<PAGE>

                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, 2002

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

                         Commission file number 0-17771

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

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

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

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the 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 [ ].

As of November 13, 2002 the issuer had 5,916,527 of shares of Common Stock, par
value $0.01 per share, outstanding.

<PAGE>

                     FRANKLIN CREDIT MANAGEMENT CORPORATION

                                    FORM 10-Q
                            For the Nine Months Ended
                               September 30, 2002

                                 C O N T E N T S

<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION (UNAUDITED)                                                   PAGE
                                                                                             ----
<S>                                                                                         <C>
Item 1.  Financial Statements
         The accompanying unaudited interim financial statements have been
           prepared in accordance with the instructions to Form 10Q. In
           the opinion of management all adjustments necessary for
           fair presentations have been included.

         Consolidated Balance Sheets as of September 30, 2002 and
           December 31, 2001                                                                    3

         Consolidated Statements of Operations for the three months and nine
           months ended September 30, 2002 and 2001                                             4

         Consolidated Statements of Stockholders' Equity for the nine months ended
           September 30, 2002                                                                   5

         Consolidated Statements of Cash Flows for the nine months ended
           September 30, 2002 and 2001                                                          6

         Notes to Consolidated Financial Statements                                          7-11

Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                                            12-21

Item 3.  Quantitative and Qualitative Disclosures about Market Risk                            21

Item 4.  Controls and Procedures                                                               21

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                                     22

Item 2.  Changes in Securities                                                                 22

Item 3.  Defaults Upon Senior Securities                                                       22

Item 4.  Submission of Matters to a Vote of Security Holders                                   22

Item 5.  Other Information                                                                     22

Item 6.  Exhibits and Reports on Form 8-K                                                      22

SIGNATURES                                                                                     23
</TABLE>

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30, 2002      DECEMBER 31, 2001
<S>                                                          <C>                     <C>
ASSETS

CASH AND CASH EQUIVALENTS                                       $  6,721,672           $  7,784,162

RESTRICTED CASH                                                      674,199                541,443

NOTES RECEIVABLE:

  Principal                                                      389,423,630            331,643,076
  Purchase discount                                              (23,439,865)           (22,248,344)
  Allowance for loan losses                                      (39,686,713)           (33,490,456)
                                                                ------------           ------------

       NET NOTES RECEIVABLE                                      326,297,052            275,904,276

LOANS HELD FOR SALE-Net                                           47,893,124             28,203,047

ACCRUED INTEREST RECEIVABLE                                        4,403,074              4,795,789

OTHER REAL ESTATE OWNED                                            5,586,520              3,819,673

OTHER RECEIVABLES                                                  1,987,318              5,305,409

DEFERRED TAX ASSET                                                   880,340              1,567,588

OTHER ASSETS                                                       3,403,654              1,894,052

BUILDING, FURNITURE AND FIXTURES - Net                             1,160,037              1,151,171

DEFERRED FINANCING COSTS- Net                                      3,790,798              3,195,891
                                                                ------------           ------------

TOTAL ASSETS                                                    $402,797,788           $334,162,501
                                                                ============           ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Accounts payable and accrued expenses                         $  4,133,833           $  4,230,203
  Financing agreements                                             8,873,253              7,542,511
  Notes payable                                                  375,858,070            313,943,808
  Subordinated debentures                                                 --                 24,262
  Tax liability:
    Current                                                               --                225,000
    Deferred                                                       2,212,605              1,866,318
                                                                ------------           ------------

       TOTAL LIABILITIES                                         391,077,761            327,832,102
                                                                ------------           ------------

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 10,000,000 authorized shares;
    issued and outstanding: 5,916,527 and 5,916,527                   59,167                 59,167
  Additional paid-in capital                                       6,985,968              6,985,968
  Retained earnings (deficit)                                      4,674,892               (714,736)
                                                                ------------           ------------

       TOTAL STOCKHOLDERS' EQUITY                                 11,720,027              6,330,399
                                                                ------------           ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $402,797,788           $334,162,501
                                                                ============           ============
</TABLE>

See notes to consolidated financial statements

                                     Page 3

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED SEPT 30       NINE MONTHS ENDED SEPT 30
                                                          2002            2001             2002           2001
                                                      ------------     -----------      -----------    -----------
<S>                                                   <C>              <C>              <C>            <C>
REVENUES:
   Interest income                                    $ 9,452,180      $ 7,586,034      $27,125,332    $20,320,114
   Purchase discount earned                               882,458        1,007,499        2,601,163      2,978,578
   Gain on sale of portfolios                             114,019           69,839          114,019        948,966
   Gain on sale of originated loans                       689,432          176,926        1,586,017        391,417
   Gain on sale of other real estate owned                271,931          273,088          670,306      1,119,699
   Rental income                                           44,959           72,838          130,885        269,605
   Other                                                  765,523          358,722        1,970,539      1,011,308
                                                      -----------      -----------      -----------    -----------
                                                       12,220,502        9,544,946       34,198,261     27,039,687
                                                      -----------      -----------      -----------    -----------

OPERATING EXPENSES:
   Interest expense                                     4,966,438        5,227,237       14,056,770     15,349,371
   Collection, general and administrative               3,279,258        2,646,750        8,894,753      7,538,419
   Recovery of special charge                                  --               --       (1,662,598)            --
   Provision for loan losses                              723,603          414,000        1,819,367      1,103,963
   Amortization of deferred financing costs               313,280          205,979          957,203        672,873
   Depreciation                                            92,143           70,169          253,787        158,272
                                                      -----------      -----------      -----------    -----------
                                                        9,374,721        8,564,135       24,319,282     24,822,898
                                                      -----------      -----------      -----------    -----------

INCOME BEFORE PROVISION FOR INCOME TAXES                2,845,781          980,811        9,878,979      2,216,789

PROVISION FOR INCOME TAXES                              1,280,601                0        4,489,351              0
                                                      -----------      -----------      -----------    -----------

NET INCOME                                            $ 1,565,179      $   980,811      $ 5,389,628    $ 2,216,789
                                                      ===========      ===========      ===========    ===========

NET INCOME PER COMMON SHARE:
   Basic                                              $      0.26      $      0.17      $      0.91    $      0.37
   Dilutive                                           $      0.25      $      0.17      $      0.86    $      0.37
                                                      ===========      ===========      ===========    ===========
WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING BASIC                                      5,916,527        5,916,527        5,916,527      5,916,527
                                                      ===========      ===========      ===========    ===========
WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING DILUTIVE                                   6,261,550        5,916,527        6,248,352      5,916,527
                                                      ===========      ===========      ===========    ===========
</TABLE>

See notes to consolidated financial statements

                                     Page 4

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                            Common Stock             Additional       Retained
                                     --------------------------       Paid-In         Earnings
                                        Shares         Amount         Capital         (Deficit)         Total
----------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>           <C>             <C>             <C>
Balance, January 1, 2002               5,916,527       $59,167       $6,985,968      $ (714,736)     $ 6,330,399

     Net Income                                                                       5,389,628        5,389,628

                                     ---------------------------------------------------------------------------
Balance, September 30, 2002            5,916,527       $59,167       $6,985,968      $4,674,892      $11,720,027
                                     ===========================================================================
</TABLE>

See notes to consolidated financial statements.

                                     Page 5

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 2002               2001
<S>                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $   5,389,628      $   2,216,789
  Adjustments to reconcile net income to
     net cash used by operating activities:
     Depreciation                                                  253,787            158,272
     Amortization of deferred financing costs                      957,203            672,873
     Origination of loans held for sale                        (51,497,518)       (25,684,409)
     Proceeds from sale and principal collections on
     loans held for sale                                        31,807,441         10,153,700
     Purchase discount earned                                   (2,601,164)        (2,978,578)
     Gain on sale of other real estate owned                      (670,306)        (1,119,699)
     Provision for loan losses                                   1,819,367          1,103,963
   (Increase) decrease in:
     Accrued interest receivable                                   461,251         (1,512,665)
     Other receivables                                           3,318,091           (223,692)
     Deferred tax asset                                            687,248
     Other assets                                               (1,509,603)          (574,993)
   Increase (decrease) in:
     Current tax liability                                        (225,000)                --
     Deferred tax liability                                        346,287                 --
     Accounts payable and accrued expenses                         (96,370)         1,040,079
     203(k) rehabilitation escrow                                       --             (2,186)
     Due to affiliates                                                  --           (146,835)
                                                             -------------      -------------
   Net cash used by operating activities                       (11,559,657)       (16,897,381)
                                                             -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Acquisition and loan fees                                  (1,549,353)        (1,549,218)
     Acquisition of notes receivable                          (134,050,300)      (129,832,488)
     Proceeds from sale of other real estate owned               5,410,057          6,890,412
     Proceeds from the sale of notes receivable                    910,083         17,681,875
     Acquisition of building, furniture & fixtures                (262,652)          (312,969)
     Principal collection on notes receivable                   76,951,345         46,121,205
     (Increase) decrease in restricted cash                       (132,756)           173,645
                                                             -------------      -------------
   Net cash used by investing activities                       (52,723,576)       (60,827,538)
                                                             -------------      -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on subordinated debentures                           (24,262)           (36,132)
     Payments on financing agreements                          (52,248,536)       (18,966,885)
     Proceeds from financing agreements                         53,579,279         23,197,892
     Proceeds from notes payable                               139,354,638        132,494,867
     Payments on notes payable                                 (77,440,376)       (56,633,710)
                                                             -------------      -------------
   Net cash provided by financing activities                    63,220,743         80,056,032
                                                             -------------      -------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS            (1,062,490)         2,331,113

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   7,784,162          7,212,346
                                                             -------------      -------------

CASH AND CASH EQUIVALENTS END OF PERIOD                      $   6,721,672      $   9,543,459
                                                             =============      =============
</TABLE>

See notes to consolidated financial statements

                                     Page 6

<PAGE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

      NATURE OF BUSINESS - Franklin Credit Management Corporation (the
      "Company"), incorporated under the laws of the State of Delaware, acquires
      performing, nonperforming, nonconforming and subperforming notes
      receivable and promissory notes from financial institutions, and mortgage
      and finance companies. The Company services and collects such notes
      receivable through enforcement of terms of original note, modification of
      original note terms and, if necessary, liquidation of the underlying
      collateral.

      In January 1997, a wholly owned subsidiary was formed, to originate or
      purchase, sub prime residential mortgage loans to individuals whose credit
      histories, income and other factors cause them to be classified as
      nonconforming borrowers.

      A summary of the Company's significant accounting policies follows.

      EARNINGS PER SHARE

      Earning per share is calculated on both a basic and diluted basis. Basic
      EPS is based on weighted average number of shares outstanding and excludes
      the dilutive effect of common stock equivalents. Diluted earnings per
      share is based on the weighted average number of shares outstanding and
      includes the dilutive effect of common stock equivalents.

      BASIS OF PRESENTATION- The consolidated balance sheet as of September 30,
      2002, the consolidated statements of operations for the three and nine
      months ended September 30, 2002 and 2001, and the consolidated statements
      of cash flows and stockholders' equity for the nine months ended September
      30, 2002 and September 2001 are unaudited. In the opinion of management,
      all adjustments (which include only normal recurring adjustments)
      necessary to present fairly the Company's financial position, results of
      operations and cash flows have been made. Certain information and footnote
      disclosures normally included in financial statements prepared in
      accordance with accounting principles generally accepted in the United
      States of America have been condensed or omitted. These condensed
      consolidated financial statements should be read in conjunction with the
      consolidated financial statements and notes thereto included in the
      Company's Annual Report on Form 10-KSB for the year ended December 31,
      2001 as filed with the Securities and Exchange Commission. The results of
      operations for the nine months ended September 30, 2002 are not
      necessarily indicative of the operating results to be expected for the
      full year.

      BASIS OF CONSOLIDATION - 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.

      ESTIMATES - 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 revenue and expenses during the period. Actual results
      could differ from those estimates.

                                     Page 7

<PAGE>

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

      NOTES RECEIVABLE AND INCOME RECOGNITION - The notes receivable portfolio
      consists primarily of secured real estate mortgage loans purchased from
      financial institutions, and mortgage and finance companies. Such notes
      receivable are generally performing, nonperforming or underperforming at
      the time of purchase and are usually purchased at a discount from the
      principal balance remaining. Notes receivable are stated at the amount of
      unpaid principal, reduced by purchase discount and an allowance for loan
      losses. The Company has the ability and intent to hold these notes until
      maturity, payoff or liquidation of collateral. Impaired notes are measured
      based on the present value of expected future cash flows discounted at the
      note's effective interest rate or, as a practical expedient, at the
      observable market price of the note receivable or the fair value of the
      collateral if the note is collateral dependent. A note receivable is
      impaired when it is probable the Company will be unable to collect all
      contractual principal and interest payments due in accordance with the
      terms of the note agreement.

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

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

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

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

                                     Page 8

<PAGE>

      received. In connection with the determination of the allowance for loan
      losses, management obtains independent appraisals for significant
      properties, when considered necessary.

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

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

      LOANS HELD FOR SALE- The loans held for sale consist primarily of secured
      real estate first and second mortgages originated by the Company. Such
      loans held for sale are performing and are carried at lower of cost or
      market.

      OTHER REAL ESTATE OWNED - Other real estate owned ("OREO") consists of
      properties acquired through, or in lieu of, foreclosure or other
      proceedings 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 the allowance for
      loan losses. Subsequent write-downs are charged to operations based upon
      management's continuing assessment of the fair value of the underlying
      collateral. Property is evaluated regularly to ensure that the recorded
      amount is supported by current fair values and valuation allowances are
      recorded as necessary to reduce the carrying amount to fair value less
      estimated cost to sell. Revenue and expenses from the operation of OREO
      and changes in the valuation allowance are included in operations. Costs
      relating to the development and improvement of the property are
      capitalized, subject to the limit of fair value of the collateral, while
      costs relating to holding the property are expensed. Gains or losses are
      included in operations upon disposal.

      BUILDING, FURNITURE AND FIXTURES - Building, furniture and fixtures are
      recorded at cost net of accumulated depreciation. Depreciation is computed
      using the straight-line method over the estimated useful lives of the
      assets, which range from three to forty years. Gains and losses on
      dispositions are recognized upon realization. Maintenance and repairs are
      expensed as incurred.

      DEFERRED FINANCING COSTS - Debt financing costs, which include loan
      origination fees incurred by the Company in connection with obtaining
      financing, are deferred and are amortized over the term of the related
      loan.

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

      INCOME TAXES - The Company recognizes income taxes under an asset and
      liability method. This method provides for deferred income tax assets or
      liabilities based on the temporary differences between the income tax
      basis of assets and liabilities and their carrying amount in 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 effect of changes in tax laws and rates on the date of
      the enactment.

                                     Page 9

<PAGE>

      FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
      Standards No. 107, Disclosures About Fair Value of Financial Instruments,
      requires disclosure of fair value information of financial instruments,
      whether or not recognized in the balance sheet for which it is practicable
      to estimate that value. In cases where quoted market prices are not
      available, fair values are based on estimates using present value or other
      valuation techniques. Those techniques are significantly affected by the
      assumptions used, including the discount rate and estimates of future cash
      flows. In that regard, the derived fair value estimates cannot be
      substantiated by comparison to independent markets and, in many cases,
      could not be realized in immediate settlement of the instruments.
      Statement No. 107 excludes certain financial instruments and all
      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
           balance sheet are a reasonable estimate of fair value.

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

      c.   SHORT-TERM BORROWINGS - The carrying amounts of the financing
           agreements and other short-term borrowings approximate their fair
           value.

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

      COMPREHENSIVE INCOME - SFAS No. 130, Reporting Comprehensive Income
      defines comprehensive income as the change in equity of a business
      enterprise during a period from transactions and other events and
      circumstances, excluding those resulting from investments by and
      distributions to stockholders. The Company had no items of other
      comprehensive income in 2002 and 2001, therefore net income was the same
      as its comprehensive income.

      RECENT ACCOUNTING PRONOUNCEMENTS

             In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS
      No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Correction.
      SFAS No. 145, among other things, rescinds SFAS No. 4, Reporting Gains and
      Losses from Extinguishment of Debt, and, accordingly, the reporting of
      gains or losses from the early extinguishment of debt as extraordinary
      items will only be required if they met the specific criteria for
      extraordinary items included in Accounting Principles Board Opinion No.
      30, Reporting the Results of Operations. The rescission of SFAS No. 4 is
      effective January 1, 2003. Management believes that adoption of this
      statement will not have a material effect on the Company's financial
      statements.

             In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
      Associated with Exit or Disposal Activities (effective January 1, 2003).
      SFAS No. 146 replaces current accounting literature and requires the
      recognition of costs associated with exit or disposal activities when they
      are incurred rather than at the date of a commitment to an exit or
      disposal plan. The Company does not anticipate the adoption of this
      statement will have a material effect on the Company's financial
      statements.

                                     Page 10

<PAGE>

BUSINESS SEGMENTS

         The Company has two reportable operating segments: (i) portfolio asset
acquisition and resolution; and (ii) mortgage banking. The portfolio asset
acquisition and resolution segment acquires performing, nonperforming,
nonconforming and subperforming notes receivable and promissory notes from
financial institutions, mortgage and finance companies, and services and
collects such notes receivable through enforcement of terms of original note,
modification of original note terms and, if necessary, liquidation of the
underlying collateral. The mortgage-banking segment originates or purchases, sub
prime residential mortgage loans for individuals whose credit histories, income
and other factors cause them to be classified as nonconforming borrowers.

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

<TABLE>
<CAPTION>
                                                   Three Months Ended September 30,
                                                          2002           2001
<S>                                                   <C>            <C>
CONSOLIDATED REVENUE
  Portfolio asset acquisition and resolution          $10,495,429    $ 8,766,175
  Mortgage banking                                      1,725,073        778,771
                                                      -----------    -----------
 Consolidated Revenue                                 $12,220,502    $ 9,544,946
                                                      ===========    ===========

CONSOLIDATED NET INCOME
  Portfolio asset acquisition and resolution          $   993,209    $   886,723
  Mortgage banking                                        571,970         94,088
                                                      -----------    -----------
 Consolidated Net Income                              $ 1,565,179    $   980,811
                                                      ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                      Nine Months Ended Sept 30,
                                                          2002           2001
<S>                                                   <C>            <C>
CONSOLIDATED REVENUE
  Portfolio asset acquisition and resolution          $29,723,517    $25,353,546
  Mortgage banking                                      4,474,744      1,686,141
                                                      -----------    -----------
 Consolidated Revenue                                 $34,198,261    $27,039,687
                                                      ===========    ===========

CONSOLIDATED NET INCOME
  Portfolio asset acquisition and resolution          $ 3,783,317    $ 2,063,161
  Mortgage banking                                      1,606,311        153,628
                                                      -----------    -----------
 Consolidated Net Income                              $ 5,389,628    $ 2,216,789
                                                      ===========    ===========
</TABLE>

                                     Page 11

<PAGE>

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

GENERAL

         FORWARD-LOOKING STATEMENTS. This Quarterly Report on Form 10Q contains
"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, which are intended to be covered by the safe harbors created
thereby. When used in this report, press releases and elsewhere by the Company
from time to time, the words "believes", "anticipates", "plans", "estimates",
"objectives", "projections", "forecasts", "goals" and "expects" and similar
expressions are intended to identify forward-looking statements that involve
certain risks and uncertainties. Additionally, certain statements contained in
this discussion and the Form 10-Q may be deemed forward-looking statements that
involve a number of risks and uncertainties. Among the factors that could cause
actual results to differ materially are the following: unanticipated changes in
the U.S. economy, the rate of inflation, business conditions, interest rates,
the level of growth in the finance and housing markets, the availability for
purchase of additional loans and the quality of such additional loans, the
ability of the Senior Debt Lender to continue to provide additional debt
financing, the status of relations between the Company and its sources for loan
purchases, unanticipated difficulties in collections under loans in the
Company's portfolio, prepayments of notes in the Company's portfolio and other
risks detailed from time to time in the Company's SEC reports. While the Company
believes that it's assumptions are reasonable at the time forward looking
statement are made 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.

CRITICAL ACCOUNTING POLICIES

         The following management's discussion and analysis of financial
condition and results of operations is based on the amounts reported in the
Company's consolidated financial statements. These financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America. In preparing the financial statements, management is
required to make various judgments, estimates and assumptions that affect the
reported amounts. Changes in these estimates and assumptions could have a
material effect on the Company's financial statements. The following is a
summary of the Company's critical accounting policies that are most affected by
management judgments, estimates and assumptions:

         NOTES RECEIVABLE-The Company purchases real estate mortgage loans to be
held as long-term investments. Loan purchase discounts are established at the
acquisition date. Management must periodically evaluate each of the purchase
discounts to determine whether the projection of cash flows for purposes of
amortizing the purchase loan discount has changed significantly. Changes in the
projected payments are accounted for as a change in estimate and the periodic
amortization is prospectively adjusted over the remaining life of the loans.
Should projected payments not exceed the carrying value of the loan, the
periodic amortization is suspended and either the loan is written down or an
allowance for uncollectibility is recognized. The allowance for loan losses, a
material estimate which could change significantly in the near-term, is
initially established by an allocation of the purchase loan discount based on
the management's assessment of the portion of purchase discount that represents
uncollectable principal. Subsequently, increases to the allowance are made
through a provision for loan losses and charged to expense. Given the nature of
the Company's loan portfolio and the underlying real estate collateral
significant judgment is required in determining periodic amortization of
purchase discount, and allowance for loan losses. The allowance is maintained at
a level that management considers adequate to absorb potential losses in the
loan portfolio.

                                     Page 12

<PAGE>

         LOANS, OTHER REAL ESTATE OWNED AND ACQUISITIONS- During the nine months
ended September 30, 2002, the Company purchased loans with an aggregate face
value of $154.2 million for an aggregate purchase price of $134.1 million or
87%, compared with the purchase during the nine months ended September 30, 2001
of $146.8 million at an aggregate purchase price of $129.8 million or 88% of
aggregate face value. The purchases during the nine months ended September 30,
2002 included fifty-seven bulk (purchases over $1 million) portfolios consisting
primarily of first and second mortgages, with an aggregate face value of $116.6
million at an aggregate purchase price of $101.1 million or 87% of the face
value, and 149 flow (purchases under $1 million) purchase transactions
consisting primarily of first and second mortgages with an aggregate face value
of $37.6 million at an aggregate purchase price of $33 million or 88% of face
value. Acquisition of these portfolios was fully funded through Senior Debt in
the amount equal to the purchase price plus a 1% loan origination fee. The
Company believes these acquisitions will result in increases in the level of
interest income and purchase discount income during future periods. Payment
streams are generated once the loans are incorporated into the Company's loan
tracking system.

         Management intends to continue to expand the Company's earning asset
base through the acquisition of additional portfolios including performing, sub
performing, nonconforming and nonperforming first and second mortgages at a
positive interest rate spread based upon the Company's cost of funds. The
Company believes that its current infrastructure is adequate to service
additional loans without any material increases in collection, general and
administrative expenses excluding personnel expenses. There can be no assurance
the Company will be able to acquire any additional loans on favorable terms or
at all.

         SINGLE-FAMILY RESIDENTIAL LENDING- In January 1997, the Company formed
a wholly owned subsidiary, Tribeca Lending Corp. ("Tribeca"), to originate
primarily subprime residential mortgage loans made to individuals whose credit
histories, income and other factors cause them to be classified as
non-conforming borrowers. Management believes that lower credit quality
borrowers present an opportunity for the Company to earn superior returns for
the risks assumed. Tribeca provides first and second mortgages that are
originated on a retail basis through marketing efforts that include utilization
of the FCMC database. Tribeca is currently licensed as a mortgage banker in
Alabama, California, Colorado, Connecticut, District of Columbia, Florida,
Georgia, Kentucky, Illinois, Maryland, Massachusetts, Michigan, Missouri,
Mississippi, New York, New Jersey, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington State, and
West Virginia and is a Department of Housing and Urban Development FHA Title I
and Title II approved lender. Tribeca originated loans are typically expected to
be sold in the secondary market through whole-loan, servicing-released sales.

         During the nine months ended September 30, 2002, Tribeca originated 385
loans with an aggregate principal amount of $51.5 million compared to
origination of 265 loans with an aggregate principal of $25.6 million during the
nine months ended September 30, 2001. During the nine months ended September 30,
2002, Tribeca had net income of $1,606,311 as compared to $153,627 during the
nine months ended September 30, 2001. This increase in income reflected
increased loan originations and loan sales during the nine months ended
September 30, 2002, which generated additional fees and gain on sale income, as
compared to the nine months ended September 30, 2001.

         COST OF FUNDS- As of September 30, 2002, the Company had Senior Debt
outstanding under several loans with an aggregate principal balance of $376
million. Additionally the Company has financing agreements, which had an
outstanding balance of $8.9 million at September 30, 2002.

The majority of the loans purchased by the Company bear interest at a fixed
rate, while the Senior Debt incurred to acquire such loans bears interest at a
variable rate. Consequently, changes in market interest rate conditions have
caused direct corresponding changes in interest expense. On December 31, 2001,
the Company and its Senior Debt Lender agreed that the interest rate for Senior
Debt incurred would be based on the Federal Home Loan Bank of Cincinnati (FHLB)
30-day advance rate plus an additional spread of

                                     Page 13

<PAGE>

3.25%. Under the amendment approximately $58 million of Senior Debt will accrue
interest at a rate equal to the prime rate plus a margin of between 0% and
1.75%.

The Company believes that this new agreement has increased its competitiveness
in the acquisitions market thereby resulting in additional acquisition
opportunities. The weighted average interest rate on borrowed funds for the
Senior Debt based on the balances as of September 30, 2002 and December 31,
2001, was 5.31% and 5.35%, respectively.

         INFLATION. The impact of inflation on the Company's operations during
the nine months ending September 30, 2002, and 2001 was immaterial.

                                     Page 14

<PAGE>

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001.

         Total revenue, which is comprised of interest income, purchase discount
earned, gain on portfolio sale of notes receivable, gain on sale of notes
receivable originated, gain on sale of OREO, rental income and other income,
increased by $2,675,557 or 28%, to $12,220,502 during the three months ended
September 30, 2002, from $9,544,946 during the three months ended September 30,
2001.

         Interest income on notes receivable increased by $1,866,146 or 25%, to
$9,452,180 during the three months ended September 30, 2002 from $7,586,034
during the three months ended September 30, 2001. The Company recognizes
interest income on notes included in its portfolio based upon three factors: (i)
interest on performing notes, (ii) interest received with settlement payments on
non-performing notes and (iii) the balance of settlements in excess of the
carried face value. This increase resulted primarily from the growth in the size
of the Company's portfolio through acquisition of $142 million in performing
notes between October 2001 and September 2002, which was only partially offset
by collections, prepayments, and loan sales.

         Purchase discount earned decreased by $125,041 or 12%, to $882,458
during the three months ended September 30, 2002, from $1,007,499 during the
three months ended September 30, 2001. This decrease reflected reserve increases
in certain portfolios that would ordinarily earn discount during the quarter.

         Gain on sale of portfolios increased to $114,019 during the three
months ended September 30, 2002 as compared to $69,839 realized during the three
months ended September 30, 2001. The Company sold three low interest rate
performing loans during the three months ending September 30, 2002 as compared
to a bulk sale of nonperforming loans during the three months ended September
30, 2001.

         Gain on sale of loans originated increased by $512,506 or 290% to
$689,432 during the three months ended September 30, 2002, from $176,926 during
the three months ended September 30, 2001. This increase reflected the sale of
$10 million in loans during the three months ended September 30, 2002, compared
to $4 million in loans during the three months ended September 30, 2001.

         Gain on sale of OREO decreased by $1,157 to $271,931 during the three
months ended September 30, 2002 from $273,088 during the three months ended
September 30, 2001. The Company sold 33 and 32 OREO properties during the three
months ended September 30, 2002 and September 30, 2001, respectively.

         Rental income decreased by $27,879 or 38% to $44,959 during the three
months ended September 30, 2002, from $72,838 during the three months ended
September 30, 2001. Rental income decreased due to the sale of rental properties
between October 2001 and July 2002. The Company had 12 and 30 rental properties
during the three months ended September 30, 2002 and September 30, 2001,
respectively.

         Other income increased by $406,801 or 113%, to $765,523 during the
three months ended September 30, 2002 from $358,722 during the three months
ended September 30, 2001. This increase reflected increases in prepayment
penalty income due to an increase in prepayments during the three months ended
September 30, 2002 as compared to the three months ended September 30, 2001.

         Total operating expenses increased by $810,586 or 9% to $9,374,721
during the three months ended September 30, 2002 from $8,564,135 during the
three months ended September 30, 2001. Total operating expenses includes
interest expense, collection, general and administrative expenses, provisions
for loan losses, amortization of deferred financing costs and depreciation
expense.

                                     Page 15

<PAGE>

         Interest expense decreased by $260,799 or 5%, to $4,966,438 during the
three months ended September 30, 2002, from $5,227,237 during the three months
ended September 30, 2001. This decrease resulted primarily from a 21% decrease
in costs of funds, which was partially offset by a 20% increase in debt as
compared to September 30, 2001. The weighted average cost of funds was 5.31% and
6.72% during the three months ended September 30, 2002 and September 30, 2001.
Total debt increased by $63 million or 20%, to $376 million as of September 30,
2002, from $314 million as of September 30, 2001. Total debt consists
principally of Senior Debt, and financing agreements.

         Collection, general and administrative expenses increased by $632,508
or 24% to $3,279,258 during the three months ended September 30, 2002 from
$2,646,750 during the three months ended September 30, 2001, as compared to a
25% increase in our loan portfolio ended September 30, 2001. Collection, general
and administrative expense consists primarily of personnel expenses, and all
other collection expenses including OREO related expense, litigation expense,
and miscellaneous collection expense.

           Personnel expenses increased by $160,403 or 12% to $1,490,742 during
the three months ended September 30, 2002 from $1,330,339 during the three
months ended September 30,2001. This increase resulted largely from increases in
staffing in Tribeca and bonus accruals. All other collection expenses increased
by $472,106 or 36% to $1,788,516 during the three months ended September 30,
2002 from $1,316,410 during the three months ended September 30, 2001. This
increase resulted primarily from increased legal fees due to the growth in the
portfolio, additional rent associated with new office space and related office
expenses, which were only partially offset by decreases in OREO expenses.

         Provisions for loan losses increased by $309,603 or 75% to $723,603
during the three months ended September 30, 2002 from $414,000 during the three
months ended September 30, 2001. This increase resulted primarily from higher
than anticipated write-offs in portfolios where there was no longer purchase
discount available to increase reserves.

         Amortization of deferred financing costs increased by $107,301 or 52%
to $313,280 during the three months ended September 30, 2002, from $205,979
during the three months ended September 30, 2001. This increase resulted
primarily from an increase in collections and prepayments on notes receivable
and the corresponding pay down on senior debt which caused an acceleration in
amortization of deferred financing costs during the three months ended September
30, 2002 as compared to the three months ended September 30, 2001.

         Depreciation expense increased by $21,974 or 31%, to $92,143 during the
three months ended September 30, 2002, from $70,169 during the three months
ended September 30, 2001. This increase resulted from investments in computer
equipment, furniture, and the renovations of office space.

         Operating income increased by $1,864,970 or 190% to $2,845,781 during
the three months ended September 30, 2002 from $980,811 during the three months
ended September 30, 2001.

         During the three months ended September 30, 2002 the Company made a
provision for income taxes of $ 1,280,601. There was no provision for income tax
during the three months ended September 30, 2001, due to loss carry-forwards,
which have been exhausted.

         Net income increased by $584,368 or 59% to $1,565,179 during the three
months ended September 30, 2002 from $980,811 during the three months ended
September 30, 2001.

                                     Page 16

<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2001.

         Total revenue, increased by $7,158,574 or 26%, to $34,198,261 during
the nine months ended September 30, 2002, from $27,039,687 during the nine
months ended September 30, 2001.

         Interest income on notes receivable increased by $6,805,218 or 33%, to
$27,125,332 during the nine months ended September 30, 2002 from $20,320,114
during the nine months ended September 30, 2001. The Company recognizes interest
income on notes included in its portfolio based upon three factors: (i) interest
on performing notes, (ii) interest received with settlement payments on
non-performing notes and (iii) the balance of settlements in excess of the
carried face value. This increase resulted primarily from the growth in the size
of the Company's portfolio through acquisition of $142 million in performing
notes between October 2001 and September 2002, which was only partially offset
by collections, prepayments, and loan sales.

         Purchase discount earned decreased by $377,415or 13%, to $2,601,163
during the nine months ended September 30, 2002 from $2,978,578 during the nine
months ended September 30, 2001. This decrease reflected the write-off of
various loans during the nine months ended September 30, 2002 in portfolios that
would ordinarily earn discount income.

         Gain on sale of portfolios decreased by $765,108, to $114,019 or 88%
during the nine months ended September 30, 2002, from $948,966 during the nine
months ended 2001. The Company sold $1 million of low-coupon performing loans
during the nine months ending September 30, 2002 as compared to $20 million in
performing and nonperforming loans during the nine months ending September 30,
2001.

         Gain on sale of loans originated increased by $1,194,600 or 305% to
$1,586,017 during the nine months ended September 30, 2002 from $391,417 during
the nine months ended September 30, 2001. This increase reflected the sale of
$25 million in loans during the nine months ended September 30, 2002, compared
to the sale of $10 million in loans during the nine months ended September 30,
2001.

         Gain on sale of OREO decreased by $449,393 or 40% to $670,306 during
the nine months ended September 30, 2002, from $1,119,699 during the nine months
ended September 30, 2001. These decreases reflected the decrease in the number
of OREO properties sold. The Company sold 70 OREO properties during the nine
months ended September 30, 2002, as compared with 113 OREO properties during the
nine months ended September 30, 2001.

          Rental income decreased by $138,720 or 51% to $130,885 during the nine
months ended September 30, 2002, from $269,605 during the nine months ended
September 30, 2001. This decrease reflected a decrease in the number of rental
properties during the nine months ended September 30, 2002 as compared to the
nine months ended September 30, 2001. The Company had 12 and 30 rental
properties during the nine months ended September 30, 2002 and September 30,
2001 respectively.

         Other income increased by $959,231 or 95%, to $1,970,539 during the
nine months ended September 30, 2002 from $1,011,308 during the nine months
ended September 30, 2001. This increase reflected increases in prepayment
penalties due to an increase in prepayments due to favorable refinancing
conditions, and late charges, resulting from the increase in size of the
Company's portfolio and loan fees associated with the sale of originated loans.

         Total operating expenses, exclusive of the special recovery transaction
in 2002 for $1,662,598, increased by $1,158,982 or 5%, to $25,981,880 during the
nine months ended September 30, 2002, from $24,822,898 during the nine months
ended September 30, 2001.

         Interest expense decreased by $1,292,601 or 8%, to $14,056,770 during
the nine months ended September 30, 2002, from $15,349,371 during the nine
months ended September 30, 2001. This decrease

                                     Page 17

<PAGE>

resulted primarily from a 21% decrease in costs of funds, which was partially
offset by a 20% increase in debt as compared to September 30, 2001. The
weighted average costs of funds were 5.31% and 6.72% during the nine months
ended September 30, 2002 and September 30, 2001. Total debt increased by $62
million or 23%, to $376 million as of September 30, 2002 from $314 million as of
September 30, 2001.

         Collection, general and administrative expenses increased by $1,356,334
or 18%, to $8,894,753 during the nine months ended September 30, 2002, from
$7,538,419 during the nine months ended September 30, 2001 while the portfolio
increased 25%.

         During 2002, the Company received a $1,662,598 cash settlement
representing a one-time recovery of a special charge recorded during 1997 to
reserve for a portfolio purchase of $1.8 million.

         Personnel expenses increased by $801,846 or 21%, to $4,662,929 during
the nine months ended September 30, 2002, from $3,861,083 during the nine months
ended September 30, 2001. This increase resulted largely from increases in
staffing in Tribeca and bonus accruals during the nine months ended September
30, 2002. All other collection expenses increased by $554,489 or 15% to
$4,231,824 during the nine months ended September 30, 2002 from $3,677,335
during the nine months ended September 30, 2001. This increase resulted
primarily from increased legal fees due to the growth in the portfolio,
additional rent associated with new office space and related office expenses,
which were only partially offset by decreases in OREO expenses.

         Provisions for loan losses increased by $715,404 or 65% to $1,819,367
during the nine months ended September 30, 2002, from $1,103,963 during the nine
months ended September 30, 2001. This increase resulted primarily from higher
than anticipated write-offs in portfolios where there is no longer purchase
discount available to increase reserves.

         Amortization of deferred financing costs increased by $284,330 or 42%,
to $957,203 during the nine months ended September 30, 2002, from $672,873
during the nine months ended September 30, 2001. This increase resulted
primarily from an increase in collections and prepayments on notes receivable
and the corresponding pay down on senior debt, which caused acceleration in
amortization of deferred financing costs during the nine months ended September
30, 2002 as compared to the nine months, ended September 30, 2001.

         Depreciation expense increased by $95,515 or 60%, to $253,787 during
nine months ended September 30, 2002, from $158,272 during the nine months ended
September 30,2001. This increase resulted from investments in computer
equipment, furniture, and the renovations of office space.

         Operating income increased by $7,662,190 or 346% to $9,878,979 during
the nine months ended September 30, 2002, from $2,216,789 during the nine months
ended September 30, 2001.

         During the nine months ended September 30, 2002 the Company made a
provision for income taxes of $4,489,351. There was no provision for income tax
during the nine months ended September 30, 2001, due to loss carry-forwards,
which have been exhausted.

         Net income increased by $3,172,839 or 143% to $5,389,628 during the
nine months ended September 30, 2002, from $2,216,789 during the nine months
ended September 30, 2001.

                                     Page 18

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

          GENERAL. During the nine months ended September 30, 2002, the Company
purchased 3,120 loans in several portfolios with an aggregate face value of
$154.2 million at an aggregate purchase price of $134 million or 87% of face
value. During the nine months ended September 30, 2001, the Company purchased
2,961 loans in several portfolios with an aggregate face value of $146.8 million
at an aggregate purchase price of $129.8 million or 88% of aggregate face value.

         The Company's portfolio of notes receivable at September 30, 2002 had a
face value of $389 million and included net notes receivable of approximately
$326 as compared with a face value of $332 million and net notes receivable of
approximately $276 million as of December 31, 2001. Net notes receivable are
stated at the amount of unpaid principal, net of purchase discount and allowance
for loan losses. The Company has the ability to hold its notes until maturity,
payoff, liquidation of collateral or, where deemed to be economically
advantageous, sale.

         During the nine months ended September 30, 2002, the Company used cash
in the amount of $11.6 million in its operating activities primarily for the
originations of loans, interest expense, and increased infrastructure in the
Company's core business, litigation expense incidental to its ordinary
collection activities and for the foreclosure and improvement of OREO. The
Company used $52.7 million in its investing activities, primarily reflecting
purchases of notes receivable which purchases were offset by principal
collections upon its notes receivable and proceeds from sales of loans and OREO.
The amount of cash used in operating and investing activities was funded by
$63.2 million of net cash provided by financing activities, including primarily,
a net increase in Senior Debt of $62 million. The above activities resulted in a
net decrease in cash at September 30, 2002 over December 31, 2001 of $1.1
million.

         In the ordinary course of its business, the Company accelerates and
forecloses upon real estate securing non-performing notes receivable included in
its portfolio. As a result of such foreclosures and selective direct purchases
of OREO, at September 30, 2002 and 2001, the Company held OREO recorded on the
financial statements at $5.6 million and $3.8 million, respectively. OREO is
recorded on the financial statements of the Company at the lower of cost or fair
market value less cost to sell.

          The Company estimates, based on third party appraisals and broker
price opinions, that the OREO inventory held at September 30, 2002, in the
aggregate, had a net realizable value (market value less estimated commissions
and legal expenses associated with the disposition of the asset) of
approximately $6.1 million. There can be no assurance, however, that such
estimate is substantially correct or that an amount approximating such amount
would actually be realized upon liquidation of such OREO. The Company generally
holds OREO as rental property or sells such OREO in the ordinary course of
business when it is economically beneficial to do so.

CASH FLOW

         Substantially all of the assets of the Company are invested in its
portfolios of notes receivable and OREO. Primary sources of the Company's cash
flow for operating and investing activities are borrowings under its senior debt
facilities, collections on notes receivable and gain on sale of notes and OREO
properties.

         At September 30, 2002, the Company had unrestricted cash and cash
equivalents of $6.7 million.

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

                                     Page 19

<PAGE>

FINANCING ACTIVITIES

         SENIOR DEBT. As of September 30, 2002, the Company owed an aggregate
of $376 million to the Lender of Senior Debt, under several loans.

The Senior Debt is collateralized by first liens on the respective loan
portfolios for the purchase of which the debt was incurred and is guaranteed by
the Company. The monthly payments on the Senior Debt have been, and the Company
intends for such payments to continue to be, met by the collections from the
respective loan portfolios. The loan agreements for the Senior Debt call for
minimum interest and principal payments each month and accelerated payments
based upon the collection of the notes receivable securing the debt during the
preceding month. The Senior Debt accrues interest based on the Federal Home Loan
Bank of Cincinnati (FHLB) 30-day advance rate plus an additional spread of
3.25%. Approximately $58 million of Senior Debt will accrue interest at a rate
equal to the prime rate plus a margin of between 0% and 1.75%. The accelerated
payment provisions are generally of two types: the first requires that all
collections from notes receivable, other than a fixed monthly allowance for
servicing operations, be applied to reduce the Senior Debt, and the second
requires a weekly additional principal payment from cash collections. As a
result of the accelerated payment provisions, the Company is repaying the
amounts due on the Senior Debt at a rate faster than the contractual scheduled
payments. While the Senior Debt remains outstanding, these accelerated payment
provisions may limit the cash flow that is available to the Company.

In December 2001, the Company negotiated with its Senior Debt Lender a
modification to provisions of the Senior Debt, pursuant to which the Senior Debt
Lender has provided the Company with a cash advance of $1,345,000 per month for
the year 2002. Management believes that this modification may reduce irregular
periods of cash flow shortages arising from operations. Management believes that
sufficient cash flow from the collection of notes receivable will be available
to repay the Company's secured obligations and that sufficient additional cash
flows will exist, through collections of notes receivable, the bulk sale of
performing loan portfolios, sales and rental of OREO, continued modifications to
the secured debt credit agreements or additional borrowing, to repay the current
liabilities arising from operations and to repay the long term indebtedness of
the Company.

Certain Senior Debt credit agreements required establishment of restricted cash
accounts, funded by an initial deposit at the loan closing and additional
deposits based upon monthly collections up to a specified dollar limit. The
Company is no longer required to maintain these restricted accounts but has
continued to under the prior agreement. The Company typically uses these funds
to place deposits on loan portfolio bids and to refinance loans in the Company's
own portfolio. The restricted cash is maintained in an interest bearing account,
with the Company's Senior Debt Lender. The aggregate balance of restricted cash
in such accounts was $674,199 on September 30, 2002 and $541,443 on December 31,
2001. The increase in restricted cash at September 30, 2002 was due to the
reimbursement of funds from loans closed which funds are returned to the
restricted account once payoff has taken place.

         Total Senior Debt availability was approximately $500 million at
September 30, 2002, of which approximately $376 million had been drawn down as
of such date. As a result, the Company has approximately $124 million available
to purchase additional portfolios of notes receivable and OREO.

           The Company's Senior Debt Lender has provided Tribeca with a
warehouse financing agreement of $15 million. This Senior Debt accrues interest
based on prime plus an additional spread of 3.25%. At September 30, 2002,
Tribeca had drawn down $ 7.7 million on the line. The Company successfully
negotiated with its current warehouse facility provider to increase the amount
available on the line from $7 million to $15 million. The Company is still
actively seeking other sources of financing for Tribeca.

                                     Page 20

<PAGE>

FINANCING AGREEMENTS. The Company has a financing agreement with the Senior Debt
Lender permitting it to borrow a maximum of approximately $1,500,000 at a rate
equal to such lender's prime rate plus two percent per annum. Principal
repayment of the cash advance is due nine months from the date of the advance
and interest is payable monthly. The total amounts outstanding under the
financing agreements as of September 30, 2002 and December 31, 2001, were
$791,917 and $647,791, respectively. Advances made under the financing agreement
were used to satisfy senior lien positions and fund capital improvements in
connection with foreclosures of certain real estate loans financed by the
Company. Management believes the ultimate sale of these properties will satisfy
the related outstanding financing agreements and accrued interest, as well as
surpass the collectible value of the original secured notes receivable.
Management has reached an agreement in principal with its Senior Debt Lender to
increase the availability under this credit facility to cover additional
properties foreclosed upon by the Company, which the Company may choose to hold
as rental property to maximize its return. The Company uses when available OREO
sales proceeds to pay down financing agreements to help reduce interest expense

         Additionally, the Company has a financing agreement with Citibank. The
agreement provides the Company with the ability to borrow a maximum of $150,000
at a rate equal to the bank's prime rate plus one percent per annum. As of
September 30, 2002 and December 31, 2001 $112,408 and $118,239 respectively,
were outstanding on the financing agreement.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Movement in interest rates can pose a major risk to the Company. When interest
rates increase the spread between notes receivable and notes payable decreases
which will result in a decrease in net income. The Company does not currently
hedge this risk.

The Company has $376 million notes payable with a weighted average rate cost of
funds of 5.31%, if interest rates increased 1% or 100 basis points the interest
expense would be $19.9 million versus $19.3 million for the year.

ITEM 4.
CONTROLS AND PROCEDURES

Within the 90-day period to the filing date of this Quarterly Report on Form
10-Q, the Company's Chief Executive Officer and Chief Financial Officer
evaluated the Company's disclosure controls and procedures and judged such
controls and procedures to be adequate and effective.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of that evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                     Page 21

<PAGE>

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         As previously disclosed in the June 2002 10Q, the Company and NJK
entered into a settlement agreement pursuant to which the parties agreed to the
respective lien priorities to the disputed funds and all remaining claims among
the parties were dismissed, with prejudice.

ITEM 2. CHANGES IN SECURITIES

         None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None

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

ITEM 5. OTHER INFORMATION

     During the quarterly period covered by this filing, the Audit committee of
the Board of Directors of the Company approved the engagement of Deloitte and
Touche LLP, the Company's external auditor, for tax related services. These
services are not in connection with Deloitte and Touche audit or review of the
Company's financial statements.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
          None

(a)                                  EXHIBIT TABLE

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

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

       10(i)         Promissory Note between Thomas J. Axon and the Company
                     dated December 31, 1998. Filed with the Commission on
                     December 31,1998. Previously filed with, and incorporated
                     herein by reference to, the Company's Form 10KSB, filed
                     with the Commission on April 16, 1999.

       10(j)         Promissory Note between Steve Leftkowitz, board member, and
                     the Company dated March 31, 1999. Filed with the Commission
                     with form 10KSB on March 30, 2000.

       10(l)         Employment Agreement dated July 17, 2000 between the
                     Company and Seth Cohen. Filed with the Commission with form
                     10KSB on March 31, 2001.

       99-1          Certification from the Chief Executive Officer pursuant to
                     section 906 of the Sarbanes Oxley Act of 2002.

       99-2          Certifications from the Chief Financial Officer pursuant to
                     section 906 of the Sarbanes Oxley Act of 2002.

                                     Page 22

<PAGE>

                                   SIGNATURES

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

November 13, 2002

                           FRANKLIN CREDIT MANAGEMENT
                                   CORPORATION

                                      By:   THOMAS J. AXON
                                         -----------------
                                            Thomas J. Axon
                                            Chairman of the Board

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

Signature                       Title                          Date

SETH COHEN                      Chief Executive Officer        November 13, 2002
-------------                   and Director
Seth Cohen
(Principal executive officer)

JOSEPH CAIAZZO                  Senior Vice President, Chief   November 13, 2002
-------------                   Operating Officer, Secretary
Joseph Caiazzo                  and Director
(Secretary)

ALAN JOSEPH                     Chief Financial Officer,       November 13, 2002
-------------                   Director
Alan Joseph
Principal financial officer

                                     Page 23

<PAGE>

                                  CERTIFICATION

I, Seth Cohen, Chief Executive Officer, certify that:

1)   I have reviewed this quarterly report on Form 10-Q of Franklin Credit
     Management corporation;

2)   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3)   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4)   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

             (a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

             (b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

             (c)  presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5)   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

             (a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             (b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6)   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

November 13, 2002

/s/ Seth Cohen
-----------------
Seth Cohen,
Chief Executive Officer

                                    Page 24

<PAGE>

CERTIFICATION

I, Alan Joseph, Chief Financial Officer, certify that:

1)   I have reviewed this quarterly report on Form 10-Q of Franklin Credit
     Management Corporation;

2)   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3)   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4)   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

             (a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

             (b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

             (c)  presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5)   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

             (a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             (b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6)   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

November 13, 2002

/s/ Alan Joseph
---------------
Alan Joseph,
Chief Financial Officer

                                    Page 25