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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**For      the quarterly period ended March 31, 2006**

**o Transition      report      pursuant to Section 13 or 15(d) of the Securities Exchange**

**For      the transition period from ________ to ___________ Act of      1934**

**Commission      file number **
**0-17771**

**FRANKLIN      CREDIT MANAGEMENT CORPORATION**

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

**101      Hudson Street**

**Jersey      City, New Jersey 07302**

**(201)      604-1800**

 x      Non-accelerated      filer

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|                          |                                                                                 |  **Page** |
|-------------------------------|--------------------------------------------------------------------------------------|----------------|
| **PART                  I.**  | **FINANCIAL                  INFORMATION**                                           |           |
| Item                  1.      | Financial                  Statements (Unaudited)                                    |           |
|                          | Consolidated                  Balance Sheets at March 31, 2006 and December 31, 2005 | 3              |
|                          | Consolidated                  Statements of Income for the three months ended        |           |
|                          | March                  31, 2006 and March 31, 2005                                   | 4              |
|                          | Consolidated                  Statement of Changes in Stockholders’ Equity     |           |
|                          | for                  the three months ended March 31, 2006                           | 5              |
|                          | Consolidated                  Statements of Cash Flows for the three months ended    |           |
|                          | March                  31, 2006 and March 31, 2005                                   | 6              |
|                          | Notes                  to Consolidated Financial Statements                          | 7              |
| Item                  2.      | Management’s                  Discussion and Analysis of Financial Condition   |           |
|                          | and                  Results of Operations                                           | 16             |
|                          | Application                  of Critical Accounting Policies and Estimates           | 16             |
|                          | Portfolio                  Characteristics                                           | 17             |
|                          | Results                  of Operations                                               | 23             |
|                          | Liquidity                  and Capital Resources                                     | 25             |
|                          | Borrowings                                                                           | 27             |
| Item                  3.      | Quantitative                  and Qualitative Disclosures about Market Risk          | 31             |
| Item                  4.      | Controls                  and Procedures                                             | 32             |
| **PART                  II.** | **OTHER                  INFORMATION**                                               |           |
| Item                  1.      | Legal                  Proceedings                                                   | 33             |
| Item                  1A.     | Risk                  Factors                                                        | 33             |
| Item                  2.      | Unregistered                  Sales of Equity Securities and Use of Proceeds         | 36             |
| Item                  3.      | Defaults                  Upon Senior Securities                                     | 36             |
| Item                  4.      | Submission                  of Matters to a Vote of Security Holders                 | 36             |
| Item                  5.      | Other                  Information                                                   | 36             |
| Item                  6.      | Exhibits                  and Reports on Form 8-K                                    | 37             |
| SIGNATURES                    |                                                                                 | 38             |

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**FRANKLIN      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**

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|                                                                                                                                                                                                                                          |   | **March                31, 2006****(Unaudited)** |          | **December                31, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------------|--------------------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                    |   |                                             |          |                                 |   |
| Cash                and cash equivalents                                                                                                                                                                                                      |   | $                                                | 3,612,357     |                                 | $      | 3,886,506 |   |
| Restricted                cash                                                                                                                                                                                                                |   |                                             | 28,614,395    |                                 |   | 17,008,649 |   |
| Short-term                investments                                                                                                                                                                                                         |   |                                             | 18,028,916    |                                 |   | 16,954,019 |   |
| Notes                Receivable:                                                                                                                                                                                                              |   |                                             |          |                                 |   |   |   |
| Principal                                                                                                                                                                                                                                     |   |                                             | 948,233,500   |                                 |   | 934,657,413 |   |
| Purchase                discount                                                                                                                                                                                                              |   |                                             | (16,588,514   | )                                    |   | (17,809,940 | ) |
| Allowance                for loan losses                                                                                                                                                                                                      |   |                                             | (62,037,149   | )                                    |   | (67,276,155 | ) |
| Net                notes receivable                                                                                                                                                                                                           |   |                                             | 869,607,837   |                                 |   | 849,571,318 |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| Originated                loans held for sale                                                                                                                                                                                                 |   |                                             | 10,021,156    |                                 |   | 12,844,882 |   |
| Originated                loans held for investment, net                                                                                                                                                                                      |   |                                             | 428,229,097   |                                 |   | 372,315,935 |   |
| Accrued                interest receivable                                                                                                                                                                                                    |   |                                             | 13,458,894    |                                 |   | 13,341,964 |   |
| Other                real estate owned                                                                                                                                                                                                        |   |                                             | 20,122,886    |                                 |   | 19,936,274 |   |
| Deferred                financing costs, net                                                                                                                                                                                                  |   |                                             | 10,388,997    |                                 |   | 10,008,473 |   |
| Other                receivables                                                                                                                                                                                                              |   |                                             | 6,271,921     |                                 |   | 7,309,505 |   |
| Building,                furniture and equipment, net                                                                                                                                                                                         |   |                                             | 3,867,629     |                                 |   | 4,029,481 |   |
| Other                assets                                                                                                                                                                                                                   |   |                                             | 1,323,268     |                                 |   | 1,033,583 |   |
| Total                assets                                                                                                                                                                                                                   |   | $                                                | 1,413,547,353 |                                 | $      | 1,328,240,589 |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                 |   |                                             |          |                                 |   |   |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| Liabilities:                                                                                                                                                                                                                                  |   |                                             |          |                                 |   |   |   |
| Notes                payable, net of debt discount of $3,188,889 at March 31, 2006and                $3,002,767 at December 31, 2005                                                                                                          |   | $                                                | 1,294,853,557 |                                 | $      | 1,203,880,994 |   |
| Financing                agreements                                                                                                                                                                                                           |   |                                             | 48,259,189    |                                 |   | 57,284,085 |   |
| Accounts                payable and accrued expenses                                                                                                                                                                                          |   |                                             | 13,617,595    |                                 |   | 12,971,954 |   |
| Success                fee liability                                                                                                                                                                                                          |   |                                             | 6,194,615     |                                 |   | 5,721,918 |   |
| Deferred                income tax liability                                                                                                                                                                                                  |   |                                             | 1,065,223     |                                 |   | 787,470 |   |
| Total                liabilities                                                                                                                                                                                                              |   |                                             | 1,363,990,179 |                                 |   | 1,280,646,421 |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| Commitments                and Contingencies                                                                                                                                                                                                  |   |                                             |          |                                 |   |   |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| Stockholders’                Equity:                                                                                                                                                                                                    |   |                                             |          |                                 |   |   |   |
| Preferred                stock, $.01 par value; authorized 3,000,000; issued - none                                                                                                                                                           |   |                                             | -             |                                 |   | - |   |
| Common                stock and additional paid-in capital, $.01 par value, 22,000,000                authorized shares; issued and outstanding: 7,544,295 at March 31,                2006 and                7,539,295 at December 31, 2005 |   |                                             | 21,171,219    |                                 |   |  21,292,252 |   |
| Unearned                compensation                                                                                                                                                                                                          |   |                                             |  -       |                                 |   | (297,291 | )  |
| Retained                earnings                                                                                                                                                                                                              |   |                                             | 28,385,955    |                                 |   | 26,599,207 |   |
| Total                stockholders’ equity                                                                                                                                                                                               |   |                                             | 49,557,174    |                                 |   | 47,594,168 |   |
|                                                                                                                                                                                                                                          |   |                                             |          |                                 |   |   |   |
| Total                liabilities and stockholders’ equity                                                                                                                                                                               |   | $                                                | 1,413,547,353 |                                 | $      | 1,328,240,589 |   |

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**FRANKLIN      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**

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|                                                              |   | **Three                Months Ended March 31,** |       |
|-------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                              |   | **2006**                                        |       | **2005****(Restated)** |   |
| **Revenues:**                                                     |   |                                            |       |   |   |
| Interest                income                                    |   | $                                               | 33,442,311 |   | $ | 22,877,198 |   |
| Purchase                discount earned                           |   |                                            | 1,978,963  |   |   | 2,251,481 |   |
| Gain                on sale of notes receivable                   |   |                                            | 69,049     |   |   | - |   |
| Gain                on sale of originated loans held for sale     |   |                                            | 165,872    |   |   | 327,927 |   |
| Gain                on sale of other real estate owned            |   |                                            | 801,542    |   |   | 255,981 |   |
| Prepayment                penalties and other income              |   |                                            | 2,205,205  |   |   | 1,389,412 |   |
| Total                revenues                                     |   |                                            | 38,662,942 |   |   | 27,101,999 |   |
|                                                              |   |                                            |       |   |   |   |   |
| **Operating                Expenses:**                            |   |                                            |       |   |   |   |   |
| Interest                expense                                   |   |                                            | 24,491,567 |   |   | 13,180,270 |   |
| Collection,                general and administrative             |   |                                            | 7,947,880  |   |   | 6,678,751 |   |
| Provision                for loan losses                          |   |                                            | 1,869,130  |   |   | 1,198,218 |   |
| Amortization                of deferred financing costs           |   |                                            | 908,015    |   |   | 692,987 |   |
| Depreciation                                                      |   |                                            | 311,705    |   |   | 205,474 |   |
| Total                expenses                                     |   |                                            | 35,528,297 |   |   | 21,955,700 |   |
|                                                              |   |                                            |       |   |   |   |   |
| Income                before provision for income taxes           |   |                                            | 3,134,645  |   |   | 5,146,299 |   |
| Provision                for income taxes                         |   |                                            | 1,347,897  |   |   | 2,371,170 |   |
| Net                income                                         |   | $                                               | 1,786,748  |   | $ | 2,775,129 |   |
|                                                              |   |                                            |       |   |   |   |   |
| **Net                income per common share:**                   |   |                                            |       |   |   |   |   |
| Basic                                                             |   | $                                               | 0.24       |   | $ | 0.46 |   |
| Diluted                                                           |   | $                                               | 0.22       |   | $ | 0.42 |   |
|                                                              |   |                                            |       |   |   |   |   |
| **Weighted                average number of shares outstanding:** |   |                                            |       |   |   |   |   |
| Basic                                                             |   |                                            | 7,516,670  |   |   | 5,982,295 |   |
| Diluted                                                           |   |                                            | 8,001,749  |   |   | 6,685,125 |   |

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**FRANKLIN      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**

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|                                                                                |   | **Common                Stock and****Additional                Paid-in Capital** |      |       |   |                     |   |                         |       |
|-------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|-----------|------------|--------|--------------------------|--------|------------------------------|------------|
|                                                                                |   | **Shares**                                                                       |      | **Amount** |   | **Retained****Earnings** |   | **Unearned****Compensation** |       | **Total** |   |
| BALANCE,                JANUARY 1, 2006                                             |   |                                                                             | 7,539,295 |       | $      | 21,292,252               |   | $                            | 26,599,207 |   | $ | (297,291 | ) | $ | 47,594,168 |   |
|                                                                                |   |                                                                             |      |       |   |                     |   |                         |       |   |   |   |   |   |   |   |
| Reclassification                adjustment on adoptionof                FASB 123(R) |   |                                                                             |      |       |   | (297,291                 | )      |                         |       |   |   | 297,291 |   |   | - |   |
| Options                exercised                                                    |   |                                                                             | 5,000     |       |   | 27,500                   |   |                         |       |   |   |   |   |   | 27,500 |   |
| Stock-based                compensation                                             |   |                                                                             |      |       |   | 148,758                  |   |                         |       |   |   |   |   |   | 148,758 |   |
| Net                income                                                           |   |                                                                             |      |       |   |                     |   |                         | 1,786,748  |   |   |   |   |   | 1,786,748 |   |
|                                                                                |   |                                                                             |      |       |   |                     |   |                         |       |   |   |   |   |   |   |   |
| BALANCE,                MARCH 31, 2006                                              |   |                                                                             | 7,544,295 |       | $      | 21,171,219               |   | $                            | 28,385,955 |   | $ | - |   | $ | 49,557,174 |   |
|                                                                                |   |                                                                             |      |       |   |                     |   |                         |       |   |   |   |   |   |   |   |

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**FRANKLIN      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**

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|                                                                                                                  |   | **Three                Months Ended March 31,** |         |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------------|
|                                                                                                                  |   | **2006**                                        |         | **2005****(Restated)** |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                  |   |                                            |         |   |   |
| Net                income                                                                                             |   | $                                               | 1,786,748    |   | $ | 2,775,129 |   |
| Adjustments                to reconcile income to net cash provided by/(used in) operating                activities: |   |                                            |         |   |   |   |   |
| Gain                on sale of notes receivable                                                                       |   |                                            | (69,049      | ) |   | - |   |
| Gain                on sale of other real estate owned                                                                |   |                                            | (801,542     | ) |   | (255,981 | ) |
| Gain                on sale of originated loans held for sale                                                         |   |                                            | (165,872     | ) |   | (327,927 | ) |
| Depreciation                                                                                                          |   |                                            | 311,705      |   |   | 205,474 |   |
| Amortization                of deferred costs and fees on originated loans                                            |   |                                            | 21,660       |   |   | 465,507 |   |
| Amortization                of deferred financing costs                                                               |   |                                            | 908,015      |   |   | 692,987 |   |
| Amortization                of debt discount and success fees                                                         |   |                                            | 286,576      |   |   | 212,839 |   |
| Non-cash                compensation                                                                                  |   |                                            | 148,758      |   |   | 165,000 |   |
| Proceeds                from the sale of and principal collections on loans held for                sale              |   |                                            | 7,217,309    |   |   | 13,819,015 |   |
| Origination                of loans held for sale                                                                     |   |                                            | (4,781,950   | ) |   | (14,269,650 | ) |
| Deferred                tax provision                                                                                 |   |                                            | 277,753      |   |   | (141,934 | ) |
| Purchase                discount earned                                                                               |   |                                            | (1,978,963   | ) |   | (2,251,481 | ) |
| Provision                for loan losses                                                                              |   |                                            | 1,869,130    |   |   | 1,198,218 |   |
| Changes                in operating assets and liabilities:                                                           |   |                                            |         |   |   |   |   |
| Accrued                interest receivable                                                                            |   |                                            | (116,930     | ) |   | (1,443,008 | ) |
| Other                receivables                                                                                      |   |                                            | 1,037,585    |   |   | (1,735,514 | ) |
| Other                assets                                                                                           |   |                                            | (289,685     | ) |   | 1,863,611 |   |
| Accounts                payable and accrued expenses                                                                  |   |                                            | 645,641      |   |   | 347,607 |   |
| Net                cash provided by operating activities                                                              |   |                                            | 6,306,889    |   |   | 1,319,892 |   |
|                                                                                                                  |   |                                            |         |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                  |   |                                            |         |   |   |   |   |
| Increase                in restricted cash                                                                            |   |                                            | (11,605,746  | ) |   | (2,835,228 | ) |
| Purchase                of notes receivable                                                                           |   |                                            | (95,907,234  | ) |   | (98,522,946 | ) |
| Principal                collections on notes receivable                                                              |   |                                            | 68,050,038   |   |   | 57,046,430 |   |
| Principal                collections on loans held for investment                                                     |   |                                            | 44,443,779   |   |   | 12,394,909 |   |
| Origination                of loans held for investment                                                               |   |                                            | (99,642,068  | ) |   | (73,654,566 | ) |
| Investment                in short-term securities                                                                    |   |                                            | (1,074,897   | ) |   | - |   |
| Proceeds                from sale of other real estate owned                                                          |   |                                            | 8,347,640    |   |   | 7,034,795 |   |
| Proceeds                from sale of notes receivable                                                                 |   |                                            | 84,553       |   |   | - |   |
| Purchase                of building, furniture and equipment                                                          |   |                                            | (149,852     | ) |   | (251,856 | ) |
| Net                cash used in investing activities                                                                  |   |                                            | (87,453,787  | ) |   | (98,788,462 | ) |
|                                                                                                                  |   |                                            |         |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                  |   |                                            |         |   |   |   |   |
| Proceeds                from notes payable                                                                            |   |                                            | 204,983,359  |   |   | 183,247,345 |   |
| Principal                payments of notes payable                                                                    |   |                                            | (113,824,675 | ) |   | (74,778,957 | ) |
| Proceeds                from financing agreements                                                                     |   |                                            | 105,217,323  |   |   | 87,195,847 |   |
| Principal                payments of financing agreements                                                             |   |                                            | (114,242,219 | ) |   | (95,217,251 | ) |
| Payment                of deferred financing costs                                                                    |   |                                            | (1,288,539   | ) |   | (1,007,503 | ) |
| Exercise                of options                                                                                    |   |                                            | 27,500       |   |   | 23,000 |   |
| Net                cash provided by financing activities                                                              |   |                                            | 80,872,749   |   |   | 99,462,481 |   |
|                                                                                                                  |   |                                            |         |   |   |   |   |
| NET                CHANGE IN CASH AND CASH EQUIVALENTS                                                                |   |                                            | (274,149     | ) |   | 1,993,911 |   |
| CASH                AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                           |   |                                            | 3,886,506    |   |   | 5,127,732 |   |
| CASH                AND CASH EQUIVALENTS, END OF YEAR                                                                 |   | $                                               | 3,612,357    |   | $ | 7,121,643 |   |
|                                                                                                                  |   |                                            |         |   |   |   |   |
| SUPPLEMENTAL                DISCLOSURES OF CASH FLOW INFORMATION                                                      |   |                                            |         |   |   |   |   |
| Cash                payments for interest                                                                             |   | $                                               | 20,883,979   |   | $ | 12,654,694 |   |
| Cash                payments for taxes                                                                                |   | $                                               | 1,388,218    |   | $ | 228,872 |   |
|                                                                                                                  |   |                                            |         |   |   |   |   |
| NON-CASH                INVESTING AND FINANCING ACTIVITY:                                                             |   |                                            |         |   |   |   |   |
| Transfer                of loans from held for sale to loans held for investment                                      |   | $                                               | 443,623      |   | $ | - |   |
| Transfer                from notes receivable and loans held for investment to                OREO                    |   | $                                               | 12,235,621   |   | $ | 12,066,716 |   |

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**FRANKLIN      CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES**

**1.     **
**BUSINESS**

***Loan      Acquisitions***

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

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

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

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***Loan      Originations***

***Loan      Servicing***

| **2.     ** | **RESTATEMENT** |
|--------------------------------------|-----------------|

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|   |   | **Net                Income****(As                Previously****Reported)** |      | **Deferred                Acquisition Costs (SFAS No. 91)** |   | **Success                Fees****(SFAS                No. 133)** |   | **Other** |     | **Net                Income****(Restated)** |   |
|--------|--------|-----------------------------------------------------------------------------|-----------|-------------------------------------------------------------|--------|------------------------------------------------------------------|--------|-----------|----------|---------------------------------------------|--------|
| Q12005 |   | $                                                                           | 3,070,824 |                                                        | $      | (115,284                                                         | )      | $         | (118,808 | )                                           | $      | (61,603 | ) | $ | 2,775,129 |   |

***Restated      Statement of Income Information for Three Months Ended March 31, 2005      (Unaudited)***

|                                                    |   | **Three                Months Ended March 31, 2005** |       |
|---------------------------------------------------------|--------|------------------------------------------------------|------------|
|                                                    |   | **As                Previously****Reported**         |       | **Restated** |   |
| REVENUES:                                               |   |                                                 |       |   |   |
| Gain                on sale of loans held for sale      |   | $                                                    | 663,704    |   | $ | 327,927 |   |
| Prepayment                penalties and other income    |   |                                                 | 1,842,916  |   |   | 1,389,412 |   |
| Total                revenues                           |   |                                                 | 27,891,280 |   |   | 27,101,999 |   |
|                                                    |   |                                                 |       |   |   |   |   |
| OPERATING                EXPENSES:                      |   |                                                 |       |   |   |   |   |
| Interest                expense                         |   |                                                 | 13,018,345 |   |   | 13,180,270 |   |
| Collection,                general and administrative   |   |                                                 | 7,089,544  |   |   | 6,678,751 |   |
| Total                expenses                           |   |                                                 | 22,204,568 |   |   | 21,955,700 |   |
|                                                    |   |                                                 |       |   |   |   |   |
| INCOME                BEFORE PROVISION FOR INCOME TAXES |   |                                                 | 5,686,712  |   |   | 5,146,299 |   |
| PROVISION                FOR INCOME TAXES               |   |                                                 | 2,615,888  |   |   | 2,371,170 |   |
| NET                INCOME                               |   |                                                 | 3,070,824  |   |   | 2,775,129 |   |
|                                                    |   |                                                 |       |   |   |   |   |
| EARNINGS                PER SHARE:                 |   |                                                 |       |   |   |   |   |
| Basic                                                   |   | $                                                    | 0.51       |   | $ | 0.46 |   |
| Diluted                                                 |   | $                                                    | 0.45       |   | $ | 0.42 |   |
|                                                    |   |                                                 |       |   |   |   |   |
| Weighted                average shares, basic           |   |                                                 | 6,072,295  |   |   | 5,982,295 |   |
| Weighted                average shares, diluted         |   |                                                 | 6,870,616  |   |   | 6,685,125 |   |

----

***Restated      Statement of Cash Flows Information for Three Months Ended March 31, 2005      (Unaudited)***

|                                                                                                                 |   | **Three                Months Ended March 31, 2005** |        |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|-------------|
|                                                                                                                 |   | **As                Previously****Reported**         |        | **Restated** |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                 |   |                                                 |        |   |   |
| Net                income                                                                                            |   | $                                                    | 3,070,824   |   | $ | 2,775,129 |   |
| Adjustments                to reconcile income to net cash provided by/(used in)operating                activities: |   |                                                 |        |   |   |   |   |
| Gain                on sale of originated loans held for sale                                                        |   |                                                 | (663,704    | ) |   | (327,927 | ) |
| Amortization                of deferred costs and fees on originated loans                                           |   |                                                 | -           |   |   | 465,507 |   |
| Amortization                of debt discount and success fees                                                        |   |                                                 | -           |   |   | 212,839 |   |
| Non-cash                compensation                                                                                 |   |                                                 |        |   |   | 165,000 |   |
| Proceeds                from the sale of and principal collections on loansheld                for sale              |   |                                                 | 14,117,584  |   |   | 13,819,015 |   |
| Deferred                tax provision                                                                                |   |                                                 | -           |   |   | (141,934 | ) |
| Changes                in operating assets and liabilities:                                                          |   |                                                 |        |   |   |   |   |
| Deferred                income tax asset                                                                             |   |                                                 | 282,571     |   |   | - |   |
| Other                assets                                                                                          |   |                                                 | 1,155,122   |   |   | 1,863,611 |   |
| Deferred                income tax liability                                                                         |   |                                                 | 660,099     |   |   | - |   |
| Accounts                payable and accrued expenses                                                                 |   |                                                 | 398,522     |   |   | 347,607 |   |
| Net                cash provided by operating activities                                                             |   |                                                 | 1,162,063   |   |   | 1,319,891 |   |
|                                                                                                                 |   |                                                 |        |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                 |   |                                                 |        |   |   |   |   |
| Increase                in restricted cash                                                                           |   |                                                 | (15,219     | ) |   | (2,835,228 | ) |
| Loan                fees                                                                                             |   |                                                 | (1,040,368  | ) |   | - |   |
| Net                cash used in investing activities                                                                 |   |                                                 | (96,818,128 | ) |   | (98,788,462 | ) |
|                                                                                                                 |   |                                                 |        |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                 |   |                                                 |        |   |   |   |   |
| Payment                of deferred financing costs                                                                   |   |                                                 | -           |   |   | (1,007,503 | ) |
| Net                cash provided by financing activities                                                             |   |                                                 | 100,469,985 |   |   | 99,462,482 |   |
|                                                                                                                 |   |                                                 |        |   |   |   |   |
| NET                CHANGE IN CASH AND CASH EQUIVALENTS                                                               |   |                                                 | 4,813,920   |   |   | 1,993,911 |   |
| CASH                AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                          |   |                                                 | 19,519,659  |   |   | 5,127,732 |   |
| CASH                AND CASH EQUIVALENTS, END OF YEAR                                                                |   |                                                 | 24,333,579  |   |   | 7,121,643 |   |
|                                                                                                                 |   |                                                 |        |   |   |   |   |

**3.     **
**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**

***Basis      of Presentation***

----

***Accounting      for Stock-Based Compensation***
*Accounting      for Stock Issued to Employees*
*Accounting      for Stock-Based Compensation*
*Share-Based      Payment*

|                                                                                                                             |   | **Three                Months Ended****March                31, 2005** |      |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|-----------|
| Net                income - as reported                                                                                          |   | $                                                                      | 2,775,129 |   |
| Stock-based                compensation expense, actual(1)                                                                       |   |                                                                   | 165,000   |   |
| Stock-based                compensation expense determined under fair value method, net of related                tax effects(2) |   |                                                                   | (169,442  | ) |
| Net                income - pro forma                                                                                            |   | $                                                                      | 2,770,687 |   |
|                                                                                                                             |   |                                                                   |      |   |
| Earnings                per share:                                                                                               |   |                                                                   |      |   |
| Basic                - as reported                                                                                               |   | $                                                                      | 0.46      |   |
| Basic                - pro forma                                                                                                 |   | $                                                                      | 0.46      |   |
| Diluted                - as reported                                                                                             |   | $                                                                      | 0.42      |   |
| Diluted                - pro forma                                                                                               |   | $                                                                      | 0.41      |   |

| (1)   | The                stock-based compensation cost, net of related tax effects, included                in the                determination of net income - as                reported. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The                stock-based compensation cost, net of related tax effects, that would                have                been included in the determination of net income if the fair value                based                method had been applied to all                awards. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Stock      Options***

|                                                                              |   | **Shares** |    | **Weighted                Average Exercise** |   | **Weighted                Average Remaining Contractual Term** |   | **Aggregate                Intrinsic Value** |                      |
|-----------------------------------------------------------------------------------|--------|------------|---------|----------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------|---------------------------|
| Balance,                January 1, 2006                                           |   |       | 667,500 |                                         | $      | 2.88                                                           |   |                                         | 5.1                years  |   | $ | - |   |
|                                                                              |   |       |    |                                         |   |                                                           |   |                                         |                      |   |   |   |   |
| Granted                                                                           |   |       | -       |                                         |   | -                                                              |   |                                         | -                         |   |   | - |   |
| Exercised                                                                         |   |       | 5,000   |                                         |   | 5.50                                                           |   |                                         |                      |   |   | - |   |
| Canceled                                                                          |   |       | 15,000  |                                         |   | 13.75                                                          |   |                                         |                      |   |   |   |   |
| Forfeited                                                                         |   |       | -       |                                         |   | -                                                              |   |                                         |                      |   |   | - |   |
|                                                                              |   |       |    |                                         |   |                                                           |   |                                         |                      |   |   |   |   |
| Balance,                March 31, 2006                                            |   |       | 647,500 |                                         |   | 2.61                                                           |   |                                         | 5.03                years |   |   | 4,199,835 |   |
|                                                                              |   |       |    |                                         |   |                                                           |   |                                         |                      |   |   |   |   |
| Options                vested or expected to vestat                March 31, 2006 |   |       | 639,250 |                                         |   | 2.47                                                           |   |                                         |                      |   |   | 4,199,835 |   |
| Options                exercisable at March 31, 2006                              |   |       | 586,000 |                                         | $      | 1.44                                                           |   |                                         |                      |   | $ | 4,199,835 |   |

----

***Restricted      Stock***

|                                               |   | **Shares** |   | **Weighted                Average Grant Date****Fair                Value** |   |
|----------------------------------------------------|--------|------------|--------|-----------------------------------------------------------------------------|--------|
| Non-vested                balance, January 1, 2006 |   |       | 27,000 |                                                                        | $      | 12.92 |   |
|                                               |   |       |   |                                                                        |   |   |   |
| Granted                                            |   |       | -      |                                                                        |   | - |   |
| Vested                                             |   |       | -      |                                                                        |   | - |   |
| Forfeited                                          |   |       | -      |                                                                        |   | - |   |
|                                               |   |       |   |                                                                        |   |   |   |
| Non-vested                balance, March 31, 2006  |   |       | 27,000 |                                                                        | $      | 12.92 |   |

***Discounts      on Acquired Loans***

----

|                                                        |   | **Three                Months Ended March 31,** |       |
|-------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                        |   | **2006**                                        |       | **2005** |   |
| U**Accretable                Discount**U                    |   |                                            |       |   |   |
| Balance,                beginning of period                 |   | $                                               | 11,360,617 |   | $ | - |   |
| New                Acquisitions                             |   |                                            | 2,545,873  |   |   | 1,512,098 |   |
| Accretion                                                   |   |                                            | (863,381   | ) |   | (50,719 | ) |
| Transfers                from nonaccretable                 |   |                                            | 1,371,683  |   |   | - |   |
| Net                reductions relating to loans sold        |   |                                            | -          |   |   | - |   |
| Net                reductions relating to loans repurchased |   |                                            | (2,189     | ) |   | - |   |
| Other                                                       |   |                                            | 41,845     |   |   | - |   |
| Balance,                end of period                       |   | $                                               | 14,454,448 |   | $ | 1,461,379 |   |
|                                                        |   |                                            |       |   |   |   |   |
|                                                        |   | **Three                Months Ended March 31,** |
|                                                        |   |                                            | **2006**   |   |   | **2005** |   |
| U**Nonaccretable                Discount**U                 |   |                                            |       |   |   |   |   |
| Balance,                beginning of period                 |   | $                                               | 23,981,013 |   | $ | - |   |
| New                Acquisitions                             |   |                                            | 5,374,531  |   |   | 11,740,245 |   |
| Transfers                to accretable                      |   |                                            | (1,371,683 | ) |   | - |   |
| Net                reductions relating to loans sold        |   |                                            | (7,885     | ) |   | - |   |
| Net                reductions relating to loans repurchased |   |                                            | (6,873     | ) |   | - |   |
| Other,                loans transferred to OREO             |   |                                            | (452,170   | ) |   | - |   |
| Balance,                end of period                       |   | $                                               | 27,516,933 |   | $ | 11,518,409 |   |

***Segments***

----

|                                                      |   | **For                the Three Months Ended March 31,** |                                    |
|-----------------------------------------------------------|--------|---------------------------------------------------------|-----------------------------------------|
|                                                      |   | **2006**                                                |                                    | **2005****(Restated)** |   |
| **CONSOLIDATED                REVENUE:**                  |   |                                                    |                                    |   |   |
| Portfolio                asset acquisition and resolution |   | $                                                       | 27,943,632                              |   | $ | 22,477,726 |   |
| Mortgage                banking                           |   |                                                    | 10,719,310                              |   |   | 4,624,273 |   |
| Consolidated                revenue                       |   | $                                                       | 38,662,942                              |   | $ | 27,101,999 |   |
|                                                      |   |                                                    |                                    |   |   |   |   |
| **CONSOLIDATED                NET INCOME:**               |   |                                                    |                                    |   |   |   |   |
| Portfolio                asset acquisition and resolution |   | $                                                       | 787,448                                 |   | $ | 1,962,904 |   |
| Mortgage                banking                           |   |                                                    | 999,300                                 |   |   | 812,225 |   |
| Consolidated                net income                    |   | $                                                       | 1,786,748                               |   | $ | 2,775,129 |   |
|                                                      |   |                                                    |                                    |   |   |   |   |
|                                                      |   |                                                    | **March                31, 2006**  |   |   | **December                31, 2005** |   |
| **CONSOLIDATED                ASSETS:**                   |   |                                                    |                                    |   |   |   |   |
| Portfolio                asset acquisition and resolution |   | $                                                       | 947,634,641                             |   | $ | 924,564,871 |   |
| Mortgage                banking                           |   |                                                    | 465,912,712                             |   |   | 403,675,718 |   |
| Consolidated                assets                        |   | $                                                       | 1,413,547,353                           |   | $ | 1,328,240,589 |   |

***Recent      Accounting Pronouncements***
*Accounting      for Certain Hybrid Instruments*

----

| **ITEM                2.** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS** |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------|

**Restatement**

**General**

***Safe      Harbor Statements.***

**Application      of Critical Accounting Policies and Estimates**

----

**Portfolio      Characteristics**

***Overall      Portfolio***

| U**Property                Types**U           |   | U**Principal                Balance**U |          | **Percentage                of Total**U**Principal                Balance**U |   |
|-----------------------------------------------|--------|----------------------------------------|---------------|------------------------------------------------------------------------------|--------|
| Residential                1-4 family         |   | $                                      | 1,191,861,940 |                                                                         |   | 83.28 | % |
| Condos,                co-ops, PUD dwellings  |   |                                   | 132,030,757   |                                                                         |   | 9.23 | % |
| Manufactured                homes             |   |                                   | 20,091,876    |                                                                         |   | 1.40 | % |
| Multi-family                                  |   |                                   | 1,176,052     |                                                                         |   | 0.08 | % |
| Secured,                property type unknown |   |                                   | 43,465,792    |                                                                         |   | 3.04 | % |
| Commercial                                    |   |                                   | 2,405,834     |                                                                         |   | 0.17 | % |
| Unsecured                loans                |   |                                   | 10,986,921    |                                                                         |   | 0.77 | % |
| Other                                         |   |                                   | 243,723       |                                                                         |   | 0.02 | % |
| Not                boarded                    |   |                                   | 28,833,252    |                                                                         |   | 2.01 | % |
| Total                                         |   | $                                      | 1,431,096,147 |                                                                         |   | 100.00 | % |

***Geographic      Dispersion.***

| U**Location**U            |   | U**Principal                Balance**U |          | **Percentage                of Total**U**Principal                Balance**U |   |
|---------------------------|--------|----------------------------------------|---------------|------------------------------------------------------------------------------|--------|
| New                York   |   | $                                      | 177,519,492   |                                                                         |   | 12.40 | % |
| New                Jersey |   |                                   | 153,212,237   |                                                                         |   | 10.71 | % |
| California                |   |                                   | 115,581,169   |                                                                         |   | 8.08 | % |
| Florida                   |   |                                   | 94,543,773    |                                                                         |   | 6.61 | % |
| Ohio                      |   |                                   | 80,318,472    |                                                                         |   | 5.61 | % |
| Pennsylvania              |   |                                   | 76,071,692    |                                                                         |   | 5.31 | % |
| Texas                     |   |                                   | 69,527,351    |                                                                         |   | 4.86 | % |
| Michigan                  |   |                                   | 49,539,859    |                                                                         |   | 3.46 | % |
| Georgia                   |   |                                   | 45,332,399    |                                                                         |   | 3.17 | % |
| Illinois                  |   |                                   | 45,141,756    |                                                                         |   | 3.15 | % |
| All                Others |   |                                   | 524,307,947   |                                                                         |   | 36.64 | % |
| Total                     |   | $                                      | 1,431,096,147 |                                                                         |   | 100.00 | % |

----

***Asset      Quality***

***Delinquency***
**.**

|                                    |   |                                  |   | **March                31, 2006**          |          |
|-----------------------------------------|--------|---------------------------------------|--------|--------------------------------------------|---------------|
|                                    |   |                                  |   | **Contractual                Delinquency** |          | **Recency                Delinquency** |   |
|                                    |   | **Days                Past Due**      |   | **Amount**                                 |          | ** %** |   | **Amount** |   | **% ** |   |
| **Current**                             |   |  0              - 30 days        |   | $                                          | 862,095,585   |   |   | 60 | % | $ | 966,445,896 |   |   | 68 | % |
| **Delinquent**                          |   |  31              - 60 days       |   |                                       | 78,316,370    |   |   | 5 | % |   | 35,361,924 |   |   | 3 | % |
|                                    |   |  61              - 90 days       |   |                                       | 37,687,192    |   |   | 3 | % |   | 15,593,693 |   |   | 1 | % |
|                                    |   |  90+              days      |   |                                       | 85,495,736    |   |   | 6 | % |   | 46,193,370 |   |   | 3 | % |
|                                    |   |                                  |   |                                       |          |   |   |   |   |   |   |   |   |   |   |
| U**Bankruptcy**U                        |   |  0              - 30 days        |   |                                       | 48,710,767    |   |   | 3 | % |   | 122,831,807 |   |   | 9 | % |
| **Delinquent**                          |   |  31              - 60 days       |   |                                       | 11,714,014    |   |   | 1 | % |   | 5,099,752 |   |   | - |   |
|                                    |   |  61              - 90 days  |   |                                       | 8,759,882     |   |   | 1 | % |   | 3,838,275 |   |   | - |   |
|                                    |   |  90+              days           |   |                                       | 107,748,931   |   |   | 8 | % |   | 45,163,759 |   |   | 3 | % |
|                                    |   |                                  |   |                                       |          |   |   |   |   |   |   |   |   |   |   |
| U**Foreclosure**                        |   |  0              - 30 days        |   |                                       | 2,625,242     |   |   | - |   |   | 15,654,727 |   |   | 1 | % |
| **Delinquent**                          |   |  31              - 60 days       |   |                                       | 939,872       |   |   | - |   |   | 3,666,804 |   |   | - |   |
|                                    |   |  61              - 90 days  |   |                                       | 2,015,259     |   |   | - |   |   | 5,446,964 |   |   | - |   |
|                                    |   |  90+              days           |   |                                       | 156,154,045   |   |   | 11 | % |   | 136,965,924 |   |   | 10 | % |
|                                    |   |                                  |   |                                       |          |   |   |   |   |   |   |   |   |   |   |   |
| **Not                Boarded**P**(1)**P |   |                                  |   |                                       |          | 28,833,252 |   |   | 2 | % |   | 28,833,252 |   |   | 2 | % |
|                                    |   |  **Total**                       |   | $                                          | 1,431,096,147 |   |   | 100 | % | $ | 1,431,096,147 |   |   | 100 | % |
| **Total                loans**          |   |  **0              - 30 days**    |   | $                                          | 913,431,594   |   |   | 64 | % | $ | 1,104,932,430 |   |   | 77 | % |

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

----

|                                    |   |                               |   | **December                31, 2005**       |          |
|-----------------------------------------|--------|------------------------------------|--------|--------------------------------------------|---------------|
|                                    |   |                               |   | **Contractual                Delinquency** |          | **Recency                Delinquency** |   |
|                                    |   | **Days                Past Due**   |   | **Amount**                                 |          | **% ** |   | **Amount** |   | ** %** |   |
| **Current**                             |   | 0                - 30 days         |   | $                                          | 687,887,057   |   |   | 51 | % | $ | 791,779,227 |   |   | 58 | % |
| **Delinquent**                          |   |  31              - 60 days    |   | 76,225,331                                 |          |   | 6 | % |   | 36,316,774 |   |   | 3 | % |
|                                    |   |  61              - 90 days    |   |                                       | 19,629,463    |   |   | 1 | % |   | 15,938,651 |   |   | 1 | % |
|                                    |   |  90+              days   |   |                                       | 139,882,279   |   |   | 10 | % |   | 79,589,478 |   |   | 6 | % |
|                                    |   |                               |   |                                       |          |   |   |   |   |   |   |   |   |   |   |
| U**Bankruptcy**U                        |   |  0              - 30 days     |   |                                       | 38,018,748    |   |   | 3 | % |   | 108,931,183 |   |   | 8 | % |
| **Delinquent**                          |   |  31              - 60 days    |   |                                       | 11,207,345    |   |   | 1 | % |   | 7,845,350 |   |   | 1 | % |
|                                    |   |  61              - 90 days    |   |                                       | 4,725,448     |   |   | - |   |   | 4,851,743 |   |   | - |   |
|                                    |   |  90+              days   |   |                                       | 113,808,976   |   |   | 8 | % |   | 46,132,241 |   |   | 3 | % |
|                                    |   |                               |   |                                       |          |   |   |   |   |   |   |   |   |   |   |
| U**Foreclosure**                        |   |  0              - 30 days     |   |                                       | 793,327       |   |   | - |   |   | 8,414,493 |   |   | 1 | % |
| **Delinquent**                          |   |  31              - 60 days    |   |                                       | 606,737       |   |   | - |   |   | 2,934,832 |   |   | - |   |
|                                    |   |  61              - 90 days    |   |                                       | 895,794       |   |   | - |   |   | 2,444,743 |   |   | - |   |
|                                    |   |  90+              days   |   |                                       | 131,112,327   |   |   | 10 | % |   | 119,614,117 |   |   | 9 | % |
|                                    |   |                               |   |                                       |          |   |   |   |   |   |   |   |   |   |   |   |
| **Not                Boarded**P**(1)**P |   |                               |   |                                       | 132,573,874   |   |   | 10 | % |   | 132,573,874 |   |   | 10 | % |
|                                    |   |  **Total**               |   | $                                          | 1,357,366,706 |   |   | 100 | % | $ | 1,357,366,706 |   |   | 100 | % |
| **Total                loans**          |   |  **0              - 30 days** |   | $                                          | 726,699,132   |   |   | 54 | % | $ | 909,124,903 |   |   | 67 | % |

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

***Hurricanes      Katrina, Rita and Wilma.***

----

***Notes      Receivable Portfolio***

|                                                                                                                                       |   | **March                31, 2006** |        | **December                31, 2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------|--------------------------------------|--------|
| Performing                loans                                                                                                            |   | $                                 | 690,332,924 |                                 | $      | 536,974,892 |   |
| Allowance                for loan losses                                                                                                   |   |                              | 13,653,453  |                                 |   | 14,266,781 |   |
| Total                performing loans,net                of allowance for loan losses                                                      |   |                              | 676,679,471 |                                 |   | 522,708,111 |   |
|                                                                                                                                       |   |                              |        |                                 |   |   |   |
| Impaired                loans                                                                                                              |   |                              | 272,840,763 |                                 |   | 244,986,933 |   |
| Allowance                for loan losses                                                                                                   |   |                              | 48,365,003  |                                 |   | 43,691,572 |   |
| Total                impaired loans,net                of allowance for loan losses                                                        |   |                              | 224,475,760 |                                 |   | 201,295,361 |   |
|                                                                                                                                       |   |                              |        |                                 |   |   |   |
| Not                yet boarded onto servicing system                                                                                       |   |                              | 27,031,194  |                                 |   | 188,037,218 |   |
| Allowance                for loan losses                                                                                                   |   |                              | -           |                                 |   | 9,317,802 |   |
| Not                yet boarded onto servicing system,net                of allowance for loan losses                                       |   |                              | 27,031,194  |                                 |   | 178,719,416 |   |
| Total                notes receivable,net                of allowance for loan losses                                                      |   |                              | 928,186,425 |                                 |   | 902,722,888 |   |
|                                                                                                                                       |   |                              |        |                                 |   |   |   |
| *Accretable                Discount                                                                                                        |   |                              | 14,454,448  |                                 |   | 11,360,617 |   |
| *Nonaccretable                Discount                                                                                                     |   |                              | 27,516,933  |                                 |   | 23,981,013 |   |
|                                                                                                                                       |   |                              |        |                                 |   |   |   |
| Total                Notes Receivable,net                of allowance for loan losses and accretable/nonaccretable                discount |   | $                                 | 886,215,044 |                                 | $      | 867,381,258 |   |

|  | * | Represents                purchase discount not reflected on the face of the balance sheet                in                accordance with SOP 03-3 for loans acquired after December 31, 2004.                Accretable Discount is the excess of the loan’s estimated cash flows over                the purchase prices, which is accreted into income over the life                of the                loan. Nonaccretable Discount is the excess of the undiscounted contractual                cash flows over the undiscounted cash flows estimated to be                collected. |
|--|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                    |   | **March                31, 2006** |        | **December                31, 2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------|--------------------------------------|--------|
| *Performing                Loans:*                                                                                                                      |   |                              |        |                                 |   |
| Fixed-rate                Performing Loans                                                                                                              |   | $                                 | 553,804,061 |                                 | $      | 393,982,311 |   |
| Adjustable                Performing Loans                                                                                                              |   |                              | 122,875,410 |                                 |   | 128,725,800 |   |
| *Total                Performing Loans*                                                                                                                 |   | $                                 | 676,679,471 |                                 | $      | 522,708,111 |   |
|                                                                                                                                                    |   |                              |        |                                 |   |   |   |
| *Impaired                Loans:*                                                                                                                        |   |                              |        |                                 |   |   |   |
| Fixed-rate                Impaired Loans                                                                                                                |   | $                                 | 185,751,093 |                                 | $      | 167,093,004 |   |
| Adjustable                Impaired Loans                                                                                                                |   |                              | 38,220,237  |                                 |   | 34,202,357 |   |
| *Total                Impaired Loans*                                                                                                                   |   | $                                 | 223,971,329 |                                 | $      | 201,295,361 |   |
| Total                Notes                                                                                                                              |   | $                                 | 900,650,800 |                                 | $      | 724,003,472 |   |
|                                                                                                                                                    |   |                              |        |                                 |   |   |   |
| *Accretable                Discount                                                                                                                     |   | $                                 | 14,454,448  |                                 | $      | 11,360,617 |   |
| *Nonaccretable                Discount                                                                                                                  |   | $                                 | 27,516,933  |                                 | $      | 13,953,006 |   |
| Total                Notes Receivable,net                of allowance for loan losses,excluding                loans not boarded onto servicing systems |   | $                                 | 858,679,419 |                                 | $      | 698,689,849 |   |

***Loan      Acquisitions***

|                                                                  |   | **Three                Months Ended March 31,** |        |
|-----------------------------------------------------------------------|--------|-------------------------------------------------|-------------|
|                                                                  |   | **2006**                                        |        | **2005** |   |
| Number                of loans                                        |   | 2,538                                           |        | 4,116 |   |
| Aggregate                unpaid principal balance at acquisition |   | $                                               | 103,827,616 |   | $ | 111,775,289 |   |
| Purchase                price                                         |   | $                                               | 95,907,234  |   | $ | 98,522,946 |   |
| Purchase                price percentage                              |   |                                            | 92          | % |   | 88 | % |

----

***Notes      Receivable Dispositions***

|                                              |   | **Three                Months Ended March 31,** |    |
|---------------------------------------------------|--------|-------------------------------------------------|---------|
|                                              |   | **2006**                                        |    | **2005** |   |
| **Sale                of Non-Performing Loans**   |   |                                            |    |   |   |
| Aggregate                unpaid principal balance |   | $                                               | 161,149 |   | $ | - |   |
| Gain                on sale                       |   | $                                               | 69,049  |   | $ | - |   |

***Loan      Originations***

|                                      |   | **Three                Months Ended March 31,** |        |
|-------------------------------------------|--------|-------------------------------------------------|-------------|
|                                      |   | **2006**                                        |        | **2005** |   |
| Number                of loans originated |   | 477                                             |        | 388 |   |
| Original                principal balance |   | $                                               | 104,775,205 |   | $ | 87,924,216 |   |
| Average                loan amount        |   | $                                               | 219,655     |   | $ | 226,609 |   |
|                                      |   |                                            |        |   |   |   |   |
| Originated                as fixed        |   | $                                               | 4,064,450   |   | $ | 6,919,300 |   |
| Originated                as ARM*         |   | $                                               | 100,710,755 |   | $ | 81,004,916 |   |
|                                      |   |                                            |        |   |   |   |   |
| Number                of loans sold       |   |                                            | 24          |   |   | 72 |   |
| Aggregate                face value       |   | $                                               | 6,752,441   |   | $ | 13,411,176 |   |
| Gain                on sale               |   | $                                               | 165,872     |   | $ | 327,927 |   |
| Gain                on sale percentage    |   |                                            | 2.46        | % |   | 2.45 | % |

***Other      Real Estate Owned***

|                                                |   | **Three                Months Ended March 31,** |       |
|-----------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                |   | **2006**                                        |       | **2005** |   |
| Other                real estate owned              |   | $                                               | 20,122,886 |   | $ | 21,492,225 |   |
| OREO                as a percentage of total assets |   |                                            | 1.42       | % |   | 2.16 | % |
| OREO                sold                            |   | $                                               | 7,546,098  |   | $ | 6,778,813 |   |
| Gain                on sale                         |   | $                                               | 801,542    |   | $ | 255,981 |   |

----

**Results      of Operations**

***Three      Months Ended March 31, 2006 Compared to Three Months Ended March 31,      2005***

***Overview.***

***Revenues.***

----

***Operating      Expenses.***

----

**Liquidity      and Capital Resources**

***General***

----

***Short-term      Investments.***

***Cost      of Funds.***

***Cash      Flow from Operating, Investing and Financing      Activities***

----

**Borrowings**

***Senior      Debt Facility***

***General.***
* *

***Interest      Rates and Fees.***

|                                         | **For                Loans Funded**      |
|----------------------------------------------|------------------------------------------|
|                                         | **Prior                to July 1, 2005** | **On                or After July 1, 2005** |
| If                the 30-day advance rate is | the                applicable margin is  | the                applicable margin is |
| Less                than 2.26%               | 350                basis points          | 300                basis points |
| 2.26                to 4.50%                 | 325                basis points          | 275                basis points |
| Greater                than 4.50%            | 300                basis points          | 250                basis points |

***Principal;      Prepayments; Termination of Commitments***
**.**

----

***Covenants;      Events of Default.***

***Security***
**.**
*** ***

***Warehouse      Facility***

***Tribeca      Term Loans***

----

|                                         | **For                Loans Funded**      |
|----------------------------------------------|------------------------------------------|
|                                         | **Prior                to July 1, 2005** | **On                or After July 1, 2005** |
| If                the 30-day advance rate is | the                applicable margin is  | the                applicable margin is |
| Less                than 2.26%               | 350                basis points          | 300                basis points |
| 2.26                to 4.50%                 | 325                basis points          | 275                basis points |
| Greater                than 4.50%            | 300                basis points          | 250                basis points |

----

| If                the 30-day advance rate is | the                applicable margin is |
|----------------------------------------------|-----------------------------------------|
| Less                than 2.26%               | 300                basis points         |
| 2.26                to 4.50%                 | 275                basis points         |
| Greater                than 4.50%            | 250                basis points         |

----

| **ITEM                3.** | **QUANTITATIVE                AND QUALITATIVE DISCLOSURES ABOUT MARKET                RISK** |
|----------------------------|----------------------------------------------------------------------------------------------|

**Interest      Rate Risk**

----

**Real      Estate Risk**

| **ITEM                4.** | **CONTROLS                AND PROCEDURES** |
|----------------------------|--------------------------------------------|

**Disclosure      Controls and Procedures**

**Changes      in Internal Controls over Financial Reporting**

----

**PART      II**

**OTHER      INFORMATION**

| **ITEM                1.** | **LEGAL                PROCEEDINGS** |
|----------------------------|--------------------------------------|

| **ITEM                1A.** | **RISK                FACTORS** |
|-----------------------------|---------------------------------|

**Risks      Related to Our Business**

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

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

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

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

| ·       | If                our principal lender ceases to renew our maturing loans for additional                terms or provide us with refinancing opportunities, or we are unable                to                secure refinancing opportunities with other lenders, our indebtedness                will                become due and payable upon the contractual maturity of each                borrowing. |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

----

| ·       | Our                reliance on cash-out refinancings as a significant source of our                origination activities increases the risk that our earnings will                be harmed                if the demand for this type of refinancing                declines. |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| ·       | The                loss of our Chairman may adversely affect our                operations. |
|--------------------------------------------|---------------------------------------------------------------------------------------------|

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

----

**Risks      Related to the Restatement of Our Financial Statements**

| ·       | We                may become subject to liability and incur increased expenditures                as a                result of our restatement of our financial                statements. |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·       | Failures                in our internal controls and disclosure controls and procedures could                lead                to material errors in our financial statements and cause us to fail                to                meet our reporting obligations. |
|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Risks      Related to the Regulation of Our Industry**

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

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

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

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

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

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

**Risks      Related to Our Securities**

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

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

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

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

| ·       | Future                sales of our common stock may depress our stock                price. |
|--------------------------------------------|---------------------------------------------------------------------------------------------|

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

----

| **ITEM                2.** | **UNREGISTERED                SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS** |
|----------------------------|-----------------------------------------------------------------------------------------------|

| **ITEM                3.** | **DEFAULTS                UPON SENIOR SECURITIES** |
|----------------------------|----------------------------------------------------|

| **ITEM                4.** | **SUBMISSION                OF MATTERS TO A VOTE OF SECURITY                HOLDERS** |
|----------------------------|---------------------------------------------------------------------------------------|

| **ITEM                5.** | **OTHER                INFORMATION** |
|----------------------------|--------------------------------------|

----

| **ITEM                6.** | **EXHIBITS** |
|----------------------------|--------------|

| Exhibit                Number |                                                                                                                                                                                                                                                                                                                                                                                                                |
|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                           | Fifth                Amended and Restated Certificate of Incorporation. Incorporated by                reference to Appendix A to the Registrant’s Definitive Information                Statement on Schedule 14C, filed with the Securities and Exchange                Commission (the “Commission”) on January 20, 2005.                                                                      |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2                           | Amended                and Restated By-laws. Incorporated by reference to Appendix B to                the                Registrant’s Definitive Information Statement on Schedule 14C, filed with                the Commission on January 20, 2005.                                                                                                                                                        |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.23                         | Separation                Agreement, dated as of January 13, 2006, between the Registrant and                Jeffrey R. Johnson. Incorporated by reference to Exhibit 10.23 to                the                Registrant’s Annual Report on Form 10-K for the fiscal year ended December                31, 2005, filed with the Commission onApril                25, 2006 (“the 2005 10-K”). |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.24                         | Master                Credit and Security Agreement, dated as of February 28, 2006, among                Tribeca Lending Corp., Sky Bank and those subsidiaries of Tribeca                Lending                Corp. listed on the signature page to the agreement. Incorporated                by                reference to Exhibit 10.24 to the 200510-K.                                                     |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.25                         | Master                Credit and Security Agreement, dated as of March 24, 2006, among                Tribeca                Lending Corp., BOS (USA) Inc. and those subsidiaries of Tribeca Lending                Corp. listed on the signature page to the agreement. Incorporated                by                reference to Exhibit 10.25 to the 200510-K.                                                  |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 31.1*                         | Rule                13a-14(a) Certification of Chief Executive Officer of the Registrant                in                accordance with Section 302 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                                                                             |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 31.2*                         | Rule                13a-14(a) Certification of Chief Financial Officer of the Registrant                in                accordance with Section 302 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                                                                             |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.1*                         | Certification                of Chief Executive Officer of the Registrant in accordance with Section                906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                          |
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.2*                         | Certification                of Chief Financial Officer of the Registrant in accordance with Section                906 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                                                                                                           |

----

**SIGNATURES**

|         |                                                            |                                           |
|--------------|-----------------------------------------------------------------|------------------------------------------------|
|         | FRANKLIN                CREDIT MANAGEMENTCORPORATION            |
|    |                                                       |                                      |
|         | By:                                                   | /s/ ALEXANDER              GORDON JARDINU |
|         | Alexander              Gordon Jardin                            |
|         | President              and              Chief Executive Officer |

|  Signature                                 |  Title                                             |   Date                              |
|-------------------------------------------------|---------------------------------------------------------|-----------------------------------------------|
|                                            |                                                    |                                          |
|  U/s/              ALEXANDER GORDON JARDIN |  Chief Executive Officer and              Director |    UMay              22, 2006U |
|  Alexander Gordon Jardin                   |                                                    |                                          |
|  (Principal Executive Officer)             |                                                    |                                          |
|                                            |                                                    |                                          |
|  U/s/              PAUL D. COLASONOU       |  Executive Vice President              U           |    May              22, 2006   |
|  Paul D. Colasono                          |  and Chief Financial Officer U                |                                          |
|  (Principal Financial Officer)             |                                                    |                                          |

----