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

                                  FORM 10-QSB 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
                            EXCHANGE ACT OF 1934  
            For the quarterly period ended March 31, 1997 

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

                     Commission file number 0-17771  

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

            Delaware                                       75-2243266     
 (State or other jurisdiction
of incorporation or organization)          (I.R.S. Employer 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) 
          
   Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months 
(or for such shorter period that the registrant was required to file such 
reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  X   No     

As of May 15, 197, 1,103,483 shares of the issuer's Common Stock, par value
$.01 per share were outstanding.


<PAGE>
                    FRANKLIN CREDIT MANAGEMENT CORPORATION 


                                 FORM 10-QSB 

                               MARCH 31, 1997 


                               C O N T E N T S 


PART I.               FINANCIAL INFORMATION                              Page 

Item 1. Financial Statements 

   Consolidated Balance Sheets March 31, 1996 (unaudited) 
      and December 31, 1996                                                3

   Consolidated Statements of Income (unaudited) for the  
      three months ended March 31, 1997 and 1996                           4

   Consolidated Statement of Cash Flows (unaudited) for the
      three months ended March 31, 1997 and 1996                           5

   Consolidated Statements of Stockholders' Equity                         6

   Notes to Consolidated Financial Statements                             7-12 
         
Item 2. Management's Discussion and Analysis of Financial Condition  
              and Results of Operations                                  13-19 



PART II.                     OTHER INFORMATION 

Item 1. Legal Proceedings                                                 20

Item 2. Changes in Securities                                             20

Item 3. Defaults Upon Senior Securities                                   20

Item 4. Submission of Matters to a vote of Security-Holders               20

Item 5. Other Information                                                 20

Item 6. Exhibits and Reports on Form 8-K                                  20

SIGNATURES                                                                21







                                      Page 2 
<PAGE>
Item 1.  Financial Statements

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
<S>                                             <C>                    <C>
                                             31-Mar-97              31-Dec-96
ASSETS                                       (unaudited)             (audited)
-------------------------------------------------------------------------------            -----------------
Cash                                        $  3,164,721           $  1,967,964
Restricted cash                                  706,767                828,845

Notes Receivable:
    Principal amount                         113,576,198            113,610,782
    Joint venture participations                (354,809)              (360,395)
    Purchase discount                        (16,917,055)           (18,160,403)
    Allowance for loan losses                (23,082,598)           (23,604,810)
                                             -----------            -----------
       Net notes receivable                   73,221,736             71,485,174

Accrued interest receivable                      857,836              1,132,370
Other real estate owned                        6,325,978              4,737,085
Other receivables                                400,471                421,392
Other assets                                     683,936                704,695
Building, furniture & fixtures, net              630,938                640,749
Deferred financing costs                       1,310,936              1,358,874
                                             -----------            -----------
                                             $87,303,318            $83,277,148
                                             ===========            ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------

Liabilities:
    Accounts payable and accrued
       expenses                             $  2,017,733          $   1,874,267
    Lines of credit                              873,079                583,916
    Notes payable                             77,716,367             73,538,865
    Subordinated debentures                    1,039,687              1,025,000
    Notes payable, affiliates and 
       stockholders                              245,839                373,218
    Deferred income taxes                      1,495,008              1,778,862
                                              ----------            -----------
          Total liabilities                   83,387,714             79,174,128

Commitments and contingencies

Stockholder's Equity:
    Common Stock, $.01 par value,
      10,000,000 authorized shares,
      issued and outstanding 1997 and 1996:
        1,102,077                                 11,022                 11,022
    Additional paid-in capital                 6,534,113              6,534,113
    Accumulated deficit                       (2,629,532)            (2,442,115)
                                             -----------            -----------
      Total stockholders' equity               3,915,603              4,103,020
      Total liabilities and                  -----------            -----------
          stockholders' equity               $87,303,318            $83,277,148
                                             ===========            ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                        Page 3
<PAGE>
Item 1.  Financial Statements

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Period ended March 31, 1997 and 1996
<S>                                            <C>                   <C> 
                                                   Three Months Ended
                                             31-Mar-97            31-Mar-96
                                            (unaudited)          (unaudited)
--------------------------------------------------------------------------------
Revenue:
  Interest income                           $1,275,264            $1,808,679
  Purchase discount earned                   1,583,225             1,303,367
  Gain on sale of other real
     estate owned                               34,268                  -
  Other                                         68,396                76,697
                                            ----------            ----------
                                             2,961,152             3,188,743
                                            ----------            ----------
Operating expenses:
    Interest Expense                         1,955,355             1,891,120
     Collection, general 
     and administrative                        994,876               854,390
    Provision for loan losses                   96,012               206,726
    banking service fees                        31,395               216,317
    Amortization of deferred
      financing costs                           55,259                98,928
    Depreciation                                15,672                15,796
                                            ----------            ----------
                                             3,148,569             3,283,277
                                            ----------            ----------
       Operating loss                         (187,417)              (94,534)
                                            ----------            ----------
    Provision for income taxes                    -                     -
                                            ----------            ----------
       Net loss                             $ (187,417)           $  (94,534)
                                            ==========            ==========  


Earnings per common share:

    Net loss                                $    (0.16)           $    (0.08)
                                            ----------            ----------
Weighted average number of shares
      outstanding                            1,164,706             1,128,294
                                            ==========             =========  
</TABLE>

See Notes to Consolidated Financial Statements.

                                   Page 4
<PAGE>

Item 1.  Financial Statements

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Three Months ended March 31, 1997 and 1996
<S>                                                   <C>              <C>
                                                   31-Mar-97       31-Mar-96
                                                  (unaudited)     (unaudited)
--------------------------------------------------------------------------------
Cash Flows From Operating Activities
  Net loss                                       $   (187,417)    $   (94,534)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation, depletion, amortization              70,931         114,724
    Purchase discount earned                        (1,583,225)    (1,303,367)
    Provision for loan losses                           96,012        206,726
    Changes in assets and liabilities:
      (Increase) decrease in:
         Accrued interest receivable                   274,535         21,699
         Accounts receivable                            28,422     (1,165,624)
         Inventory repossessions                    (1,502,595)    (1,532,550)
         Other assets                                    8,427         40,707
      Increase (decrease) in:
         Accounts payable and accrued expenses         221,871        713,455
         Due to affiliates                             (80,548)       (74,500)
                                                   ------------    -----------
           Net cash used in operating activities    (2,653,586)    (3,073,264)

Cash Flows From Investing Activities
  Purchase of property and equipment                    (5,861)        30,794
  Purchase of notes receivable                      (5,813,924)          -
  Principal collections on notes receivable          5,207,348      8,145,629
  Joint venture participation                          (12,928)       (63,859)
  Acquisition fees paid                                (66,206)          -
  (Increase) in restricted cash                        122,079        (11,122)
                                                  ------------    -----------
          Net cash used in investing activities       (569,492)     8,101,442
Cash Flows From Financing Activities
  Payments on debenture notes payable                     -           (58,750)
  Proceeds from lines of credit                        362,298        235,733
  Payments on lines of credit                          (73,135)      (858,086)
  Proceeds from long-term debt                       7,813,050           -
  Principal payments of long-term debt              (3,682,379)     (2,730,966)
                                                  ------------     -----------
       Net cash provided by financing activities     4,419,834      (3,412,069)
                                                  ------------     -----------
          Net increase in cash                       1,196,756       1,616,109

Cash:
   Beginning                                         1,967,965       1,335,800
                                                  ------------     -----------
   Ending                                          $ 3,164,721     $ 2,951,909
                                                  ============     ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                   Page 5

<PAGE>
Item 1. Financial Statements

FRANKLIN CREDIT MANAGEMENT CORPORATION AND AFFILIATES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<S>                       <C>       <C>       <C>         <C>         <C>
                           Common Stock    Additional   Retained
                        ------------------   Paid-In    Earnings
                        Shares     Amount    Capital    (Deficit)     Total
-------------------------------------------------------------------------------
Balance, 
   December 31, 1995   5,503,896  $55,040  $6,470,952  $(3,271,268) $3,254,724
  Conversion of 
     warrants             10,225      102      20,348         -         20,450

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

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

  Net loss                                                (187,417)   (187,417)

                      ---------------------------------------------------------
Balance, 
   March 31, 1997      1,514,151  $11,022  $6,534,113  $(2,629,532) $3,915,603
                            ===================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       Page 6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Note 1. Nature of Business and Significant Accounting Policies 

Significant Accounting Policies 

The accounting policies followed by the Company are set forth in Note 1 to the 
Company's financial statements included in its Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996. 

Nature of business 

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

Basis of financial statement presentation 

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

Basis of consolidation 

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiaries  controlled by the Company.  By terms outlined in
the various agreements that are in effect, the Company is specifically  afforded
full power and  authority  on behalf of its  subsidiaries  to  manage,  control,
administer  and  operate  the  business  and  affairs of the  subsidiaries.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Statement of Cash Flows 

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

                                   Page 7 
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Notes Receivable and Income Recognition 

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

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

On January 1, 1995,  the  Company  adopted  Statement  of  Financial  Accounting
Standards  No. 114,  "Accounting  by  Creditors  for  Impairment  of a Loan," as
amended by Statement No. 118,  "Accounting by Creditors for Impairment of a Loan
- Income  Recognition and Disclosures." The effect of adopting Statement 114 was
not significant to the operations of the Company based on the composition of the
notes  receivable  portfolio  and because the method  utilized by the Company to
measure  impairment of notes  receivable  prior to the adoption of Statement No.
114 was  essentially  equivalent to the method  prescribed by Statement No. 114.
Impaired notes are measured  based on the present value of expected  future cash
flows  dcounted  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 secured.  A note  receivable is impaired
when it is  probable  the  Company  will be unable to  collect  all  contractual
principal  and interest  payments due in  accordance  with the terms of the note
agreement. Approximately 17% of the Company's note receivable portfolio consists
of  smaller  balance,   homogeneous  notes  receivable  which  are  collectively
evaluated for impairment and  approximately 83% consists of larger balance notes
receivable  secured  by  real  estate  which  are  individually   evaluated  for
impairment.

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

Accrual of interest on notes receivable, including impaired notes receivable, is
discontinued when management  believes,  after considering economic and business
conditions and collection  efforts,  that the borrowers'  financial condition is
such  that  collection  of  interest  is  doubtful.  When  interest  accrual  is
discontinued, all unpaid accrued interest is reversed. Subsequent recognition of
income  occurs only to the extent  payment is received  subject to  management's
assessment of the  collectibility  of the remaining  interest and  principal.  A
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.

Loan purchase discount is amortized to income using the interest method over the
period to  maturity.  The  interest  method  recognizes  income by applying  the
effective  yield on the net  investment in the loans to the projected cash flows
of the loans.  Discounts are amortized if the projected payments are probable of
collection  and the timing of such  collections  is  reasonably  estimable.  The
projection of cash flows for purposes of amortizing  purchase loan discount is a
material estimate which could change  significantly in the near term. Changes in
the  projected  payments  are  accounted  for as a change  in  estimate  and the
periodic amortization is prospectively adjusted over the remaining life of the 

                                   Page 8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

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 uncollectability is recognized.

Allowance for loan losses 

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

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

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

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

Other real estate owned 

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

                                   Page 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Building, property and equipment 

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

Deferred financing costs 

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

Mortgage servicing rights 

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

Pension plan 

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

Income taxes 

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

                                   Page 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Earnings per common share 

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

Fair value of financial instruments 

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

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

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

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

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

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


                                        Page 11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Recent accounting pronouncement 

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



                                     Page 12
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations. 

General 

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

      Loan Acquisitions.  During the three months ended March 31, 1997 
("1st  Quarter  1997")  bids  submitted  by the  Company  to  acquire  six  loan
portfolios  in an  aggregate  principal  amount of  $19,471,285,  at an  average
acquisition  price of  approximately  64% of  aggregate  principal  amount  were
accepted.  Purchases  of three of the six  portfolios,  or  $7,359,655  of notes
receivable  for an aggregate  purchase  price of  $5,851,515,  were  consummated
during 1st  Quarter  1997.  Purchases  of the  remaining  three  portfolios,  or
$12,111,630 of notes  receivable for an aggregate  purchase price of $6,564,806,
were consummated during April 1997. During the three months ended March 31, 1996
("1st  Quarter  1996")  the  Company  did  not  acquire  any  loan   portfolios.
Acquisition of the six portfolios was funded through term debt facilities from a
financial  institution (the "Senior Debt") of approximately  $12,700,000.  Total
Senior Debt funding capacity was  approximately  $100,000,000 at March 31, 1997,
of which approximately $77,300,000 had been drawn down as of such date.

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

     In the ordinary course of business, the Company acquires properties either
from portfolio acquisitions or via foreclosures.  Such properties are classified
as OREO  and are  evaluated  regularly  to  ensure  that  recorded  amounts  are
supported by current fair market values.
 
     Management intends to continue to expand the Company's earning asset base
through the  acquisition  of  additional  portfolios  including  performing  and
non-performing  real estate secured loans. The Company believes that its current
infrastructure  is adequate to service  additional  loans  without any  material
increases  in expenses.  There can be no  assurance  the Company will be able to
acquire any  additional  loans or that it may do so on  favorable  terms.  While
management  believes that the acquisition of additional loan portfolios would be
beneficial,  management  does  not  believe  that  current  operations  would be
materially impacted if additional loan portfolios were not acquired during 1997.

                                   Page 13
<PAGE>
     Cost of Funds.  The Company's cost of funds on Senior Debt during 1st 
Quarter 1997 decreased as compared with previous periods.  As of March 31, 1997,
the Company had twenty five loans outstanding with a financial  institution with
an aggregate principal balance of approximately  $77,300,000.  References herein
to the  Company's  Senior  Debt  lender or  lending  arrangements  refer to such
continuing lender or such continuing lender's lending  arrangements.  The Senior
Debt accrues interest at a variable rate based upon prime rate.

     The majority of the loans purchased by the Company bear interest at a 
fixed  rate;  consequently,  there is little  corresponding  change in  interest
income due to changes in market interest rate  conditions.  The weighted average
interest rate on borrowed funds for the Senior Debt  decreased to  approximately
10.07% in 1st Quarter 1997 from 10.53% in 1st Quarter 1996.  Management believes
that any  future  decreases  in the prime  rate will  positively  impact the net
income of the Company while increases may be expected to negatively  impact such
net income.

     The Company has renegotiated its interest rates with its Senior Debt lender
effective  February  28,  1997.  Pursuant  to the new  arrangement,  Senior Debt
incurred to finance  portfolio  acquisitions  after December 31, 1996, will bear
interest at the prime rate. Additionally, the Senior Debt lender agreed in March
1997 to a  reduction  in  interest  rate of .375% to prime plus 1.75% from prime
plus 2.125% on all Senior Debt outstanding as of December 31, 1996.

     During 1st Quarter 1997 and 1st Quarter 1996 the Company also incurred  
additional financing costs in the form of service fees and loan commitment fees.
The service fees were  calculated as a percentage of gross  collections  on four
specific portfolios while loan commitment fees are points based upon origination
of Senior  Debt.  During  March 1997 the Company  negotiated  the  prospective
elimination  of such fees.  Under the new  arrangement  the Company  will cease
to pay service fees and will pay a 1% exit fee on all Senior Debt outstanding as
of December 31, 1996, or approximately $700,000. This exit fee is payable after
the underlying Senior Debt has been repaid in full. If the funds collected from 
the underlying notes  receivable are  insufficient  to satisfy the related 
Senior Debt and exit fee, any shortfall up to the amount of the exit fee shall 
be forgiven. 

     The impact of inflation on the Company's operations during both 1st Quarter
1997 and 1st Quarter 1996 was immaterial. 


Results of Operations 

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 

     Total revenue, comprised of interest income and purchase discount earned, 
decreased  by  $227,591  or 7% to  $2,961,152  in the  1st  Quarter  1997,  from
$3,188,743 in the 1st Quarter 1996. The Company  recognizes  interest  income on
notes included in its portfolio based upon three factors: interest on performing
notes,  interest received with settlement  payments on non-performing  notes and
the balance of settlements in excess of the carried principal balance.

                                   Page 14
<PAGE>
     Revenues from interest income on notes receivable decreased by $533,415 or
29%, to $1,275,264 in 1st Quarter 1997 from $1,808,679 in 1st Quarter 1996. This
decline  resulted  primarily  from the  increased  age of loans in the Company's
portfolios,  which  results in a larger  portion of payments on such loans being
credited to principal  rather than  interest,  and the bulk sale in June 1996 of
$6,311,404 in face amount of performing  loans,  which loans, had they continued
to  perform,  could have been  expected  to produce  approximately  $160,000  of
interest income during 1st Quarter 1997.  Purchase  discount earned increased by
$279,858 or 21%, to  $1,583,225 in 1st Quarter 1997 from  $1,303,367  during 1st
Quarter  1996.  The  increase  in  purchase  discount  earned  reflects  both an
increased size in the Company's  portfolio of loans and the improved  collection
experience  of certain  notes  included  in the  portfolio.  Total  revenue as a
percentage of notes  receivable  included in the  Company's  portfolio as of the
last day of the relevant  quarter,  net of allowance  for loan losses during 1st
Quarter 1997 was 3.3% as compared with 3.8% during 1st Quarter 1996.

     Total  operating  expenses  decreased by $134,708 or 4%, to $3,148,569 in 
1st Quarter 1997 from $3,283,277 in 1st Quarter 1996.  Total operating  expenses
includes  collection,  general and  administrative  costs,  provisions  for loan
losses, interest expense, service fees, amortization of loan commitment fees and
depreciation expense.

     Collection,  general and administrative  expenses increased by $140,486 or
16%,  to  $994,876  in 1st  Quarter  1997 from  $854,390  in 1st  Quarter  1996.
Collection, general and administrative expenses include personnel expenses, OREO
related expenses, litigation expenses and all other overhead expenses. Personnel
expenses  increased  by $37,859 or 13%,  to $327,476  for 1st Quarter  1997 from
$289,617 for 1st Quarter 1996.  This increase  reflected the staffing of Liberty
Lending  and  salary  increases  granted to  existing  personnel.  OREO  related
expenses  decreased  by $26,628 or 34%,  to  $52,455  in 1st  Quarter  1997 from
$79,083 in 1st Quarter 1996.  This decrease  reflected the increased  quality of
properties  securing the loans being  purchased by the Company,  which decreased
the cost of rehabilitating the properties following foreclosure. Properties held
as OREO as of March 31, 1997, increased by $1,586,854 or 33%, to $6,323,939 from
$4,737,085  as  of  December  31,  1996.  This  increase   reflected   increased
foreclosure  activity  resulting  from  the  growth  in  size  of the  Company's
portfolio.  Litigation expenses increased by $129,129 or 66%, to $324,294 in 1st
Quarter 1997 from $195,165 in 1st Quarter 1996. This increase  reflected both an
increase  in  quantity  of  notes  receivable  purchased  by the  Company  and a
decreased  loan-to-value ratio of notes receivable purchased by the Company. The
Company  believes that the latter  increase gave rise to a more assertive  legal
defense by borrowers attempting to preserve their collateral, thereby increasing
the Company's  legal  expense.  Direct  collection  expenses  relating to credit
reports and repossession  fees,  decreased by $126 or 0.04%, to $290,651 for 1st
Quarter  1997 from  $290,525  for 1st  Quarter  1996.  This  decrease  reflected
economies of scale resulting from the growth in size of the Company's portfolio.

    Provisions for loan losses decreased by $110,714 or 54%, to $96,012 for 
1st Quarter 1997 from $206,726 for 1st Quarter 1996. This decrease reflected the
improved  performance in 1st Quarter 1997 of certain notes receivable.  Bad debt
expense  expressed as a percentage of gross notes receivable  during 1st Quarter
1997 and 1st Quarter 1996, as of the last day of the  appropriate  quarter,  was
approximately  0.1 % and 0.2 %,  respectively.  

     Interest  expense increased  by $64,235 or 3%, to $1,955,355 in 1st Quarter
1997 from $1,891,120 in 1st Quarter 1996. Total debt was $79,874,972 as of March
31, 1997 as compared with  $68,618,969  as of March 31, 1996, which was 
substantially offset by a reduction of 460 basis points in the weighed average  
interest rate. Total debt  includes  Senior  Debt,  debentures,  lines of 
credit and loans from affiliates.

                                   Page 15
<PAGE>

     Service fees decreased by $184,922 or 85%, to $31,395 in 1st Quarter 1997 
from $216,317 in 1st  Quarter1996.  This  decrease  resulted from a reduction in
service fees negotiated with the Company's  Senior Debt lender in June 1996, and
the elimination of service fees negotiated with the Company's Senior Debt lender
effective February 28, 1997.

     Operating loss increased by $92,883 or 98%, to $187,417 in 1st Quarter 1997
from $94,534 in 1st Quarter 1996.  This  decrease  resulted  primarily  from the
reduction  in interest  income upon notes  receivable  which was only  partially
offset by the increase in purchase  discount  earned,  the  reduction of service
fees, the improved performance and the resolution of notes receivable.

     Loss before  taxes  increased  by $92,883 or 98%, to  $187,417  in 1st  
Quarter 1997 from $94,534 in 1st Quarter 1996.  Net loss increased by $92,883 or
98%, to $187,417 in 1st Quarter 1997 from $94,534 in 1st Quarter  1996,  for the
reasons described above.


Liquidity and Capital Resources 

     General. During 1st Quarter 1997, the Company purchased notes receivable
with a face  value  of  $7,359,655  at a cost of  $5,851,515  as  compared  with
purchases of no notes  receivable  during 1st Quarter 1996. The Company believes
that this increase reflected  increased market  opportunities,  the reduction in
the Company's cost of funds,  redirection to private  negotiated  purchases from
independent  financial  institutions from the FDIC/RTC competitive bid auctions,
the  re-organization  of the Company's senior  management during the 1st Quarter
1996 and the increased name recognition of the Company achieved by the hiring of
a public relations firm in the fourth quarter on 1996.

     During 1st Quarter 1997, the Company renegotiated its credit 
arrangements  with its senior  lenders  thereby  reducing  its cost of funds and
increasing its price  competitiveness.  See "- General - Cost of Funds".  All of
the loans  acquired by the Company  during 1996 were  acquired  after the second
quarter.  The Company believes that the redirection of its marketing efforts and
the reduction in its cost of funds has enhanced its competitiveness.

     The Company's portfolio of notes receivable at March 31, 1997 had a face 
value of  approximately  $113.3 million and net of joint venture  participation,
purchase  discount and  allowance for loan losses,  had net notes  receivable of
approximately  $73.2  million.  The Company's  portfolio of notes  receivable at
March 31,  1996 had a face value of  approximately  $105.7  million  and had net
notes receivable of approximately $60.1 million. The Company has the ability and
intent to hold its notes until maturity, payoff or liquidation of collateral.

     During 1st Quarter 1997, the Company used cash in the amount of $2,653,586
in its operating activities primarily for interest expense,  ordinary litigation
expense incidental to its collections and for the foreclosure and improvement of
OREO and overhead.  The Company used  $5,776,840  in its  investing  activities,
primarily for the purchase of notes  receivable  which was only partially offset
by principal collections of $5,207,348 upon its notes receivable, resulting in a
net use of  $569,492  in  investing  activities.  The  amount  of cash used in
operating and investing activities was funded by $4,419,834 of net cash provided
by  financing  activities,  primarily  from a net  increase  in  Senior  Debt of
$7,813,050.  The above activities  resulted in a net increase in cash during 1st
Quarter 1997 of $1,196,756.

                                   Page 16
<PAGE>
     In the ordinary course of its business, the Company accelerates and 
forecloses upon real estate securing non-performing notes receivable included in
its portfolio. As a result of such foreclosures,  at the end of 1st Quarter 1997
and 1st quarter  1996,  the Company held OREO having a net  realizable  value of
$6,325,978  and  $5,318,201,  respectively.  OREO is recorded  on the  financial
statements of the Company at the lower of cost or fair market value. The Company
generally  holds  OREO as rental  property  or sells  such OREO in the  ordinary
course of business  when it believes such sales to be  economically  beneficial.
Management  believes that the net increase in OREO  Properties held as inventory
at March 31, 1997 is not material to the operations of the Company.

     On March 31, 1997, the Company held no automobile inventory. Management 
believes  that any  additional  automobile  inventory  acquired in the  ordinary
course of business from the Company's  remaining  automobile loans will be sold.
The Company  has ceased to purchase  notes  receivable  secured by  automobiles.
Approximately  $562,000 or 0.5 % of the Company's  gross loan portfolio at March
31, 1997 was secured by automobiles.

     On March 31, 1996, the Company held as inventory automobiles having a net
realizable  value of $279,036  which it  obtained  through  repossessions.  Such
automobiles  were  recorded in the  financial  statements  of the Company at the
lower of cost or fair market value.

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


Cash Flow From Operating and Investing Activities 

     Substantially all of the assets of the Company are invested in its 
portfolio of notes  receivable.  The Company's  primary  source of cash flow for
operating and investing  activities is  collections  on notes  receivable.See  -
"General". At March 31,  1997,  the  Company  had cash,  cash  equivalents  and
marketable  securities  ofapproximately  $2.1 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,  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 17
<PAGE>
     From time to time, the Company seeks merger and  acquisition  opportunities
of companies in the specialty financing industry. The Company through its wholly
owned subsidiary Liberty Lending Corporation ("Liberty"),  recently entered into
a letter of intent (the "Letter of Intent") with K Mortgage  Corporation  ("K"),
an  originator  of  certain  classes  of  Federal Housing Administration  
mortgages   ("Qualified Products"). The Company  believes that this transaction 
will  enable  Liberty,  subject  to receipt of  appropriate  licenses  and other
contingencies,  to integrate K's existing network of mortgage brokers,  Realtors
and  potential  home  buyers as well as its  remaining  infrastructure,  thereby
accelerating  Liberty's  entry  into the  mortgage  loan  origination  industry.
Pursuant  to the Letter of Intent,  Liberty  will  acquire  the right to certain
trademarks associated with K's business, enter into an employment agreement with
a two year term and a one year  renewal  term with one  principal  of K and into
consulting  agreements with five year terms with the three additional principals
of K. In exchange,  Liberty will pay to such  principals  an aggregate of 50% of
its Gross Profits (as defined in the Letter of Intent) on all Qualified Products
brought to the Company by such  principals,  payable  quarterly  for five years,
assume certain scheduled liabilities of K, not to exceed $350,000,  which amount
shall be credited against the Gross Profit payments due to such principals,  and
pay to the principal retained as an employee a salary of $104,000 per annum plus
benefits.  The Company is currently  completing its due diligence and expects to
complete this transaction  during the third quarter of 1997.  While, the Company
does not have a commitment to purchase any other companies, management is in the
process of reviewing certain  opportunities.  Depending upon  circumstances this
may not cause the Company to incur additional capital expenditures,  outside the
acquisitions of additional notes  receivable.  Although the Company from time to
time engages in discussions and  negotiations with respect to acquisitions,  
except as discussed  herein, it currently has no agreements with respect to any
material acquisition.


Cash Flow From Financing Activities 

     Senior Debt. As of March 31, 1997, the Company and its wholly owned  
subsidiaries  owed an aggregate  amount of  approximately  $77.3 million,  under
twenty five loans, from a financial institution.

     The Senior Debt is collateralized by first liens on the respective loan  
portfolios  for the purchase of which the debt was incurred and is guaranteed by
the Company.  The monthly payments on the Senior Debt have been, and the Company
intends for such  payments to  continue to be, met by the  collections  from the
respective  loan  portfolios.  The loan  agreements for the Senior Debt call for
minimum  interest and  principal  payments each month and  accelerated  payments
based upon the collection of the notes  receivable  securing the debt during the
preceding month. The Senior Debt accrues interest at variable rates ranging from
prime rate to 1.75% over the prime rate. The accelerated  payment provisions are
generally  of two types:  the first  requires  that all  collections  from notes
receivable,  other than a fixed monthly allowance for servicing  operations,  be
applied to reduce the Senior Debt;  the second  requires a further  amount to be
applied  toward  additional   principal  reduction  from  available  cash  after
scheduled  principal  and interest  payments  have been made. As a result of the
accelerated payment  provisions,  the Company is repaying the amounts due on the
Senior  Debt at a rate faster than the  minimum  scheduled  payments.  While the
Senior Debt remains outstanding,  these accelerated payment provisions may limit
the cash flow available to the Company.

     The Company has negotiated with its Senior Debt lender to eliminate service
fees, reduce the interest rates and increase the portion of collections retained
by the  Company  for  operations  after  payment of its  contractual  principal,
interest and escrow payments, rather than applied to payment of its Senior Debt.
Management  believes this may reduce periods of irregular  cash flows,  however,
there can be no assurance  that the Company will not  encounter  periods of cash
flow shortages. See "- General - Cost of Funds".


                                   Page 18
<PAGE>
     Certain of the Senior Debt credit agreements required establishment of 
restricted  cash accounts,  funded by an initial deposit at the loan closing and
additional  deposits  based upon monthly  collections  up to a specified  dollar
limit. The restricted cash is maintained in a interest bearing account, with its
Senior Debt lender.  Restricted cash may be accessed by the lender only upon the
Company's  failure to meet the minimum monthly  payment due if collections  from
notes  receivable  securing the loan are insufficient to satisfy the installment
due. Historically, the Company has not called upon these reserves. The aggregate
balance of  restricted  cash in such accounts was $706,767 on March 31, 1997 and
$828,845 on December 31, 1996. During 1st Quarter 1997, in an effort to expedite
the new  portfolio  acquisitions,  the Company was  permitted by its Senior Debt
lender  to use  $196,672  of the  reserve  funds  for a  deposit  upon a  future
acquisition, and which deposit was recorded as "other assets" upon the financial
statements.  The Company  redeposited the amount in the reserve fund immediately
upon financing of the new deal.

     Lines of Credit. This credit facility provides the Company the ability to
borrow a maximum of approximately $1,500,000 at a rate equal to the bank's prime
rate plus two percent per annum.  Principal  repayment  of the lines are due six
months from the date of each cash advance and interest is payable  monthly.  The
total  amounts  outstanding  under the lines of credit as of March 31,  1997 and
1996, were $873,079 and $701,775,  respectively.  Advances made available to the
Company by its Senior Debt lender were used to satisfy senior lien positions and
fund  property  repair costs in  connection  with  foreclosures  of certain real
estate loans financed by the Company.  Management  believes the ultimate sale of
these  properties  will  satisfy  the  related  outstanding  lines of credit and
accrued  interest,  as well as surpass  the  collectible  value of the  original
secured  notes  receivable.  Management  has an agreement in principal  with its
Senior  Debt  lender  to  increase  this  credit  facility  to cover  additional
properties  foreclosed  upon by the Company which the Company may be required to
hold as rental  property to maximize  its return.  Historically  the Senior Debt
lender has provided  extensions and the Company  believes the Senior Debt lender
will continue to do so.

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

     12% Debentures.  In connection with the acquisition of a loan portfolio 
during  1994,  the  Company  offered  to  investors   $750,000  of  subordinated
debentures.  As of March 31, 1997 and March 31,  1996,  $484,687  and  $646,250,
respectively,  of these  debentures  were  outstanding.  The 12% Debentures bear
interest at the rate of 12% per annum  payable in  quarterly  installments.  The
principal  is to be repaid  over four years in  sixteen  equal  installments  of
$44,062  which  payments  commenced on March 31, 1996.  The 12%  Debentures  are
secured by a lien on the Company's  interest in certain notes receivable and are
subordinated to the Senior Debt encumbering the loan portfolio.

                              Page 19
<PAGE>
Item 1.  Legal Proceedings 
                  None 

Item 2.  Changes in Securities 
                  None 

Item 3.  Defaults Upon Senior Securities 
                  None 

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

Item 5.  Other Information 
                  None 


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

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

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

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

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

        10(f)                Letter of Intent between K Mortgage Corporation and
                             Liberty Lending Corporation. 

(b)      No reports on Form 8-K were filed during the first quarter of 1997. 

                                   Page 20
<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. 

May 15, 1997                                FRANKLIN CREDIT MANAGEMENT 
                                                   CORPORATION 


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


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

Signature                 Title                                  Date 

THOMAS J. AXON        President, Chief Executive Officer     May 15, 1997      
Thomas J. Axon        and Director 
                      (Principal executive officer)  


FRANK B. EVANS, Jr.   Vice President, Treasurer,             May 15, 1997      
Frank B. Evans, Jr.   Chief Financial Officer and Director 
                      Secretary (Principal financial and accounting officer) 



JOSEPH CAIAZZO        Vice President, Chief Operating        May 15, 1997      
Joseph Caiazzo        Officer and Director                                 



                                       Page 21
<PAGE>
Exhibit 11 
<TABLE>
<CAPTION>
Computation of earnings per share first quarter 1996. 
<S>          <C>              <C>           <C>        <C>            <C>
                                                                  Restated for 
                                                                    effect of  
                         No. Of Shares      Weight                 stock split  
12/31/95 Common Stock      5,503,896 
         O/S warrants        137,674 
                           5,641,470        50.00%   2,820,735      564,147.0 

3/31/96  Common stock      5,503,896 
         O/S warrants        127,349 
         warrants exercised   10,225 
                           5,641,470        50.00%   2,820,735      564,147.0 

         Weighted average number of shares           5,641,470      1,128,294 


Earnings per Common share: 
     Net loss               $94,534                     $0.02          $0.08 

</TABLE>
                                   Page 22

<PAGE>
Exhibit 11 
<TABLE>
<CAPTION>
Computation of earnings per share first Quarter 1997. 
<S>          <C>                 <C>            <C>        <C>        <C> 
                                                                  Restated for 
                                                                    effect of  
                            No. Of Shares      Weight              stock split  
12/31/96 Common stock         5,503,896 
         O/S warrants 
        (Extended for 1 year)   110,133 
         Stock options          209,500 
                              5,823,529         50.00%   2,911,765   582,352.9 

3/31/97  Common stock         5,503,896 
         O/S warrants                  
        (Extended for 1 year)   110,133 
         Stock options          209,500 
                              5,823,529         50.00%   2,911,765   582,352.9 

             Weighted average number of shares           5,823,529   1,164,706 


Earnings per Common share: 
         Net loss              $259,271                     $0.04      $0.22 

</TABLE>
                                   Page 23

<PAGE>
Exhibit 10(f) 
                                LETTER AGREEMENT 

     The parties, K Mortgage Corporation ("K") and Liberty Lending Corporation
("Liberty") agree as follows: 

     1. On or prior to the effective date of this agreement, K shall deliver to 
Liberty  any  and  all  training  manuals,   brochures,   proprietary  software,
methodologies  and any other  materials in its possession or control  concerning
the processing,  underwriting and similar  materials  relative to 203(k) lending
and processing.

     2. Subject to K's compliance with its obligations under paragraphs 1, 3 and
11  hereof,  as  well  as the due  execution  and  delivery  to  Liberty  of the
agreements  described  in  paragraph  7  hereof,   Liberty  shall  assume  those
liabilities of K described in Schedule "A" annexed  hereto.  However,  Liberty's
liabilities under Schedule "A" shall not exceed $350,000 and such $350,000 shall
be deemed an advance against the first profit  distributions  due K's principals
pursuant to paragraph 5 hereof.  Liberty's undertakings  thereunder are intended
solely for the benefit of K and nothing in this agreement is intended, nor shall
be  construed,  to give any of the  creditors  of K,  including  those listed in
Schedule "A" any right of action or claim against Liberty. K reserves the right,
but not the  obligation,  to undertake in  negotiations  with various  creditors
listed in Schedule "A", and shall direct  Liberty to make  payments  directly to
such  creditors as  agreements  to satisfy such  liabilities  are made.  Liberty
agrees to make such directed payments within seven days of receiving  directions
from K.

     3. On or prior to the effective date of this agreement, K shall transfer
the right to use the name, logo and trademarks associated with "K Mortgage".

     4. Liberty agrees to use its best and reasonable efforts to process all 
203(k),  203(b),  Title I,  HIML,  CHIML and Small  Project  Program  mortgages,
collectively known as the Qualified Products,  wherever  originated,  as well as
any other mutually  agreed upon Qualified  Products  brought to Liberty by the K
principals  such that the revenue  generated by the  Qualified  Products will be
computed as part of the gross profit formula stated herein.

     5. Subject to their due execution and delivery to Liberty of the agreements
described  in  paragraph 7 hereof,  the  principals  of K shall be entitled to a
payout equal to fifty (50%) percent of the Gross Profits  derived from Qualified
Products  including  pooling,  servicing,  inspection  fees,  etc.  or any other
mutually agreed upon Qualified Product, based on the following:

          A. Gross Profit shall equal Gross Revenue minus (i) those direct costs
described  on Schedule  "B" hereto,  (ii) one (1%)  percent of the gross  dollar
originations of Qualified Products,  (iii) reserves required to be maintained by
Liberty under applicable laws, regulations or industry standards and (iv) losses
resulting from the sale of loans for less than Liberty's cost to originate same.

          B. The Payout to K's principals shall aggregate fifty (50%) percent of
the Gross Profit.   

          C. The Payout Period shall begin on the first day of the calendar 
quarter immediately following the effective date of this agreement and shall 
extend for a period of five years. 

          D. The Payout shall occur on an annual  basis, with estimated  
quarterly Payouts made based on Liberty's internal non-audited financial 
statements. The first four such quarterly Payouts shall be in the amount of 
twenty (25%) percent of the amount then due to K. Liberty and K agree to
evaluate the cash flow characteristics of such Payouts and adjust the quarterly
Payout percent upward from twenty (25%) percent as warranted.  The balance 
Payments shall be made by Liberty to the K principals within thirty days of the 
completion of Liberty's audited annual financial statements, but no later than 
April 30th of each year. 

                              Page 24
<PAGE>
           E.  Liberty shall supply quarterly financial reports to K. 

           F. The parties agree any operating losses resulting from the  
calculation of the formula above shall be carried forward until recovered by 
Liberty. 

           G. The parties agree any proposed change in the formula or its  
components  must be mutually agreed upon. 

     6. K Mortgage  agrees to indemnify and hold Liberty  harmless for any 
claims,  liabilities and expenses to third parties  (including  the liabilities 
to K's creditors  not expressly  assumed by Liberty under  paragraph 2 above) 
resulting from the consummation of the transactions contemplated by this 
agreement. 

     7. (a) On or prior to the  effective  date of this  agreement,  each of 
Peter  Ragan,  Thomas R. Shane and Michael B. Shane shall  execute a  consulting
agreement  with Liberty  pursuant to which it shall agree to be  available  from
time to time to consult  with,  and not to compete  with,  Liberty in connection
with Qualified Products during the five year Payout Period. Liberty shall supply
drafts of such agreements to K within 14 days.

          (b)  Additionally,  Liberty and James  Ragan shall  execute an  
employment  agreement  for two years  with an option  for  Liberty to extend the
employment for an additional one year  thereafter,  at a minimum of $104,000 per
annum salary plus a car, health insurance and all other benefits  afforded other
Liberty  employees.  The employment  agreement  shall also contain James Ragan's
agreement  not to compete with Liberty in  connection  with  Qualified  Products
during  the  five  year  Payout  Period.  Liberty  shall  supply a draft of such
agreement to K within 14 days.
                              Page 25

<PAGE>
          (c) The consideration for their obligations under the foregoing  
consulting agreements, each of Peter Ragan, Thomas R. Shane and Michael B. Shane
or their nominees shall be entitled to 25% of the Payout  described in paragraph
5 above.  As  additional  consideration  for his  undertakings  contained in the
employment  agreement,  James  Ragan  shall  be  entitled  to 25% of the  Payout
described in paragraph 5 above.

     8. K can, at its expense no more than once a year, and upon reasonable 
notice, conduct an audit of Liberty's books and records. 

     9. Given the asset nature of this transaction, the parties agree no further
due  diligence is required to proceed based on this letter  agreement.  However,
Liberty  shall have the right to conduct due  diligence  prior to the  effective
date of this  agreement  to verify the accuracy of the  representations  made in
paragraph 12 hereof as of such effective date.

     10.  The parties agree to bear its own costs in connection with this 
agreement. 

     11. The effective date of this agreement shall be the day following 
Liberty's  becoming approved as a New York Mortgage Banker and its authorization
from HUD to originate Qualified  Products.  K represents that Liberty's New York
Mortgage  Banking  license will be obtained within 60 days from the date of this
agreement  and that  Liberty's  HUD license  will be obtained  within 60 days of
Liberty's  filing  for  such HUD  license.  Liberty  agrees  to file for its HUD
license  immediately  upon obtaining its first mortgage banking license from any
state. K acknowledges its receipt of copies of Liberty's  application to the New
York and  Connecticut  State  Banking  Departments  and  Liberty's  unfilled HUD
application.

     12. K makes the following representations to Liberty, all of which 
representations  shall be true and  complete  as of the  effective  date of this
agreement:

          (a) All existing material contracts and arrangements between k and its
sources of business (e.g., The Bank of New York, sales persons,  brokers) are in
full force and  effect and K has no  knowledge  of the  existence  of any facts,
cause or condition which will lead to the termination of any such arrangements;

          (b) During the months of January, February and March, 1997, K has  
originated approximately $10,500,000 of Qualified Product loans;

          (c) During the month of April, 1997, K has originated approximately
$1,000,000 of Qualified Product loans; 

          (d) As of this day, K has no loans in inventory which it has closed 
more than 10 days prior to the date hereof; 

          (e) K has no knowledge of the existence of any facts, cause or 
condition which will lead to a decrease in the volume of 203(k) loan 
originations; and 

          (f) K has no knowledge of the existence of any claims, liabilities,
lawsuits or governmental proceedings asserted or pending against it which K has 
not expressly disclosed to Liberty, in writing signed by K's principals. 

     The parties hereto sign and seal this agreement this ninth day of May,
1997. 


Liberty Lending Corporation                        K Mortgage Corporation 


By:   Marcia B. Vacacela                             By:   James Ragan 
   Marcia Vacacela, President                         James Ragan, President 




                                   Page 26

<PAGE>
                                Schedule "A" 





This schedule will be supplied to K and Liberty upon its availability. 




































_MV_ Initial (Liberty)    _JR_ Initial (K Mortgage) 


                                   Page 27

<PAGE>
                                 Schedule "B" 

     1.       Interest cost of debt 
          
     2.       Salaries and associated payroll taxes and expenses 
                   
     3.       Company fringe benefits, inclusive of auto insurance 

     4.       All travel and entertainment expenses 
          
     5.       Actual or allocated rent expense 

     6.       Legal and account expenses 

     7.       Supplies, equipment, postage and messenger expense 

     8.       Marketing and public relation expense 

     9.       Insurance and surety expense 

    10.       Underwriting losses and/or loan loss reserves 

    11.       Any other identifiable direct cost associated with originations
              of Qualified Products. 

    12.       Any monetary costs or losses caused in seeking recourse to K 
              based on its indemnification of Liberty and representations to
              Liberty under this agreement. 














_MV_ Initial (Liberty)     _JR_ Initial (K Mortgage) 




                                   Page 28
<PAGE>