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


                                  FORM 10-QSB 


[   ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1998 


[   ]    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                                               
(State or other jurisdiction of incorporation or organization) 

                         75-2243266  
              (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   .

     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. Yes X No .

     As of May 30, 1998 the issuer had 5,516,527 of shares of Common Stock,  par
value $0.01 per share, outstanding.



                                       1
<PAGE>
                                   
 
                        FRANKLIN CREDIT MANAGEMENT CORPORATION 


                                    FORM 10-QSB 

                                   March 31,1998 


                                  C O N T E N T S 


PART I. FINANCIAL INFORMATION                                            Page 

Item 1.     Financial Statements 

            Consolidated Balance Sheets March 31, 1998 (unaudited) and
              December 31, 1997                                              3

            Consolidated Statements of Income (unaudited) March 31, 1998  
              and December 31, 1997                                          4 

            Consolidated Statements of Stockholders' Equity (unaudited)  
              for the three months ended March 31, 1998 and 1997             5 

            Consolidated Statement of Cash Flows (unaudited) for the 
              three months ended March 31, 1998 and 1997                     6 

            Notes to consolidated Financial Statements                    7-10 


Item 2.  Management's Discussion and Analysis of Financial Condition and 
                    Results of Operations                                11-18 

PART II.     OTHER INFORMATION 

Item 1.  Legal Proceedings                                                  18 

Item 2.  Changes in Securities                                              19 

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 


                                       2
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
MARCH 31, 1998 AND DECEMBER 31, 1997 

                                         31-Mar-98                 31-Dec-97 
                                    -------------------       ------------------
ASSETS 
CASH AND CASH EQUIVALENTS                  2,260,263                2,783,920 
RESTRICTED CASH                            1,000,466                  990,466 

NOTES RECEIVABLE: 
    Principal                            127,347,211              115,965,158 
    Joint venture participations            (319,801)                (321,460) 
    Purchase discount                    (14,968,873)             (16,175,518) 
    Allowance for loan losses            (27,301,564)             (27,424,641) 
                                    -------------------       ------------------
        Net notes receivable              84,756,973               72,043,539 

LOANS HELD FOR SALE                        1,566,200                3,702,723 
ACCRUED INTEREST RECEIVABLE                  942,356                  929,908 
OTHER REAL ESTATE OWNED                   10,617,712               11,806,473 
OTHER RECEIVABLES                            682,029                  695,471 
DEFERRED TAX ASSET                         1,938,221                1,479,939 
OTHER ASSETS                                 761,326                  735,075 
BUILDING,FURNITURE AND FIXTURES-Net          723,121                  729,285 
DEFERRED FINANCING COSTS                   1,263,637                1,161,437 
                                    -------------------       ------------------

TOTAL ASSETS                             106,512,303               97,058,236 
                                    ===================       ==================

LIABILITIES AND STOCKHOLDERS' EQUITY 
LIABILITIES: 
    Accts payable and accrued exp          2,416,876                2,938,340 
    Line of credit                         2,102,042                1,376,403 
    Notes payable                         96,146,029               83,643,550 
    203(k)rehab escrows payable              270,487                2,828,239 
    Subordinated debentures                  796,837                  863,100 
    Notes payable,affiliates & stockholders  284,077                  311,484 
    Deferred tax liability                 2,018,280                1,559,998 
                                     -------------------       -----------------
        Total liabilities                104,034,630               93,521,114 
                                     -------------------       -----------------

COMMITMENTS AND CONTINGENCIES 

STOCKHOLDERS' EQUITY 
    Common Stock, $.01 par value, 10,000,000 authorized 
      shares; issued and outstanding 1997 and 1996: 
        5,516,527                             55,167                   55,167 
    Additional paid-in capital             6,489,968                6,489,968 
    Accumulated deficit                   (4,067,462)              (3,008,013) 
                                      -------------------       ----------------
        Total stockholders' equity         2,477,674                3,537,122 
                                      -------------------       ----------------

TOTAL LIAB. AND STOCKHOLDERS'EQUITY      106,512,303               97,058,236 
                                      ===================       ================

See notes to consolidated financial statements. 




                                       3
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
THREE MONTHS ENDED MARCH 31, 1998 and 1997 

                                                                                

                                             31-Mar-98               31-Mar-97 
                                         ------------------       --------------
REVENUES: 
     Interest Income                          1,341,777               1,275,264 
     Purchase discount earned                 1,026,364               1,583,225 
     Gain on sale of portfolios                       0                       0 
     Gain (loss) on sale of Originated Loans    122,429                       0 
     Gain on sale of other real estate owned   (104,305)                 34,268 
     Rental Income                              160,551                       0 
     Other                                       62,688                  68,396 
                                         ------------------       --------------
                                              2,609,504               2,961,153 
                                         ------------------       --------------

OPERATING EXPENSES: 
     Interest Expense                        2,050,957               1,955,355 
     Collection, general and administrative  1,501,992                 994,876 
     Provision for loan losses                  32,830                  96,012 
     Banking service fees                            0                  31,395 
     Amortization of deferred financing costs   52,787                  55,259 
     Depreciation                               30,386                  15,672 
                                         ------------------       --------------
                                             3,668,952               3,148,569 
                                         ------------------       --------------


(LOSS) INCOME BEFORE PROVISION FOR INCOME 
  TAXES                                     (1,059,448)               (187,416) 
                                         ------------------       --------------

BENEFIT (PROVISION) FOR INCOME TAXES                 0                       0 
                                         ------------------       --------------

NET (LOSS) INCOME                           (1,059,448)               (187,416) 
                                         ==================       ==============

NET (LOSS) INCOME PER COMMON SHARE: 
     Basic                                       (0.19)                  (0.03) 
     Dilutive                                                                   
                                                 (0.19)                  (0.03) 
                                         ==================      ===============
WEIGHTED AVERAGE NUMBER OF SHARES 
 OUTSTANDING                                 5,516,527               5,516,527 
                                         ==================      ===============

See notes to consolidated financial statements. 




                                       4
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND DECEMBER 31, 1997



                                                 Additional  Retained 
                               Common Stock        Paid-In   Earnings 
                          --------------------- 
                             Shares    Amount     Capital    (Deficit)  Total 
--------------------------------------------------------------------------------
Balance, December 31, 1996   1102077    11022     6534113    (2442115)  4103020 

Four-for-one stock Dividend  4414450    44145      (44145) 

 Net Loss                                                     (565898)  (565898)

                            ----------------------------------------------------
Balance, December 31, 1997   5516527    55167     6489969    (3008013)  3537122 
                           
     Net Loss                                                (1059448) (1059448)

                            ====================================================
Balance, March 31, 1998      5516527    55167     6489969    (4067461)  2477674 
                            ====================================================

See notes to consolidated financial statements.





                                       5
<PAGE>


FRANKLIN CREDIT MANAGEMENT CORP & SUBSIDIARIES 
CONSOLIDATED STATEMENT OF CASH FLOWS 
For the Three Months ended March 31, 1998 and 1997 
                                                31-Mar-98            31-Mar-97 
                                                ------------------------------- 
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net income (loss)                             (1,059,448)           (187,417)
  Adjustments to reconcile net income (loss) to 
    net cash provided (used) by operating activities: 
      Depreciation                                  30,386            
      Amortization                                  52,787              70,931  
     Purchase discount earned                  (1,026,364)          (1,583,225) 
       Gain on Sale of REO                         104,305
      Provision for loan loss                       32,830              96,012  
      Deferred tax provision                             0                   0
      (Increase)decrease in: 
       Accrued interest receivable                  95,382             274,535
       Foreclosures on real estate                  47,672          (1,502,595)
       Assets held for sale                       (620,450)
       Other receivables                           (10,322)             28,422
       Other current assets                      2,818,978               8,427  
      Increase(decrease) in: 
       Accounts payable & accrued expenses        (527,302)            221,871
       203(k) rehabilitation escrow             (2,589,626) 
       Due to affiliates                                 0             (80,547)
      Net cash provided (used)               ---------------       ------------
         by operating activities                (2,651,172)         (2,653,586)

CASH FLOWS FROM INVESTING ACTIVITIES 
  Distributions                                          0                   0  
  Additional capital contributed                         0                   0  
  Acquisition and loan fees                       (155,855)            (66,206)
  Acquisition of notes receivable              (15,478,600)         (5,813,924)
  Acquisition of REO                                     0                   0
  Proceeds from sale of REO                      1,487,541                   0
  Foreclosures on real estate                     (371,830)                  0
  Reclass of notes receivable for foreclosures   1,009,905                   0  
  Acquisition of furniture & equipment             (23,352)             (5,861) 
  Participation interest                            (1,709)            (12,928) 
  Advances to subsidiaries                               0                   0
  Principal collection on notes receivable       2,513,533           5,207,348
  (Increase) decrease in restricted cash           (10,000)            122,079
    Net cash provided (used)                  --------------       -------------
        by investing activities                (11,030,367)           (569,492)

CASH FLOWS FROM FINANCING ACTIVITIES: 
  Payments on debenture notes payable              (66,263)                  0
  Payments on line of credit                      (414,290)            362,298  
  Proceeds from line of credit                   1,135,953             (73,135)
  Proceeds from notes payable                   15,585,498           7,813,050
  Payments on notes payable                     (3,083,017)         (3,682,379) 
       Net cash provided (used)               -------------        -------------
        by financing activities                 13,157,882           4,419,834 
                                              -------------        -------------
NET INCREASE (DECREASE) IN CASH                   (523,657)          1,196,756 

CASH, BEGINNING OF YEAR                          2,783,920           1,967,965
                                              -------------        -------------
CASH, ENDING                                     2,260,263           3,164,721


See notes to consolidated financial statements




                                       6
<PAGE>

                                                     
                                   PART I 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

     1.  NATURE  OF  BUSINESS  AND  SIGNIFICANT  ACCOUNTING  POLICIES  Nature of
Business - Franklin Credit Management Corporation (the "Company"), incorporated
under the laws of the State of Delaware,  acquires nonperforming, nonconforming
and   subperforming   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, foreclosure on the underlying collateral.

     In January 1997, a new wholly owned subsidiary was formed,  to originate or
purchase, non-traditional residential mortgage loans, including, but not limited
to, sub-prime loans to individuals whose borrowing needs are not being served by
traditional financial institutions.

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

     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
generally accepted  accounting  principles 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.

     Cash and Cash  Equivalents  - Cash and cash  equivalents  includes all cash
accounts,  with the exception of restricted  cash,  and money market funds.  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.

     Notes Receivable and Income  Recognition - The 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  nonperforming or  underperforming 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  or  liquidation  of
collateral.

     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
nonaccrual 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.


                                       7
<PAGE>

     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 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 the
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  consisting of properties
acquired through,  or in lieu of,  foreclosure or other proceedings 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.

     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 3 to 40 years.  Gains and losses on dispositions  are recognized upon
realization. Maintenance and repairs are expensed as incurred.


                                       8
<PAGE>
                                       

     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  allocates  the total cost of the
mortgage  loans  purchased  or  originated,  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 carryforwards
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 the enactment.

     Earnings  Per Common Share - In February  1997,  the  Financial  Accounting
Standards Board (FASB) issued  Statement of Financial  Accounting  Standards No.
128,  Earnings Per Share (SFAS No. 128),  which  requires dual  presentation  of
Basic EPS and Diluted EPS on the face of the income  statement  for all entities
with complex capital structures and the restatement of all prior period earnings
per share data  presented.  SFAS No. 128 also requires a  reconciliation  of the
numerator and denominator of Basic EPS and Diluted EPS computation.

     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:

                                       9
<PAGE>


     a. Cash, Restricted Cash, Accrued Interest Receivable, 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 line of credit 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,   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.

     Recent Accounting Pronouncements - The Financial Accounting Standards Board
("FASB") has issued  several new accounting  pronouncements.  Statement No. 130,
Reporting Comprehensive Income ("SFAS No. 130"), which establishes standards for
reporting and displaying of comprehensive  income and its components.  Statement
No. 131,  Disclosures  about Segments of an Enterprise  and Related  Information
(SFAS  No.  131),  which  establishes  standards  for  the way  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
products and services,  geographic areas, and major customers. The two standards
are effective for the Company's 1998 financial statements.  The Company does not
believe  that SFAS 130 will  have any  effect on the  Company's  computation  or
presentation  of net income.  The Company  will adopt SFAS 131 for its  mortgage
origination subsidiary beginning in 1998.

                                       10
<PAGE>

 

Item 2.  Management' Discussion and Analysis of Financial Condition and Results
         Of Operations

General 

     Forward-Looking  Statements.  When used in this report,  press releases and
elsewhere by 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 and this Quarterly Report on Form 10-QSB
generally  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 source of
senior  financing   ("Senior  Debt  Lender"),   unanticipated   difficulties  in
collections under loans in the Company's portfolio or new loans purchased by the
Company  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 release publicly the results on any events or circumstances  after
the date hereof or to reflect the occurrence of unanticipated events.

     Loan and OREO  Acquisitions.  During the three  months ended March 31, 1998
("1st Quarter 1998") the Company purchased 1,196 loans in two portfolios with an
aggregate  face  value  of  $17,774,323  at  an  aggregate   purchase  price  of
$15,585,498  or 88% of the face value and no OREO  properties  compared with the
purchase  during the three months ended March 31, 1997 ("1st  Quarter  1997") of
234 loans in six  portfolios  with an aggregate  face value of  $19,471285 at an
aggregate  purchase price of $12,416,321 or 64% of aggregate face value,  and no
OREO properties. Acquisition of these portfolios was fully funded through senior
financing  ("Senior  Debt") in the amount equal to the purchase  price plus a 1%
loan  origination  fee. See  "Liquidity  and Capital  Resources-  Cash Flow from
Financing Activities- Senior Debt".

     The  Company  believes  these   acquisitions  will  result  in  substantial
increases in 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
related to the new portfolios. Payment streams are only generated once the loans
are  incorporated  into the Company's loan tracking  system and contact with the
borrower is made, and in some cases  non-performing  loans are  restructured  or
collection litigation successfully concluded.

     In May 1997,  the Company  purchased a  portfolio  of $3.7  million in face
value of notes  receivable from Preferred  Credit Corp ("PCC") for $1.8 million.
Although the Company  conducted its own review of each loan file, it has come to
believe  since the  closing of the  acquisition  that  certain  information  was
intentionally  omitted or removed from such files or kept in another  repository
of files which were not made available to the Company and that PCC intentionally
and  materially  misrepresented  the status and quality of the notes  receivable
included  in the  portfolio.  Although,  its  estimate  will be  refined  as the
purchased portfolio is seasoned,  the Company currently believes that as much as
approximately 90% of the face value of the portfolio may be  uncollectable,  due
to debtor bankruptcies, in certain instances prior to the execution of the Asset
Purchase Agreement,  or senior credit foreclosures of the underlying collateral.
The  Company has  recorded,  on its 1997  Consolidated  Statement  of Income,  a
Special  Charge  of  $1.5  million   reflecting  its  current  estimate  of  the
uncollectable portion of the purchase price of such portfolio.

                                       11
<PAGE>

     The  Company  has  initiated  a suit and is seeking  recision  of the asset
purchase  agreement or damages  incurred in connection  with the  purchase.  The
Company's  litigation  counsel  has advised  the  Company  that it believes  the
Company has a substantial  probability  of  prevailing  in such suit.  See "Part
II-Item 1. Legal Proceedings".

     In the ordinary course of business,  the Company  acquires  properties from
portfolio  acquisitions or and  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 and OREO  properties.  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 1998.

     Single-Family  Residential Lending.  The Company,  through its wholly-owned
subsidiary Tribeca Lending  Corporation  ("Tribeca"),  provides first and second
mortgages to a target market of communities  that are  under-served by banks and
other  lending  institutions.  This market  includes  borrowers  who do not meet
conventional  underwriting  criteria.  Tribeca focuses on developing an array of
niche   products   to   fulfill   needs   such  as  high  LTV,   non-conforming,
rehabilitation,  and second mortgages. Loans are originated through a network of
affiliates, including mortgage brokers, banks, and through a retail sales force.
The majority of loans  originated are ultimately  expected to be sold by Tribeca
in the secondary market. Tribeca processes, underwrites, and closes all loans in
its name, or in some  circumstances in a correspondent's  name where the loan is
purchased immediately after closing by the Company.

     During 1st Quarter 1998 Tribeca originated  $1,414,600 in mortgages,  which
compared with no  originations in the 1st Quarter of 1997, when Tribeca was in a
start-up phase.

           Tribeca Lending Origination Volume for the 1st Quarter 1998 
------------ ------------- -------------- ----------------- -------------------
                   FHA         1st Lien          2nd Lien             Total 
------------ ------------- -------------- ----------------- ------------------- 
------------ ------------- -------------- ----------------- -------------------
Face Value       258,800        888,800           267,000            1,414,600 
------------ ------------- -------------- ----------------- ------------------- 
------------ ------------- -------------- ----------------- -------------------
     Loans             2           7                 8                   17 
------------ ------------- -------------- ----------------- ------------------- 

     During 1st Quarter  1998 Tribeca  incurred an  operating  loss of $310,000.
This loss reflected  recognition of continuing start-up costs and an increase in
operating  expenses,  including  processing  and  broker and  account  executive
commissions,  without concurrent realization of substantial related revenues. As
of March 31, 1998,  Tribeca had approximately  $1.55 million face value of loans
held for sale.  Revenues  related to such loans,  other than  periodic  interest
payments, and fee income are expected to be realized upon sale of such loans.

     A  substantial  portion of  Tribeca's  costs  related to the  staffing  and
setting up of its New York operations and processing center and several regional
sales offices.  Management believes that Tribeca's current origination  capacity
is sufficient to support  substantially  increased  originations.  From April 1,
1998 through May 20, 1998 Tribeca had originated  approximately 87 loans with an
aggregate face value of $7.4 million. Additionally, in May, 1998 Tribeca entered
into a  letter  of  intent  for the  sale  of an  aggregate  for the  sale of an
aggregate  face  value of $1.55  million  of  loans,  however,  there  can be no
assurance  that  the   transaction   contemplated  by  such  agreement  will  be
consummated.

                                       12
<PAGE>


     Cost of Funds.  The  increase in the prime rate from 8.25% from  8.50%,  on
March 26, 1997,  increased  the  benchmark  rate for the interest on Senior Debt
used to fund loan  portfolio  acquisitions,  thereby  decreasing  net income for
subsequent  periods.  As of March 31,  1998,  the Company had  thirty-six  loans
outstanding  to its Senior Debt Lender with an  aggregate  principal  balance of
$96,146,029.  Additionally  the  Company  has  lines  of  credit  which  had  an
outstanding balance of $2,102,042 of which $1,456,627 was used to fund Tribeca's
loan  originations.  The remaining $645,415 was used to make advances to satisfy
senior  lien  positions  and  fund  capital   improvements  in  connection  with
foreclosures of certain real estate loans financed by the Company.

     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 based on the balances as of March 31,
1998 and  December  31,  1997 were  9.56% and  9.56%,  respectively.  Management
believes that any future increases in the prime rate will negatively  impact the
net income of the Company while  decreases may be expected to positively  impact
such net income.

     During a portion of 1997, the Company incurred  additional  financing costs
in the form of service  fees and loan  commitment  fees.  The  service  fees are
calculated as a percentage  of gross  collections  on four  specific  portfolios
while loan  commitment  fees are points based upon  origination  of Senior Debt.
Additionally, in March 1997, certain ongoing service fees payable on Senior Debt
were replaced with a 1% exit fee applicable  only to outstanding  Senior Debt as
of December  31, 1996,  for total fees  payable of  $700,000.  Such fees will be
payable after  repayment,  in full, of such Senior Debt. If the funds  collected
from the underlying  notes  receivable are  insufficient  to satisfy the related
Senior Debt any exit fee shortfall shall be forgiven.  The Company believes that
its  reduced  cost of  funds  will  have a  material  beneficial  impact  on the
Company's earnings.

     The impact of inflation on the Company's operations during both 1st Quarter
1998 and 1st Quarter of 1997 was immaterial.

Results of Operations 

The Three Months Ended March 31, 1998 
Compared to the Three Months Ended March 31, 1997. 

     Total revenue,  comprised of interest  income,  purchase  discount  earned,
gains  recognized on the bulk sale of notes,  gain on sale of notes  originated,
gain on sale of OREO,  rental income and other income,  decreased by $351,649 or
12%, to $2,609,504 during 1st Quarter 1998, from $2,961,153 during 1st Quarter
1997.

     Interest  income  on  notes  receivable  increased  by  $66,513  or 5%,  to
$1,341,777  during 1st Quarter 1998 from $1,275,264 during 1st Quarter 1997. 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
higher quality of the notes  acquired by the Company,  which results in a larger
portion of the revenues related to these notes being realized as interest income
as opposed to  purchase  discount,  and an  increase  in  collection  of accrued
interest on  non-performing  loans which had a partial or full settlement during
1st Quarter 1998.
           
     Purchase discount earned decreased by $556,861 or 35%, to $1,026,364 during
1st  Quarter  1998 from  $1,583,225  during  1st  Quarter  1997.  This  decrease
reflected the Company's  implementation beginning in 1997 of a policy of selling
reperforming  loans (which results in purchase discount which would otherwise be
earned in subsequent  periods being in part accelerated as gain on sale of loans
and in part lost to the purchaser),  a maturing of the Company's portfolio,  and
an increase of $1.2  million in face value of loans  foreclosed,  which  reduces
purchase  discount  available to be earned.  Purchase  discount  associated with
loans that are foreclosed may  subsequently  be realized in the form of any gain
resulting from the sale of such  foreclosed  property for more than the carrying
cost (the lower of cost or market) at the date of the  foreclosure.  The Company
believes that the aggregate sales proceeds on its OREO portfolio will exceed the
lower of cost or market value at which it is recorded.

                                       13
<PAGE>

            
     The Company conducted no bulk sales of notes during either 1st Quarter 1998
or 1st Quarter 1997.

     Gain on sale of notes originated by Tribeca was $122,429 during 1st Quarter
1998,  as  compared  with no such gain during 1st Quarter  1997.  This  increase
reflected Tribeca's initiation of its activities in September 1997.

     Gain on sale of OREO decreased by $138,573 to a loss of $104,305 during 1st
Quarter  1998 from a gain of $34,268  during 1st  Quarter  1997.  This  decrease
resulted primarily from the liquidation during 1st Quarter 1998 of a substantial
number of the  longest-held  OREO  properties  in the Company's  portfolio.  The
Company  believes that such  properties  were  characterized  by carrying  costs
higher than those typical for properties in the Company's  portfolio as a result
of their  having  been  financed  with  Senior  Debt  incurred  prior to various
reductions in the interest rates paid by the Company for new Senior Debt,  their
higher  incidence  of defects in title,  their higher  rehabilitation  costs and
their  more  remote  locations  than  properties   generally  in  the  Company's
portfolio.  As a result,  the  Company  believes  that its  disposition  of such
properties,  while at a loss,  will be  beneficial  to the  Company's  long-term
profitability.  The Company is  endeavoring to reduce the period of time that it
holds OREO assets for which the Company  believes  that sale is more  profitable
than rental, and believes that such a strategy will improve the profitability of
such sales.

     Rental  income  increased to $160,551  during 1st Quarter 1998, an compared
with immaterial  rental income during 1st Quarter 1997. This increase  reflected
an increase in the number of properties in the Company's portfolio for which the
Company  believes  that  renting  produces a greater  return than selling at the
present time and the rental returns on such property.

     Other income  decreased by $5,708 or 8%, to $62,688 during 1st Quarter 1998
from  $68,396  during 1st  Quarter  1997.  Other  income in the  Company's  core
operations  decreased  $22,765 which primarily  reflected a decline in late fees
resulting from an improvement in the Company's  borrowing base. This decline was
partially  offset by the  initiation  of  operating  activity  in Tribeca  which
produced other income of $17,057.

     Total  revenue  decreased  by  $351,649 or 12%,  to  $2,961,154  during 1st
Quarter 1998, from $2,961,253  during 1st Quarter 1997. Total revenue during 1st
Quarter 1998 as a percentage of net notes receivable  (i.e.  notes  receivable),
net of allowance for loan losses and joint venture  participation as of the last
day of such quarter, on an annualized basis was 10.5% as compared with 13.1% for
1st Quarter 1997. This decline  reflected the decline in revenues,  as described
above, and an increase in net notes receivable at the end of 1st Quarter 1998 as
compared with the end of 1st Quarter 1997.

     Total operating  expenses increased by $520,383 or 17% to $3,668,952 during
1st Quarter  1998 from  $3,148,569  during 1st  Quarter  1997.  Total  operating
expenses  includes  interest  expense,  collection,  general and  administrative
expenses,  provisions  for  loan  losses,  service  fees,  amortization  of loan
commitment fees and depreciation expense.

                                       14
<PAGE>


     Interest  expense  increased  by  $95,602 or 5%, to  $2,050,957  during 1st
Quarter 1998 from  $1,955,355  during 1st Quarter 1997.  Total debt increased by
$19,454,014  or 24%,  to  $99,328,986  as of March  31,  1998 as  compared  with
$79,874,972 as of March 31, 1997.  Total debt includes Senior Debt,  debentures,
lines of credit and loans from affiliates.

     Collection,  general and  administrative  expenses increased by $507,116 or
51%, to  $1,501,992  during 1st Quarter  1998 from  $994,876  during 1st Quarter
1997.  Collection,  general and  administrative  expense  consists  primarily of
personnel expense,  OREO related expense,  litigation expense, and miscellaneous
collection expense.

     Personnel  expenses  increased  by $344,957 or 105% to $672,433  during 1st
Quarter 1998 from  $327,476  during 1st Quarter  1997.  This  increase  resulted
largely  from the  staffing  of Tribeca,  which  accounted  for  $233,676 of the
increase, and increases in staffing and the experience level of personnel in the
Company's core business.  OREO related expenses increased by $186,962 or 356% to
$239,417  during 1st Quarter 1998 from  $52,455  during 1st Quarter  1997.  This
increase  resulted from an increase in properties held as OREO to $10,617,712 as
of March 31,  1998 from  $6,325,978  as of March 31, 1997 and an increase in the
Company's  rental  portfolio and its related  expenses,  which in turn reflected
increased  foreclosure  activity  resulting  from  the  growth  in  size  of the
Company's  portfolio and the  increased  purchase of OREO.  Litigation  expenses
decreased by $69,323 or 21%, to $254,971  during 1st Quarter 1998 from  $324,294
during 1st Quarter 1997.  This decrease  reflected an increase in the negotiated
settlements of the Company's collection actions, which it believes is related to
the generally higher value of the collateral  securing the Company's newer notes
receivable  and the  resulting  increased  incentive  for the  borrower to avert
foreclosure.  All other collection  expenses  increased by $44,520 or 15% during
1st Quarter  1998 to  $335,171  from  $290,651  during 1st  Quarter  1997.  This
increase reflected the increase size of Company's portfolio of notes receivable.

     Provisions  for loan losses  decreased by $63,182 or 66%, to $32,830 during
1st Quarter 1998 from $96,012  during 1st Quarter 1997.  This decrease  reflects
the improved performance during 1st Quarter 1998 of the Company's portfolio. Bad
debt expense  expressed on an annualized  basis as a percentage of face value of
notes  receivable  as of the last day of such  quarters for 1st Quarter 1998 and
1st Quarter 1997 was approximately 0.10% and 0.34%, respectively.

     Service fees  decreased  by $31,395 or 100%,  to $0 during 1st Quarter 1998
from  $365,459  during  1st  Quarter  1997.  This  decrease  resulted  from  the
elimination  of service fees charged by its Senior Debt Lender  effective  March
1997. See "General- Cost of Funds."
     Amortization  of deferred  financing  costs  decreased  by $2,472 or 4%, to
$52,787  during 1st Quarter  1998 from  $55,259  during 1st Quarter  1997.  This
decrease  resulted  from a decrease in the asset  balance of deferred  financing
costs relative to the Company's total Senior Debt outstanding. On March 31, 1998
and March 31,  1997  deferred  financing  costs as a  percentage  of Senior Debt
outstanding was 1.31% and 1.69%, respectively.

     Depreciation  expense  increased  $14,714  or 94%,  to  $30,386  during 1st
Quarter 1998 from $15,672 during 1st Quarter 1997.  This increase  resulted from
an increase in depreciable assets owned by the Company.

     Net income decreased by $872,032 to a loss of $1,059,448 during 1st Quarter
1998 from a loss of $187,316  during 1st Quarter 1997 as a result of the factors
described .
           

                                       15
<PAGE>

Liquidity and Capital Resources 

     General.  During 1st Quarter 1998 the Company  purchased 1,196 loans in two
portfolios with an aggregate face value of $17,774,323 at an aggregate  purchase
price of  $15,585,498 or 88% of the face value and no OREO  properties  compared
with the purchase during 1st Quarter 1997 of 234 loans in six portfolios with an
aggregate face value of $19,471285 at an aggregate purchase price of $12,416,321
or 64% of aggregate face value, and no OREO properties.  This increase, measured
by purchase price,  reflected the increase in  competitiveness  of the Company's
bids  resulting  from the  reduction in its cost of funds  relative to the prime
rate and the increase in bidding  opportunities  associated  with the  Company's
beginning  to  purchase   performing  loans  and  well  as  non-conforming   and
sub-performing  loans.  The increase in purchase  price as a percentage  of face
value of the loans purchased  similarly  reflected the increased quality of such
loans.

     The  Company's  portfolio of notes  receivable at March 31, 1998 had a face
value of  $127,347,211  and  included  net  notes  receivable  of  approximately
$84,756,973. The Company's portfolio of notes receivable at March 31, 1997 had a
face value of $113,576,198  and included net notes  receivable of  approximately
$73,221,736.  Net notes receivable are stated at the amount of unpaid principal,
reduced by purchase  discount,  an allowance for loan losses,  and joint venture
participation.  The  Company  has the ability and intent to hold its notes until
maturity,   payoff  or   liquidation   of  collateral   or  where   economically
advantageous, sale.

     During 1st Quarter 1998,  the Company used cash in the amount of $2,651,172
in its operating activities primarily for interest expense, overhead, litigation
expense incidental to its ordinary collection activities and for the foreclosure
and  improvement  of  OREO.  The  Company  used  $11,030,367  in  its  investing
activities, which reflected primarily the purchase of notes receivable offset by
principal collections upon its notes receivable and proceeds from sales of OREO.
The amount of cash used in  operating  and  investing  activities  was funded by
$13,157,882 of net cash provided by financing  activities,  primarily from a net
increase in Senior Debt of $12,502,481.  The above activities  resulted in a net
decrease in cash at March 31, 1998 over December 31, 1997 of $523,657.

     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 March 31,  1998 and 1997,  the  Company  held OREO  recorded on the
financial  statements  at  $10,617,712  and  $6,325,978,  respectively.  OREO is
recorded on the financial statements of the Company at the lower of cost or fair
market value. The Company estimates,  based on third party appraisals and broker
price  opinions,  that  the  OREO  inventory  held at  March  31,  1998,  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   $11.5  million  based  on  market  analyses  of  the  individual
properties less the estimated closing costs. 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.

     Tribeca  Operating  Loss.  During 1st  Quarter  1998  Tribeca  incurred  an
operating loss of $315,066.  This loss stemmed from  substantial  start-up costs
and an increase in operating expenses was associated with the ramp-up of the new
business  and the lag time which may be  expected  before the  related  revenues
begin to be  realized.  The Company  funded the  start-up  of Tribeca  with $1.1
million of proceeds  from the  refinancing  of two loan  portfolios  through its
Senior Debt  Lender.  Additionally,  such  lender has  provided  Tribeca  with a
warehouse  line of credit of $2,000,000 to fund loan  originations.  The Company
has  secured  additional  warehouse  lines of credit for  Tribeca's  use of $9.5
million from two other lending institutions. Tribeca began originating mortgages
on September 1, 1997. There can be no assurances that Tribeca will earn a profit
in the  future,  however,  management  believes  that  Tribeca's  existing  cash
balances,  credit lines, and anticipated cash flow from operations together with
advances from the Company will provide  sufficient working capital resources for
Tribeca's anticipated operating needs.

                                       16
<PAGE>


Cash Flow From Operating and Investing Activities 

     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 collections on notes receivable
and gain on sale notes and OREO properties.

     At March 31, 1998, the Company had unrestricted  cash, cash equivalents and
marketable securities of $2,260,263.  A portion of the Company's available funds
may be applied to fund  acquisitions  of  companies  or assets of  companies  in
complementary or related fields.  Although the Company from time to time engages
in discussions and negotiations,  it currently has no agreements with respect to
any  particular  acquisition.  This may cause the  Company  to incur  additional
capital expenditures, outside the acquisitions of additional notes receivable.

     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.

Cash Flow From Financing Activities 

     Senior  Debt.  As of March 31,  1998,  the  Company  owed an  aggregate  of
$96,146,029 to the Senior Debt Lender, under 36 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 at variable rates of 0%, 1%
and 1.75% over the prime rate. The accelerated  payment provisions of the Senior
Debt 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 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 which is available to the Company.

     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,  held by
the Company's Senior Debt Lender.  Restricted cash may be accessed by the Senior
Debt 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
$1,000,466 and $706,767 on March 31, 1998 and March 31, 1997, respectively.

                                       17
<PAGE>


     Total Senior Debt  availability was  approximately  $125.0 million at March
31, 1998,  of which  approximately  $96.1 million had been drawn down as of such
date. Additionally the Senior Debt Lender has verbally informed the Company that
it will not deem approximately $10 million of Senior Debt that it had syndicated
to other  banks as of such  date as  outstanding  for  purposes  of  determining
availability  under of Senior Debt. As a result,  the Company has  approximately
$37.9 million  available to purchase  additional  portfolios of notes receivable
and OREO.

     12%  Debentures.  In connection  with the  acquisition  of a loan portfolio
during  1994,  the  Company  offered  to  investors   $750,000  of  subordinated
debentures  ("12%  Debentures").  As of March 31, 1998 and  December  31,  1997,
$308,437 and $352,500,  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 that  commenced  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.

     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 of which  $555,000 were  purchased.  As of
March 31, 1998 and December 31, 1997,  $488,400 and $510,600,  respectively,  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
which  payments  commenced  on  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.

     Lines of Credit.  The  Company  has a line of credit  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 lines is 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, 1998 and December 31, 1997,  were  $645,415 and $583,916,
respectively. Advances made under the line of credit 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 lines of
credit 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 be  required  to hold as rental  property to maximize  its
return.

                                       18
<PAGE>

                             Part II Other Information 

Item 1.  Legal Proceedings 
     Asset Purchase Agreement Dispute.  On August 19, 1997 the Company commenced
a civil action in the United States District Court for the Southern  District of
New York against Preferred Credit Corporation  ("PCC") alleging fraud, breach of
contract,  and unjust  enrichment in connection with the purchase by the Company
of $3.7 million in face value of notes receivable from ("PCC") for $1.8 million.
The  Company is seeking  recision  of the asset  purchase  agreement  or damages
incurred in connection with the purchase.

     Although  the Company  conducted  its own review of each loan file,  it has
come to believe since the closing of the  acquisition  that certain  information
was  intentionally  omitted  or  removed  from  such  files  or kept in  another
repository  of files  which was not made  available  to the Company and that PCC
intentionally and materially  misrepresented the status and quality of the notes
receivable included in the portfolio.  Although, its estimate will be refined as
the purchased portfolio is seasoned, the Company currently believes that as much
as  approximately  90% of the face value of the portfolio may be  uncollectable,
due to debtor  bankruptcies,  in certain instances prior to the execution of the
Asset  Purchase  Agreement,  or senior  credit  foreclosures  of the  underlying
collateral.

     PCC filed a motion to dismiss in December 1997 which has been fully briefed
and is currently  before the court for a decision on the matter.  The  Company's
litigation  counsel has advised the Company  that it believes  the Company has a
substantial probability of prevailing in such suit.

     Letter Agreement Dispute. On November 17, 1997 K Mortgage Corporation ("K")
filed a civil  action in the  United  States  District  Court  for the  Southern
District  Court of New York  against the  Company,  Tribeca,  and Thomas J. Axon
alleging breach of contract,  fraud, and unjust  enrichment in connection with a
May 9, 1997 letter agreement (the "Letter Agreement")  pursuant to which Tribeca
was to purchase  certain  assets of K and retain three  principles  of K as paid
consultants  and employ a fourth,  Jim Ragan  ("Ragan").  In the suit K seeks to
recover  for  damages of $10  million  for the  failure  of the  Company to make
certain  payments to third parties,  provide Ragan with an employment  agreement
and provide the three other principals of with consulting  contracts pursuant to
the terms of the Letter Agreement.

     On  December  22,  1997  the  Company  filed  an  answer  and  counterclaim
vigorously  denying the  allegations  of the  complaint  and alleging  fraud and
breach of contract  against K and Ragan,  and breach of  fiduciary  duty against
Ragan  in  what  it  believes  to  have  been  Ragan's  unjustified   unilateral
termination of his  employment in violation of the Letter  Agreement and asserts
its claims and seeking damages of $1 million.  The Company intends to vigorously
asserts  its claims and defend  itself  against  K's claims and does not at this
time  believe  that its  operations  or financial  position  will be  materially
impacted. The court has directed all parties to proceed with mediation, which is
currently scheduled for May 1998.

     Legal Fee  Dispute.  On October 28, 1997 Rosen,  Dainow & Jacobs  ("Rosen")
filed a civil  action  against the Company in the Supreme  Court of the State of
New York,  County of New York  alleging  failure by the  Company to pay fees due
Rosen in connection with work done for the Company in the Trademark  Dispute and
seeking  $145,000 in damages.  Rosen was  dismissed by the Company as counsel in
the Trademark  Dispute after the law partnership was disbanded and James Jacobs,
the lead attorney for the Company in the Trademark  Dispute,  joined a firm that
was representing Franklin Resources,  Inc in other matters. The Company plans to
vigorously  defend itself in this matter and at this time does not feel that its
operations or financial position will be materially impacted.

     Other Legal Actions.  Since in July, 1991, the Company has been a plaintiff
in various actions  ("Miramar  Litigation")  and party to settlements,  with the
former directors and officers of Miramar Resources, Inc. ("Miramar"),  a company
which the  Company  merged  with in 1994,  based upon  allegations  relating  to
certain premerger events.  Information regarding the Miramar Litigation ("Shultz
Settlement") concerning these matters,  specifically the Shultz Settlement,  and
the legal status of the Company's  collection efforts is incorporated  herein by
reference  to "Item 3.  Legal  Proceedings"  included  in the  Company's  Annual
Reports on Form 10-KSB for the year ended December 31, 1994, 1996, and 1997.

                                       19
<PAGE>


Item 2.  Changes in Securities 
                  None 

Item 3.  Defaults Upon Senior Securities 
                  None 

Item 4.  Submission of Maters 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  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 and as amended by 
           the Company's 10-KSB, filed with the Commission on May 14, 1998. 

   (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(d)     Employment  Agreement,  dated  December  4,  1996,  between  the 
           Company and Joseph Caiazzo. Previously  filed with, and incorporated
           herein by reference to, the  Company's  Form 10K-SB, filed with the
           Commission on March 31, 1997. 

 10(e)     Agreement dated March 29, 1997 between the Company and Citizens
           Banking Company.
 11        Computation of earnings per share.  Filed here with. 
 21        Listing of subsidiaries.  Filed here with. 
(b)        No reports on Form 8-K were filed during the first quarter of 1998. 



                                       20
<PAGE>

     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 29, 1998                    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 29, 1998 
Thomas J. Axon             and Director 
(Principal executive officer)  


FRANK B. EVANS, Jr.         Vice President, Treasurer,            May 29, 1998 
Frank B. Evans, Jr.         Chief Financial Officer and Director 
Secretary (Principal financial and accounting officer) 


JOSEPH CAIAZZO              Vice President, Chief Operating       May 29, 1998 
Joseph Caiazzo              Officer and Director                                


                                       21
<PAGE>



Exhibit 11 

Computation of earnings per share 1st quarter 1998 


                                        No. of Shares     Weight 

6/30/97 Common stock                      5,516,527
                                         -----------
                                          5,516,527         25%     1,379,132 
                                                     

9/30/97 Common stock                      5,516,527 
                                         -----------
                                          5,516,527         25%     1,379,132 
                                                        

12/31/97 Common stock                     5,516,527 
                                         -----------
                                          5,516,527         25%     1,379,132 
                                                       

3/31/98 Common stock                      5,516,527 
                                         -----------
                                          5,516,527        25%      1,379,132 
                                                   

                                          22,066,108 

                 Weighted average number of shares                  5,516,527 

Earnings per Common share: 
                 Net Income              $(1,059,448)          $        (0.19) 

                                       22
<PAGE>