industry and the  financial  services  sector.
These could  include,  among other things,  interest rate  movements,  quarterly
variations   or  changes  in  financial   estimates  by   securities   analysts,
governmental or regulatory actions or investigations of us or our lenders,  or a
significant  reduction  in the price of publicly  traded  securities  of another
participant  in the  consumer  finance  industry.  This  volatility  may make it
difficult  for us to access the capital  markets  through  additional  secondary
offerings of our common stock, regardless of our financial performance, and such
difficulty may preclude us from being able to take advantage of certain business
opportunities or meet our obligations.

Future sales of our common stock may depress our stock price.

      Sales of a substantial  number of shares of our common stock in the public
market could cause a decrease in the market price of our common stock. As of the
conclusion  of our recent  public  offering,  5,179,052  shares  held by current
stockholders  and members of our senior  management will be subject to a lock-up
period  through  January 21, 2006. The remainder of our  outstanding  shares are
freely  tradeable.  We may also issue  additional  shares in connection with our
business and may grant  additional  stock  options to our  employees,  officers,
directors  and  consultants  under our stock  option  plans or warrants to third
parties.  If a  significant  portion  of these  shares  were sold in the  public
market, the market value of our common stock could be adversely affected.



                                    Page 51
<PAGE>

Compliance  with the rules of the  market in which our common  stock  trades and
proposed and recently  enacted  changes in securities  laws and  regulations are
likely to increase our costs.

The Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated
by the Securities and Exchange Commission and the national securities  exchanges
have increased the scope, complexity and cost of corporate governance, reporting
and disclosure practices for public companies,  including ourselves. These rules
and  regulations  could also make it more difficult for us to attract and retain
qualified executive officers and members of our board of directors, particularly
to serve on our audit committee.  Our common stock has been approved for listing
on The Nasdaq National Market. Accordingly, we will have to comply with a number
of qualitative and quantitative  requirements.  We have no prior experience with
the level of compliance  required by Nasdaq,  and, as a result,  such compliance
will require additional cost and effort on our part.



                                    Page 52
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risk in the normal course of business,
including  the impact of interest  rate  changes and  changes in  corporate  tax
rates.  A material  change in these rates could  adversely  affect our operating
results and cash flows.

Interest Rate Risk

Interest  rate  fluctuations  can  adversely  affect our  operating  results and
present a  variety  of  risks,  including  the risk of a  mismatch  between  the
repricing  of  interest-earning  assets and  borrowings,  variances in the yield
curve  and  changing  prepayment  rates  on  notes  receivable,  loans  held for
investment and loans held for sale.

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

The Company's operating results will depend in large part on differences between
the interest earned on its assets and the interest paid on its borrowings.  Most
of the Company's  assets,  consisting  primarily of mortgage  notes  receivable,
generate  fixed  returns  and have  terms in  excess  of five  years,  while the
majority of loans held for  investment  generate fixed returns for the first two
years and six-month  adjustable returns thereafter.  We fund the origination and
acquisition of these assets with borrowings,  which have interest rates that are
based on the  monthly  Federal  Home Loan  Bank of  Cincinnati  ("FHLB")  30-day
advance  rate. In most cases,  the interest  income from our assets will respond
more  slowly to  interest  rate  fluctuations  than the cost of our  borrowings,
creating a mismatch between interest earned on our interest-yielding  assets and
the interest paid on our  borrowings.  Consequently,  changes in interest rates,
particularly short-term rates, will significantly impact our net interest income
and, therefore, net income. Our borrowings bear interest at rates that fluctuate
with the FHLB Bank of Cincinnati 30-day advance rate or, to a lesser extent, the
prime rate. Based on  approximately  $1.09 billion of borrowings under term loan
and warehouse  facilities  outstanding at September 30, 2005, a 1% instantaneous
increase in both FHLB and prime rates could increase  quarterly interest expense
by as much as approximately $2.7 million, pre tax, which would negatively impact
our  quarterly  after tax net  income.  Due to our  liability-sensitive  balance
sheet,  increases  in these rates will  decrease  both net income and the market
value of our net assets.

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



                                    Page 53
<PAGE>

Real Estate Risk

Residential  property  values are  subject  to  volatility  and may be  affected
adversely  by a number of factors,  including,  but not  limited  to,  national,
regional  and local  economic  conditions,  which may be  adversely  affected by
industry slowdowns and other factors;  local real estate conditions (such as the
supply of housing or the rapid  increase in home values).  Decreases in property
values reduce the value of the collateral and the potential  proceeds  available
to a borrower to repay our mortgage loans, which could cause us to suffer losses
on the ultimate disposition of foreclosed properties.

We purchase and originate  principally  fixed and  adjustable  rate  residential
mortgage  loans,  which are secured  primarily by the  underlying  single-family
properties.  Because the vast majority of our loans are to non-prime  borrowers,
delinquencies  and  foreclosures  are  substantially  higher than those of prime
mortgage loans, and if not serviced  actively and effectively could result in an
increase in losses on dispositions of properties  acquired through  foreclosure.
In  addition,  a decline in real  estate  values  would  reduce the value of the
residential  properties  securing our loans,  which could lead to an increase in
borrower  defaults,  reductions in interest  income and increased  losses on the
disposition of foreclosed properties.



                                    Page 54
<PAGE>

Item 4. Controls and Procedures

As of the end of the period covered by this  Quarterly  Report on Form 10-Q, the
Company  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of senior  management,  including the Company's  Chief  Executive
Officer and Chief  Financial  Officer,  of the  effectiveness  of the design and
operation of its disclosure controls and procedures. Based upon that evaluation,
the Company's Chief Executive Officer and Chief Financial Officer concluded that
the Company's  disclosure  controls and  procedures are effective for gathering,
analyzing  and  disclosing  the  information  that the  Company is  required  to
disclose in reports filed under the Securities  Exchange Act of 1934.

There have been no significant  changes in the Company's  internal controls over
financial  reporting  or in  other  factors  during  the  fiscal  quarter  ended
September  30,  2005  that  materially  affected,  or are  reasonably  likely to
materially  affect,  the Company's  internal  control over  financial  reporting
subsequent to the date the Company carried out its most recent evaluation.



                                    Page 55
<PAGE>

                            Part II Other Information

Item 1. Legal Proceedings

We are involved in routine litigation matters incidental to our business related
to the  enforcement of our rights under mortgage loans we hold, none of which is
individually  material.  In addition,  because we originate and service mortgage
loans  throughout  the country,  we must comply with  various  state and federal
lending  laws and we are  routinely  subject  to  investigation  and  inquiry by
regulatory  agencies,  some of which arise from  complaints  filed by borrowers,
none of which is individually material.

Item 2. Unregistered Sales of Equity 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.




                                    Page 56
<PAGE>

Item 6. Exhibits

Exhibit
Number
------

3.1   Fifth Amended and Restated  Certificate of Incorporation.  Incorporated by
      reference to Appendix A to Franklin Credit Management  Corporation's  (the
      "Company")  Definitive  Information  Statement on Schedule 14C, filed with
      the Securities and Exchange  Commission (the  "Commission") on January 20,
      2005.

3.2   Amended and Restated  By-laws.  Incorporated by reference to Appendix B to
      the Company's Definitive Information Statement on Schedule 14C, filed with
      the Commission on January 20, 2005.

10.1  Restricted Stock Grant Agreement,  dated as of April 13, 2005, between the
      Company and Paul D. Colasono. Incorporated by reference to Exhibit 10.2 to
      the Company's  Quarterly Report on Form 10-Q, filed with the Commission on
      May 16, 2005.

10.2  Second  Amendment to the Warehouse Credit  Agreement,  effective as of May
      19, 2005, between Tribeca Lending  Corporation and Sky Bank.  Incorporated
      by reference to Exhibit 10.5 to the  Company's  Registration  Statement on
      Form S-1 (File No. 333-125681) (the "Registration Statement"),  filed with
      the Commission on June 9, 2005.

10.3  Employment  Agreement,  dated as of June 7, 2005,  between the Company and
      Joseph Caiazzo. Incorporated by reference to Exhibit 10.1 to the Company's
      Current Report on Form 8-K, filed with the Commission on June 9, 2005.

10.4  Letter, dated July 19, 2005, from Sky Bank to the Company. Incorporated by
      reference  to  Exhibit  10.20  to  Amendment  No.  2 to  the  Registration
      Statement, filed with the Commission on July 19, 2005.

10.5  Letter, dated July 19, 2005, from Sky Bank to Tribeca Lending Corporation.
      Incorporated  by  reference  to Exhibit  10.21 to  Amendment  No. 2 to the
      Registration Statement, filed with the Commission on July 19, 2005.

10.6  Underwriting Agreement,  dated July 19, 2005, between the Company and Ryan
      Beck & Co.,  Inc.  Incorporated  by  reference  to the Exhibit 10.3 of the
      Company's  Current  Report on Form 8-K,  filed with the Commission on July
      20, 2005.

10.7  Lease,  dated July 27,  2005,  between the Company and 101 Hudson  Leasing
      Associates.  Incorporated  by reference  to Exhibit 10.1 to the  Company's
      Current Report on Form 8-K, filed with the Commission on July 29, 2005.

*21.1 Subsidiaries of the Company.



                                    Page 57
<PAGE>

*31.1 Rule 13a-14(a)  Certification of Chief Executive Officer of the Company in
      accordance with Section 302 of the  Sarbanes-Oxley Act of 2002. Filed with
      the Commission on April 4, 2005.

*31.2 Rule 13a-14(a)  Certification of Chief Financial Officer of the Company in
      accordance with Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1 Certification of Chief Executive Officer of the Company in accordance with
      Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2 Certification of Chief Financial Officer of the Company in accordance with
      Section 906 of the Sarbanes-Oxley Act of 2002.


*     Filed herewith.



                                    Page 58
<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.

November 14, 2005

                           FRANKLIN CREDIT MANAGEMENT
                                   CORPORATION


                                             By: /s/  JEFFREY R. JOHNSON
                                                 ------------------------
                                                 Jeffrey R. Johnson
                                                 President and Chief Executive
                                                 Officer

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

<TABLE>
<CAPTION>
Signature                       Title                                           Date

<S>                             <C>                                             <C>
/s/  JEFFREY R. JOHNSON         Chief Executive Officer and Director            November 14, 2005
-----------------------                                                         -----------------
Jeffrey R. Johnson
(Chief Executive Officer)

/s/  PAUL COLASONO              Executive Vice President, Chief Financial       November 14, 2005
------------------              Officer                                         -----------------
Paul Colasono
(Chief Financial Officer)

</TABLE>

                                    Page 59