FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

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


                                   FORM 10-QSB


    [X]QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998

     [ ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
EXCHANGE  ACT  OF  1934  For  the  transition   period  from   _____________  to
_____________ Commission file number 0-17771



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


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

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



         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act of 1934  during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes X
No .

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

As of August 15, 1998 the issuer had  5,516,527 of shares of Common  Stock,  par
value $0.01 per share, outstanding.


<PAGE>


                     FRANKLIN CREDIT MANAGEMENT CORPORATION


                                   FORM 10-QSB

                                  June 30,1998


                                 C O N T E N T S


PART I. FINANCIAL INFORMATION                                              Page

Item 1.      Financial Statements

Consolidated Balance Sheets June 30, 1998 (unaudited) and December 31, 1997   3

Consolidated Statements of Income (unaudited) for the three months and six
months ended June 30, 1998 and 1997                                           4

Consolidated Statements of Stockholders' Equity June 30, 1998 (unaudited)     5

Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 1998 and 1997                                                        6

Notes to consolidated Financial Statements                                 7-10


Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                     11-21

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                22-23

Item 2.  Changes in Securities                                               24

Item 3.  Defaults Upon Senior Securities                                     24

Item 4.  Submission of Matters to a Vote of Security Holders                 24

Item 5.  Other Information                                                   24

Item 6.  Exhibits and Reports on Form 8-K                                 24-25

SIGNATURES                                                                   26

<PAGE>
<TABLE>
<CAPTION>

FRANKIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
--------------------------------------------------------------------------------

                                           30-Jun-98                 31-Dec-97
                                  -------------------        -----------------
<S>                                    <C>                        <C>   
ASSETS 


CASH AND CASH EQUIVALENTS                                                                    
                                        $ 3,884,053               $2,783,920
RESTRICTED CASH                           1,034,890                  990,466
NOTES RECEIVABLE:
    Principal                           125,942,126              115,965,158
    Joint venture participations           (314,831)                (321,460)
    Purchase discount                   (16,455,338)             (16,175,518)
    Allowance for loan losses           (24,447,544)             (27,424,641)
                                   -------------------        -----------------
        Net notes receivable             84,724,413               72,043,539

LOANS HELD FOR SALE                       3,100,027                3,702,723
ACCRUED INTEREST RECEIVABLE               1,120,813                  929,908
OTHER REAL ESTATE OWNED                   9,255,949               11,806,473
OTHER RECEIVABLES                         1,162,413                  695,471
DEFERRED TAX ASSET                        2,121,596                1,479,939
OTHER ASSETS                              1,341,853                  735,075
BUILDING, FURNITURE AND FIXTURES- Net       673,273                  729,285
DEFERRED FINANCING COSTS                  1,262,933                1,161,437
                                   -------------------        -----------------

    
TOTAL ASSETS                           $109,682,213               97,058,236
                                   ===================        =================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES     3,245,262                2,938,340
LINES OF CREDIT                           3,645,246                1,376,403
NOTES PAYABLE                            96,597,286               83,643,550
203(K) REHABILITATION ESCROWS PAYABLE       153,849                2,828,239
SUBORDINATED DEBENTURES                     730,575                  863,100
NOTES PAYABLE, AFFILIATES AND STOCKHOLDERS  375,386                  311,484
DEFERRED TAX LIABILITY                    2,201,391                1,559,998
                                    ------------------        -----------------
TOTAL LIABILITIES                       106,948,995               93,521,114
                                   -------------------        -----------------



STOCKHOLDERS' EQUITY Common Stock, $.01 par value, 10,000,000 authorized shares;
     issued and outstanding 1998 and
     1997: 5,516,527                        55,167                   55,167
    Additional paid-in capital           6,989,968                6,489,968
    Accumulated deficit                 (4,311,917)              (3,008,013)
                                   -------------------        -----------------
        Total stockholders' equity       2,733,218                3,537,122
                                   -------------------        -----------------

TOTAL LIABILITIES AND STOCKHOLDERS                                                                         
 EQUITY                             $   109,682,213            $ 97,058,236
                                   ===================        =================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>
<TABLE>


CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------

                               Six Month Ended           Three Months Ended
                             30-Jun-98   30-Jun-97    30-Jun-98     30-Jun-97
                            ----------- ---------     -----------  -----------
<S>                              <C>       <C>            <C>          <C>
REVENUES:                       
    Int Income               3,291,028  3,160,548     1,949,251      1,885,284
    Purch discount earned    2,347,885  3,094,831     1,321,521      1,511,606
    Gain on sale of portfolios       0    973,337             0        973,337
    Gain on sale of loans      548,282          0       425,853              0
    Gain or(Loss)on sale OREO(149,675)    683,439      (45,370)        649,172
    Rental Income              410,364          0       249,813              0
    Other                      418,420    122,386       355,732         53,990
                            ----------- ----------   -----------  -------------
    Total Revenue            6,866,304  8,034,540     4,256,800      5,073,388
                          ------------ -----------   -----------  -------------

OPERATING EXPENSES:
    Interest expense         4,559,544  4,123,804     2,508,586      2,168,449
    Collection, gen &admin   3,392,713  2,180,530     1,890,721      1,185,654
    Prov for loan losses        31,391    103,853      ( 1,439)          7,841
    Banking service fees             0     31,395             0              0
    Amort of defer finan costs 137,762    309,329        84,976        254,070
    Depreciation                48,798     31,344        18,412         15,672
                           -----------  ----------  ----------- --------------
     Total Expenses          8,170,208  6,780,256     4,501,256      3,631,687
                           -----------  ----------  ----------- ---------------

    OPERATING INCOME (LOSS)(1,303,904)  1,254,284     (244,456)     1,441,701
                          ------------ ----------- ------------ --------------




(LOSS)INCOME BEFORE 
 PROVISION FOR INC TAX     (1,303,904)  1,254,284     (244,456)      1,441,701
 TAXES                 --------------- ------------- ------------ --------------

INCOME TAXES                        0   (722,765)            0       (722,765)
                       --------------- ------------- ------------- ------------

NET (LOSS) INCOME          (1,303,904)    531,519     (244,456)        718,936
                       ===============  ============ ============= ============

NET (LOSS) INCOME PER COMMON SHARE:
    Basic                       (0.22)       0.10        (0.04)           0.13
    Dilutive                    (0.22)       0.10        (0.04)           0.13
                       =============== ============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES                                                                                             
 OUTSTANDING                5,516,527   5,516,527      5,516,527     5,516,527
                      ===============  ============= ============= =============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>


FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 1998
--------------------------------------------------------------------------------

                             Common Stock       Additional  Retained
                          -------------------     Paid-In   Earnings
                              Shares    Amount    Capital   (Deficit)  Total 
 <S>                           <C>       <C>        <C>        <C>       <C>    

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

     Four-for-one Stock Div  4,414,450  44,145   (44,145)
    Net Loss                                                (565,898)  (565,898)
                          ------------------------------------------------------
Balance, December 31, 1997  5,516,527   55,167  6,489,968 (3,008,013) 3,537,122
                          ======================================================

     Net Loss                                             (1,303,904)(1,303,904)
     Capital Contribution                         500,000                500,000
                          ======================================================
Balance, June 30, 1998      5,516,527   55,167  6,989,968 (4,311,917) 2,733,218

                          ======================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>
<TABLE>

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
                                           30-Jun-98              30-Jun-97
<S>                                           <C>                     <C>   

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                       (1,303,904)              531,519
  Adjustments to reconcile net income
   Net cash provided (used) by operating activities:
    Depreciation                               48,798                31,344
    Amortization                              137,762               309,329
    Purchase discount earned              (2,347,885)           (3,094,831)
    Gain on Sale of REO                       149,675             (973,337)
    Provision for loan loss                    15,303               103,853
    Deferred tax provision                          0                     0
   (Increase) decrease in:
    Accrued interest receivable              192,779)               194,027
    Foreclosures on real estate           (2,034,957)           (2,689,979)
    Assets held for sale                      602,696                     0
    Other receivables                        (82,458)                28,386
    Other current assets                  (1,237,610)             (725,824)
   Increase(decrease) in:                                     
    Accounts payable and accrued expenses     259,009             1,075,927
    203(k) rehabilitation escrow          (2,674,391)                     0
    Due to affiliates                          59,230              (82,227)
                                          -------------          ------------
   Net cash (used)by operating activities (8,601,511)          (5,291,811)
                                          -------------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Distributions                                  (0)                     0
    Additional capital contributed             500,000                     0
    Acquisition and loan fees                (220,924)                     0
    Acquisition of notes receivable       (20,127,336)          (17,820,766)
    Acquisition of REO                       (235,182)           (2,041,230)
    Proceeds from sale of REO                4,779,470                     0
    Foreclosures on real estate                 90,272                     0
    Reclass of notes receivfor foreclosures  1,653,838                     0
    Loans originated                         (550,000)                     0
    Acquisition of furniture & equipment      (15,080)              305,420)
    Participation interest                    (20,130)              (18,629)
    Advances to subsidiaries                   312,302                     0
    Principal collection on notes receivable 8,488,783            14,913,235
   (Increase) decrease in restricted cash     (44,424)             (137,258)
                                           -------------          ------------
   Net cash(used) by investing activities  (5,388,411)            5,410,068)
                                           -------------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on debenture notes payable       (132,525)              (33,125)
    Payments on line of credit                (419,991)             (407,803)
    Proceeds from line of credit              2,688,834               388,608
    Proceeds from notes payable              20,889,503            23,361,039
    Payments on notes payable               (7,935,766)          (11,462,039)
                                           -------------          ------------
   Net cash prov(used)by finan activ         15,090,055            11,846,680
                                           -------------          ------------

NET INCREASE (DECREASE) IN CASH               1,100,133             1,144,801

CASH, BEGINNING OF PERIOD                     2,783,920             1,967,965

CASH, ENDING                                  3,884,053             3,112,765
</TABLE>
                                           =============          ============
<PAGE>







1.    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

         Nature of  Business  -  Franklin  Credit  Management  Corporation  (the
"Company"), a Delaware corporation,  acquires non-performing,  nonconforming and
sub-performing   notes   receivable   and   promissory   notes  from   financial
institutions,  mortgage and finance  companies and the Federal Deposit Insurance
Corporation  ("FDIC").  The Company  services and collects such notes receivable
through  enforcement  of terms of original note,  modification  of original note
terms and, if necessary, foreclosure on the underlying collateral.

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

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

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

         Estimates - The preparation of financial  statements in conformity with
generally accepted accounting principles,  requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.

         Cash and Cash Equivalents - Cash and cash equivalents  include all cash
accounts,  with the exception of restricted  cash,  and money market funds.  The
Company  maintains  amounts due from banks,  which at times may exceed federally
insured   limits.   The  Company  has  not  experienced  any  losses  from  such
concentrations.

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

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

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

         Accrual of  interest  on notes  receivable,  including  impaired  notes
receivable, is discontinued when management believes, after considering economic
and business  conditions and collection efforts,  that the borrowers'  financial
condition  is  such  that  the  timing  and or the  collection  of  interest  is
unpredictable.  When  interest  accrual  is  discontinued,  all  unpaid  accrued
interest is reversed. Subsequent recognition of income occurs only to the extent
payment is committed to or received  subject to  management's  assessment of the
collectibility  of the remaining  interest and principal.  A non-accrual note is
restored to an accrual status when it is no longer delinquent and collectibility
of  interest  and  principal  is no  longer in doubt  and past due  interest  is
recognized at that time.

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

         Allowance for Loan Losses - The  allowance for loan losses,  a material
estimate  which  could  change  significantly  in the  near-term,  is  initially
established  through  allocation  of some or all of the purchase  loan  discount
based on the management's assessment of the portion of purchase discount some or
all of that represents uncollectable principal.  Subsequently,  increases to the
allowance are made through a provision for loan losses,  which is expensed.  The
allowance is maintained at a level that management  considers adequate to absorb
potential losses in the loan portfolio.

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

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

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

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

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

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

         Mortgage Servicing Rights - The Company allocates the total cost of the
mortgage  loans  purchased  or  originated,  proportionately,  to  the  mortgage
servicing  rights and the loans based on the relative fair value.  The servicing
rights  capitalized  are  amortized  in  proportion  to and over the  period of,
estimated net servicing income including  prepayment  assumptions based upon the
characteristics  of the  underlying  loans.  Capitalized  servicing  rights  are
periodically  assessed for impairment based on the fair value of the rights with
any impairment recognized through a valuation allowance.

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

         Income Taxes - The Company  recognizes  income taxes under an asset and
liability  method.  Under this method,  deferred tax assets are  recognized  for
deductible temporary  differences and operating loss or tax credit carryforwards
and deferred tax liabilities are recognized for taxable  temporary  differences.
Temporary  differences  are the  differences  between  the  financial  statement
carrying amounts of existing assets and liabilities and their respective  bases.
Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences  are expected to be  recovered  or settled.  Deferred tax assets are
reduced by a valuation  allowance  when  management  determines  that it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  Deferred tax assets and  liabilities  are adjusted for the effects of
changes in tax laws and rates on the date of the enactment.

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

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

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

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

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

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

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

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



<PAGE>





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

General

         Forward-Looking  Statements.  When used in this report,  press releases
and  elsewhere  by  the  Company  from  time  to  time,  the  words  "believes",
"anticipates"  and  "expects" and similar  expressions  are intended to identify
forward-looking   statements  that  involve  certain  risks  and  uncertainties.
Additionally, certain statements contained in this discussion and this Quarterly
Report on Form 10-QSB  generally may be deemed  forward-looking  statements that
involve a number of risks and uncertainties.  Among the factors that could cause
actual  results to differ  materially are the  following:  general  economic and
business conditions, interest rates fluctuations, changes in the level of growth
in the finance and housing markets, the availability for purchases of additional
loans,  the status of relations  between the Company and its primary sources for
loan  purchases,  the status of  relations  between  the Company and its primary
source of senior financing  ("Senior Debt Lender") and the availability of short
and long term financing  generally,  unanticipated  difficulties  in collections
under loans in the  Company's  portfolio or new loans  purchased by the Company,
accounting and regulatory changes, and other risks detailed from time to time in
the Company's SEC reports.  Readers are cautioned not to place undue reliance on
these forward-looking  statements,  which speak only as of the date thereof. The
Company  undertakes no obligation to release  publicly the results of any events
or  circumstances  after  the  date  hereof  or to  reflect  the  occurrence  of
unanticipated events.

         Loan and OREO Acquisitions.  During the six months ended June 30, 1998,
the Company purchased 1,302 loans and OREO properties in five portfolios with an
aggregate face value of $24,321,293 at an acquisition  price of $20,127,336,  or
83% of face value and OREO  properties of $235,182.  During the six months ended
June 30, 1997, the Company  purchased  loans in six portfolios with an aggregate
face value of $33,324,430  at an aggregate  purchase price of $17,820,766 or 53%
of  face  value,  and  $2,041,230  in  OREO  properties.  Acquisition  of  these
portfolios  was funded through senior  financing  ("Senior  Debt") in the amount
equal to the purchase price plus a 1% loan  origination  fee. See "Liquidity and
Capital Resources- Cash Flow from Financing Activities- Senior Debt"

         The Company  believes  these  acquisitions  will result in  substantial
increases in interest income and purchase discount income during future periods.
During  the  initial  period  following  acquisitions,  the  Company  incurs the
carrying  costs of the related Senior Debt and  administrative  costs related to
the new  portfolios.  Payment  streams  are only  generated  once the  loans are
incorporated  into the  Company's  loan  tracking  system and  contact  with the
borrower is made, and in some cases,  non-performing  loans are  restructured or
collection litigation successfully concluded.

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

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

         In the ordinary  course of business,  the Company  acquires  properties
from portfolio acquisitions or and foreclosures.  Such properties are classified
as OREO  and are  evaluated  regularly  to  ensure  that  recorded  amounts  are
supported by current fair market values.

         Management  intends to continue to expand the  Company's  earning asset
base through the acquisition of additional portfolios including performing first
and second  mortgages  at a positive  spread  based upon the  Company's  cost of
funds, non-performing real estate secured loans and OREO properties. The Company
believes that its current infrastructure is adequate to service additional loans
without  any  material  increases  in  collection,  general  and  administrative
expenses.  There can be no  assurance  the  Company  will be able to acquire any
additional  loans  or that it may do so on  favorable  terms.  While  management
believes that the acquisition of additional loan portfolios would be beneficial,
management does not believe that current operations would be materially impacted
if additional loan portfolios were not acquired during 1998.

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

         During  the  three  months  ended  June 30,  1998,  Tribeca  originated
$13,238,495 in mortgages,  which compared with no originations  during the three
months ended June 30, 1997, when Tribeca was in the organizational stage.

  Tribeca Originations for the Three months ending June 30, 1998
<TABLE>
<CAPTION>
<S>                      <C>        <C>          <C>        <C>
----------------- ------------------------ ------------------------ 
                      FHA        1st Lien     2nd Lien     Total
----------------- ------------------------ ------------------------ 
----------------- ------------------------ ------------------------ 
      Face Value    $ 119,950   11,036,640   $2,081,905 13,238,495
----------------- ------------------------ ------------------------ 
----------------- ------------------------ ------------------------ 
           Loans         2          95           61         158
----------------- ------------------------ ------------------------

</TABLE>

         During three months, ending June 30, 1998 Tribeca incurred an operating
loss of $165,000.  This loss reflected  expenses in excess of revenue associated
in  the  start-up  of  the  new  business   which  are  expected  to  result  in
corresponding  revenues in future periods. From inception through June 30, 1998,
Tribeca  originated  approximately  $14.6  million  face value of loans of which
$11.5 million were sold to investors, either in bulk sales or by individual loan
sales and the  remaining  $3.1  million  face  value of loans are held for sale.
Revenues related to such loans,  other than periodic  interest  payments and fee
income are realized upon sale of such loans.

         A  substantial  portion of Tribeca's  costs related to the staffing and
setting up of its New York operations and processing center and several regional
sales offices.  Management  believes that Tribeca's  current  infrastructure  is
sufficient to support substantially increased originations. Tribeca is currently
seeking to increase its available  lines of credit in order to  facilitate  such
increased  originations.  See "Liquidity and Capital  Resource-Tribeca  Lines of
Credit."  Tribeca has and expects to continue  to  accumulate  newly  originated
loans for  periodic  sales in bulk,  which  bulk  sales it  believes,  result in
receipt of a larger purchase  premium than would be available in sales of single
loans. As a result, the amount of credit drawn down and that remaining available
to Tribeca may be expected to vary considerably from time to time based upon the
timing of bulk loan sales. These variations may decrease as the amount of credit
available,  the volume of originations and the frequency of bulk sales conducted
by Tribeca increase over time.

Cost of Funds.  The  increase in the prime rate from 8.25% from 8.50%,  on March
26, 1997,  increased the benchmark  rate for the interest on Senior Debt used to
fund loan portfolio  acquisitions,  thereby decreasing net income for subsequent
periods. As of June 30, 1998, the Company had 40 loans outstanding to its Senior
Debt  Lender  with an  aggregate  principal  balance  of  $96,597,286  of  which
approximately  $52.1 million  accrues  interest at a rate of 1.75% over prime or
10.25% and  approximately  $36.8  million of which  accrues  interest  at prime.
Additionally the Company has lines of credit,  which had an outstanding  balance
of $592,977 at June 30, 1998 which was used to make  advances to satisfy  senior
lien positions and fund capital  improvements in connection with foreclosures of
certain real estate loans  financed by the  Company.  Tribeca has two  warehouse
lines of credit which had an outstanding  balance of $ 1,284,430 and $1,761,860,
as of June 30, 1998 these lines accrue  interest at prime plus 2% and libor plus
2.5%  respectively.  These  warehouse  lines of credit  are  drawn  upon to fund
Tribeca's loan originations.

         The majority of the loans  purchased or  originated by the Company bear
interest at a fixed rate; consequently,  there is little corresponding change in
interest income due to changes in market interest rate conditions.  The weighted
average  interest  rate on the Senior Debt as of June 30, 1998 and  December 31,
1997 was 9.46% and  9.56%,  respectively.  Management  believes  that any future
increases in the prime rate will negatively impact the net income of the Company
while decreases may be expected to positively impact such net income.

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

         The impact of inflation  on the  Company's  operations  during both the
three months ending June 30, 1998, and the three months ending June 30, 1997 was
immaterial.

Results of Operations

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997.

         Total revenue, which is comprised of interest income, purchase discount
earned,  gains  recognized  on the  bulk  sale of  notes,  gain on sale of notes
originated,  gain on sale of OREO, rental income and other income,  decreased by
$,816,588  or 16%, to  $4,256,800  during the three  months ended June 30, 1998,
from  $5,073,388  during the three  months ended June 30,  1997.  Total  revenue
(excluding  gain on bulk  sale of loans,  OREO,  and sale of  originated  loans)
during the three months ended June 30,1998 as a percentage of notes  receivable,
net of allowance for loan losses and joint venture  participation as of June 30,
1998 was 15.3% as compared with 13.9% for the three months ending June 30, 1997.

         Interest  income on note  receivable  increased  by  $63,967  or 3%, to
$1,949,251  during the three months ended June 30, 1998 from  $1,885,284  during
the three months ended June 30, 1997. The Company recognizes  interest income on
notes  included  in its  portfolio  based upon three  factors:  (i)  interest on
performing notes,  (ii) interest received or committed with settlement  payments
on  non-performing  notes and (iii) the balance of  settlements in excess of the
carried face value.  This increase  resulted  primarily from the  acquisition of
approximately $ 7.6 million of performing loans with a weighted average interest
rate of 13%, which was only  partially  offset by the decrease in settlements of
non-performing  accounts  with accrued  interest  during the three months ending
June 30, 1998.

         Purchase  discount  earned  decreased by $190,085 or 13%, to $1,321,521
during the three months  ending June 30, 1998 from  $1,511,606  during the three
months   ending  June  30,  1997.   This   decrease   reflected   the  Company's
implementation  beginning  in 1996 of a policy of selling  re-performing  loans,
(which sales  results in purchase  discount  which would  otherwise be earned in
subsequent  periods  being in part  accelerated  as gain on sale of loans and in
part lost to the  purchaser),  a maturing  of the  Company's  portfolio,  and an
increase  of $1.1  million  in face  value of loans  foreclosed,  which  reduces
purchase discount available to be earned.

         Gain on bulk  sale of notes  receivable  decreased  by  $973,337  to $0
during the three  months  ending June  30,1998  from  $973,337  during the three
months ending June 30, 1997. This decrease reflected the timing of bulk sales of
notes  during the three  months  ending June 30,  1997.  There was one bulk sale
during the three  months  ended June 30, 1997 and none  during the three  months
ending June 30, 1998. The Company may  consummate  bulk sales of notes from time
to time as may be economically advantageous but because of market conditions may
not be expected to close on a regular basis.

         Gain on sale of notes originated by Tribeca  increased  $425,853 during
the three months  ending June 30, 1998 from $ 0 during the three  months  ending
June 30, 1997. This increase reflected Tribeca's initiation of its activities in
September  1997,  which resulted in sales of notes in the secondary  market at a
premium during 1998.

         Gain on sale of OREO  decreased by $694,542 to a loss of $45,370 during
the three months  ending June 30, 1998 from a gain of $649,172  during the three
months ending June 30, 1997. This decrease resulted primarily from the continued
liquidation,  during the three  months  ending June 30, 1998,  of a  substantial
number of the  longest-held  OREO  properties  in the Company's  portfolio.  The
Company  believes that such  properties  were  characterized  by carrying  costs
higher than those typical for properties in the Company's  portfolio as a result
of their  having  been  financed  with  Senior  Debt  incurred  prior to various
reductions in the interest rates paid by the Company for new Senior Debt,  their
higher  incidence  of defects in title,  their higher  rehabilitation  costs and
their  more  remote  locations  than  properties   generally  in  the  Company's
portfolio.  As a result,  the  Company  believes  that its  disposition  of such
properties,  while at a loss,  will be  beneficial  to the  Company's  long-term
profitability.

          Rental  income  increased to $249,813  during the three months  ending
June 30, 1998, as compared with immaterial income during the three months ending
June 30, 1997.  This increase  reflected an increase in the number of properties
in the Company's  portfolio for which the Company believes that renting produces
a greater return than selling at the present time and therefore holds for rental
currently.

         Other  income  increased  by $301,742 or 559%,  to $355,732  during the
three months ended June 30,1998 from $53,990  during the three months ended June
30,  1997.  This  increase  resulted  primarily  from the  recovery  through PMI
(Private Mortgage Insurance) of the amount in receipt of a deficiency balance on
certain  notes,  and receipt of late fees in  connection  with a settlement of a
single large note, and from various loan fees such as credit  report,  appraisal
and application  fees associated  with Tribeca's  originations  and a settlement
payment on payment on the Miramar Litigation (see-Legal Miramar)during the three
months ending June 30, 1998.

         Total  operating  expenses  increased by $869,569 or 24% to  $4,501,256
during the three months  ending June 30, 1998 from  $3,631,687  during the three
months ending June 30, 1997. Total operating expenses includes interest expense,
collection,  general and  administrative  expenses,  provisions for loan losses,
service fees, amortization of loan commitment fees and depreciation expense.

         Interest expense increased by $340,137 or 16%, to $2,508,586 during the
three  months  ending June 30,  1998,  from  $2,168,449  during the three months
ending June 30, 1997. This increase resulted primarily from increased  warehouse
borrowing  to  fund  Tribeca's  loan  originations,   increase  of  Senior  Debt
reflecting the acquisition of notes receivables and the measure in the Company's
costs of funds as a result  in the  increase  in the  prime  rate  during  1997.
Tribeca's  interest  expense was  $118,588  for the three  months ended June 30,
1998.  Total debt increased by $9,366,965 or 10.2%,  to  $101,348,492 as of June
30, 1998 from  $91,981,527 as of June 30, 1997. Total debt includes Senior Debt,
debentures, and lines of credit and loans from affiliates.

         Collection,  general and administrative  expenses increased by $705,067
or 59% to  $1,890,721  during  the  three  months  ending  June  30,  1998  from
$1,185,654 during the three months ending June 30, 1997. Collection, general and
administrative  expense consists  primarily of personnel  expense,  OREO related
expense, litigation expense, and miscellaneous collection expense.

           Personnel  expenses  increased by $391,526 or 120% to $717,418 during
the three  months  ending June 30, 1998 from  $325,892  during the three  months
ending June 30,  1997.  This  increase  resulted  largely  from the  staffing of
Tribeca,  which  accounted  for  $332,460 of this  increase,  and the  remainder
reflected  increases  in staffing and the  experience  level of personnel in the
Company's core business.  OREO related expenses increased by $354,928 or 288% to
$477,973 during the three months ending June 30, 1998 from $123,045 during three
months  ending June 30, 1997.  This increase is primarily due to the increase in
the size of the Company's rental portfolio and a concurrent  increase in related
expenses,  and the initial cost associated with foreclosed  assets for the three
months ending June 30, 1998.  Litigation  expenses decreased by $132,495 or 52%,
to $122,821  during the three months ending June 30, 1998 from  $201,818  during
the three months ending June 30, 1997.  This  decrease  reflected an increase in
the  negotiated  settlements  of the  Company's  collection  actions,  which  it
believes is related to the generally higher value of the collateral securing the
Company's newer notes receivable and the resulting  increased  incentive for the
borrower  to avert  foreclosure.  All other  collection  expenses  increased  by
$91,107 or 19% during the three  months  ending June 30,  1998 to $572,509  from
$481,402 during the three months ending June 30, 1997. This increased  reflected
the increase size of Company's portfolio of notes receivable.

         Provisions  for loan losses  decreased  by $9,280 or 118%,  to $(1,439)
during the three months  ending June 30 1998 from $7,841 during the three months
ending June 30, 1997.  Bad debt expense  expressed on an  annualized  basis as a
percentage  of face  value of notes  receivable  as of the last day of the three
months  ending June 30, 1998 and 1997 was  approximately  immaterial  and 0.03%,
respectively.

         Amortization  of deferred  financing costs decreased by $169,094 or 67%
to $84,976  during the three months ending June 30, 1998,  from $254,070  during
the three months ending June 30, 1997. This decrease resulted from the bulk sale
of notes  receivable  during  the  three  months  ending  June 30,  1997,  which
accelerated the  amortization of loan origination fees associated with the loans
sold, and a decrease in the asset balance of deferred  financing  costs relative
to the Company's  total Senior Debt  outstanding.  On June 30, 1998 and June 30,
1997 deferred  financing  costs as a percentage of Senior Debt  outstanding  was
1.31% and 1.45%, respectively.

         Depreciation  expense increased by $2,740 or 17%, to $18,412 during the
three months ending June 30, 1998,  from $15,672  during the three months ending
June 30,  1997.  This  increase  resulted  from the  purchase buy the Company of
computer equipment, and a new accounting software package.

     Operating  income  decreased by  $1,686,157  or 117%, to a loss of $244,256
during the three months  ending June 30, 1998 from a gain of  $1,441,701  during
the three months ending June 30, 1997.

         During the three months ending June 30, 1998 there was no provision for
income taxes due to the operating  loss compared to a provision for income taxes
of $722,765 during the three months ending June 30, 1997.

     Net income  decreased  by $963,392  to a loss of $244,456  during the three
months  ending  June 30, 1998 from a gain of  $718,936  during the three  months
ending June 30, 1997.


Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.

         Total revenue, which is comprised of interest income, purchase discount
earned,  gains  recognized  on the  bulk  sale of  notes,  gain on sale of notes
originated,  gain on sale of OREO,  rental income and other income  decreased by
$1,168,236 or 15%, to $6,866,304 during the six months ended June 30, 1998, from
$8,034,540  during the six months ended June 30, 1997. Total revenue  (excluding
gain on bulk sales of loans,  OREO,  and sale of  originated  loans)  during the
three  months ended June 30, 1998 as a percentage  of notes  receivable,  net of
allowance for loan losses and joint venture participation as of June 30,1998 was
12.8% as compared with 12.4% for the three months ended June 30, 1997.

         Interest  income on notes  receivable  increased  by $130,480 or 4%, to
$3,291,028  during the six months ended June 30, 1998 from $3,160,548 during the
six months ended June 30, 1997. The Company recognizes  interest income on notes
included in its portfolio  based upon three factors:  (i) interest on performing
notes,  (ii)  interest  received or  committed  to with  settlement  payments on
non-performing  notes and  (iii) the  balance  of  settlements  in excess of the
carried face value.  This increase  resulted  primarily from the  acquisition of
approximately  $7.6 million of performing loans with a weighted average interest
rate 13%,  which was only  partially  offset by the decrease in  settlements  of
non-performing  accounts with accrued interest during the six months ending June
30, 1998.

         Purchase  discount  earned  decreased by $746,946 or 24%, to $2,347,885
during the six months ended June 30, 1998 from $3,094,831  during the six months
ended June 30,  1997.  This  decrease  reflected  the  Company's  implementation
beginning in 1996 of a policy of selling re-performing loans (which sales result
in purchase discount which would otherwise be earned in subsequent periods being
in part accelerated as gain on sale of loans and in part loss to the purchaser),
a maturing of the Company's  portfolio,  and an increase of $2.3 million in face
of loans foreclosed, which reduces purchase discount available to be earned.


         Gain on bulk  sale of notes  receivable  decreased  by  $973,337  to $0
during the six months ended June 30, 1998,  from $973,337  during the six months
ended 1997.  This  decreased  reflected the timing of bulk sales of notes during
the six months ended June 30, 1997.  There were three bulks sales during the six
months ended June 30, 1997, and none during the six months ending June 30,1998.

         Gain on sale of notes originated by Tribeca was $548,282 during the six
months ending June 30, 1998, as compared with no such gain during the six months
ending June 30,  1997.  This  increase  reflected  Tribeca's  initiation  of its
activities in September 1997,  which resulted in sales of notes in the secondary
market at a premium during 1998.

         Gain on sale of OREO decreased by $833,114 to a loss of $149,675 during
the six months  ending June 30,  1998,  from a gain of  $683,439  during the six
months ended June 30, 1997. This decrease resulted  primarily from the continued
liquidation  during the six months ending June 30, 1998, of a substantial number
of the  longest-held  OREO  properties in the Company's  portfolio.  The Company
believes that such properties were  characterized  by carrying costs higher than
those typical for  properties  in the  Company's  portfolio as a result of their
having been financed with Senior Debt  incurred  prior to various  reductions in
the  interest  rates paid by the  Company  for new  Senior  Debt,  their  higher
incidence of defects in title, their higher  rehabilitation costs and their more
remote  locations than  properties  generally in the Company's  portfolio.  As a
result, the Company believes that its disposition of such properties, while at a
loss, will be beneficial to the Company's long-term profitability.

          Rental income  increased to $410,364 during the six months ending June
30, 1998, as compared with immaterial rental income during the six months ending
June 30, 1997.  This increase  reflected an increase in the number of properties
in the Company's portfolio for which the Company currently believes that renting
produces a greater return than selling,  at the present time and therefore holds
for rental.

         Other income  increased by $296,034 or 242%, to $418,420 during the six
months ended June 30, 1998 from  $122,386  during the six months ending June 30,
1997.  This increase  resulted  primarily  from an increase in various loan fees
(credit,  appraisal,  application  fees)  associated  with Tribeca  Lending Loan
Originations,  during the six months ended June 30, 1998 from $0, during the six
months ended June 30, 1997. This increase  resulted  primarily from the recovery
through  PMI  (Private  Mortgage  Insurance)  of  the  amount  in  receipt  of a
deficiency balance on certain notes, and receipt of late fees in connection with
a settlement  of a single large note,  and from various loan fees such as credit
report,  appraisal and application  fees associated with Tribeca's  originations
and a settlement payment on the Miramar Litigation(See-Legal Miramar Litigation)
during the six months ended June 30, 1998.


         Total operating  expenses increased by $1,389,952 or 20%, to $8,170,208
during the six months ended June 30, 1998, from $6,780,256 during the six months
ended June 30, 1997.

         Interest expense increased by $435,740 or 11%, to $4,559,544 during the
six months ending June 30, 1998 from $4,123,804 during the six months ended June
30, 1997. This increase resulted primarily from increased warehouse borrowing to
fund Tribeca's loan  originations,  increases  reflecting Senior Debt associated
with the  acquisition  of  notes  receivable.  Tribeca's  interest  expense  was
$177,913  to  $177,913  for the six  months  ended  June 30,  1998.  Total  debt
increased by  $9,366,965  or 10.2%,  to $  101,348,492  as of June 30, 1998,  as
compared with $ 91,981,527 as of June 30, 1997.

         Collection, general and administrative expenses increased by $1,212,183
or 56%, to $3,392,713 during the six months ending June 30, 1998 from $2,180,530
during the six months ended June 30, 1997.

         Personnel  expenses increased by $736,482 or 113%, to $1,389,851 during
the six months ended June 30, 1998 from  $653,369  during the six months  ending
June 30, 1997.  The staffing of Tribeca  accounted for $566,136 of the increase,
and the remainder  reflected  increases in staffing and the experience  level of
personnel in the Company's core  business.  OREO related  expenses  increased by
$541,890 or 309%, to $717,391 from $175,501 during the six months ended June 30,
1997.  This increase is primarily  due to the increase in the  Company's  rental
portfolio  related  expenses,   and  the  initial  cost  associated  with  newly
foreclosed assets for the six months ending June 30, 1998.  Litigation  expenses
decreased by $201,818 or 35%, to $377,791  during the six months ending June 30,
1998,  from $579,609  during the six months ending June 30, 1997.  This decrease
reflected an increase in the negotiated  settlements of the Company's collection
actions,  which it  believes  is related to the  generally  higher  value of the
collateral  securing the  Company's  newer notes  receivable  and the  resulting
increased  incentive for borrowers to avert  foreclosure.  All other  collection
expenses  increased by $135,628 or 18% during the six months ended June 30, 1998
to  $907,680  from  $772,052  during the six months  ended June 30,  1997.  This
increase  reflected  the  increase  size of the  Company's  portfolio  of  notes
receivable.

     Provisions  for loan losses  decreased by $72,462 or 70%, to  $31,391during
the six months ending June 30, 1998 from  $103,853  during the six months ending
June 30, 1997.
         Service fees  decreased by $31,395 or 100%, to $0 during the six months
ending June 30, 1998 from  $31,395  during the six months  ending June 30, 1997.
This  decrease  resulted  from the  elimination  of service  fees charged by its
Senior Debt Lender effective March 1997. See "General- Cost of Funds."

         Amortization of deferred  financing costs decreased by $171,567 or 55%,
to $137,762  during the six months ending June 30, 1998 from $309,329 during the
six months ending June 30, 1997.  This  decrease  resulted from the bulk sale of
notes receivable,  during the six months ending June 30, 1997, which accelerated
the  amortization of loan origination fees associated with the loans sold, and a
decrease  in the asset  balance of  deferred  financing  costs  relative  to the
Company's total Senior Debt outstanding.

         Depreciation expense increased by $17,454 or 56%, to $48,798 during six
months ending June 30, 1998,  from $31,344 during the six months ending June 30,
1997. This increase resulted from the purchase of new computer equipment,  and a
new accounting software package.

     Operating  income  decreased by $2,558,188 or 204%, to a loss of $1,303,904
during the six months ending June 30, 1998 from a gain of $1,254,284  during the
six months ending June 30, 1997.

         During the six months ending June 30, 1998,  there was no provision for
income taxes due to the operating  loss compared to a provision for income taxes
of $722,765 during the six months ending June 30, 1997.

     Net income  decreased by $1,835,423 to a loss of $1,303,904  during the six
months ending June 30, 1998 from a gain of $531,519 during the six months ending
June 30, 1997.



Liquidity and Capital Resources

          General.  During  the six  months  ended  June 30,  1998  the  Company
purchased  1,302  loans  in five  portfolios  with an  aggregate  face  value of
$24,321,293  at an aggregate  purchase price of $20,127,336 or 83% of face value
and OREO  properties of $235,182.  During the six months ended June 30, 1997 the
Company  purchased six portfolios with an aggregate face value of $33,365,660 at
an aggregate  purchase price of $17,820,766 or 53% of aggregate face value,  and
$2,041,230  in OREO  properties.  This  increase,  measured by  purchase  price,
reflected the increase in  competitiveness  of the Company's bids resulting from
the  reduction in its cost of funds  relative to the prime rate and the increase
in bidding  opportunities  associated  with the Company's  beginning to purchase
performing  loans  and well as  non-conforming  and  sub-performing  loans.  The
increase in purchase price as a percentage of face value of the loans  purchased
reflected the increased quality of the loans purchased.

         The Company's portfolio of notes receivable at June 30, 1998 had a face
value of  $125,942,126  and  included  net  notes  receivable  of  approximately
$84,724,413,  as  compared  with a face  value  of  $129,692,730  and net  notes
receivable  of  approximately  $78,027,509  as  of  June  30,  1997.  Net  notes
receivable  are stated at the  amount of unpaid  principal,  net of by  purchase
discount,  an allowance for loan losses,  and joint venture  participation.  The
Company has the ability and intent to hold its notes until  maturity,  payoff or
liquidation of collateral or where deemed to be economically advantageous, sale.

         During the six months ended June 30, 1998, the Company used cash in the
amount of $8,601,511 in its operating activities primarily for interest expense,
overhead associated with the ramp-up of Tribeca and increased  infrastructure in
the  Company's  core  business,  litigation  expense  incidental to its ordinary
collection  activities  and for the  foreclosure  and  improvement  of OREO. The
Company  used  $5,388,411  in its  investing  activities,  primarily  reflecting
purchases of notes  receivable  which  purchases were only  partially  offset by
principal collections upon its notes receivable and proceeds from sales of OREO.
The amount of cash used in  operating  and  investing  activities  was funded by
$15,090,055 of net cash provided by financing activities, including principally,
a net increase in Senior Debt of $20,889,503. The above activities resulted in a
net increase in cash at June 30, 1998 over December 31, 1997 of $1,100,133.

         In the ordinary  course of its business,  the Company  accelerates  and
forecloses upon real estate securing non-performing notes receivable included in
its portfolio.  As a result of such  foreclosures and selective direct purchases
of OREO,  at June 30, 1998 and 1997,  the Company held OREO with a book value of
$9,255,949  and  $9,566,536,  respectively.  OREO is recorded  on the  financial
statements  of the  Company at the lower of cost or fair  market  value based on
third party  appraisals  and broker price opinions at the time of acquisition or
foreclosure.  There can be no assurance however, that such amount would actually
be realized upon  liquidation of such OREO. The Company  generally holds OREO as
rental  property  or  sells  in the  ordinary  course  of  business  when  it is
economically beneficial to do so.

         Tribeca  Operating  Loss.  During the six months  ending  June 30, 1998
Tribeca  incurred  an  operating  loss  of  $475,782.  This  loss  stemmed  from
substantial  start-up costs and an increase in operating expenses was associated
with the  ramp-up of the new  business  and the lag time  which may be  expected
before  the  related  revenues  begin to be  realized.  The  Company  funded the
start-up of Tribeca with $1.1 million of proceeds  from the  refinancing  of two
loan portfolios  through its Senior Debt Lender.  Additionally,  such lender has
provided  Tribeca  with a  warehouse  line  of  credit  of  $4.5  to  fund  loan
originations,  which accrues  interest at prime plus 2%. The Company has secured
an additional warehouse line of credit for Tribeca's use of $7.0 million from an
other  lending  institutions,   which  accrues  interest  at  Libor  plus  2.5%,
additionally on August 19, 1998, Tribeca received a commitment for an additional
warehouse line of credit in the amount of $5.0 million which accrue  interest at
prime plus 2%. Tribeca began originating  mortgages on September 1, 1997 and has
not yet achieved  profitability.  Management  believes  that in order to achieve
profitability,  Tribeca  will be required to continue to increase  its access to
credit,  its originations and its volume of bulk sales of loans. There can be no
assurances that Tribeca will earn a profit in the future.

         Private  Placement.  Management  is  currently  seeking to increase the
warehouse  lines of credit  available to Tribeca to fund loan  originations.  In
order to obtain additional equity capital to support such increase,  the Company
has  arranged  for the sale in a private  placement  of  $500,000  of its equity
securities.  Substantially  all of such  amounts  have been  deposited  with the
Company and the  offering is  currently  expected to be closed  during the third
quarter of 1998.

Cash Flow

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

         At June 30, 1998, the Company had  unrestricted  cash, cash equivalents
and marketable  securities of $3,884,053.  A portion of the Company's  available
funds may be applied to fund acquisitions of companies or assets of companies in
complementary or related fields.  Although the Company from time to time engages
in discussions and negotiations,  it currently has no agreements with respect to
any  particular  acquisition.  This may cause the  Company  to incur  additional
capital expenditures, outside the acquisitions of additional notes receivable.

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

Financing Activities

     Senior  Debt.  As of June  30,  1998,  the  Company  owed an  aggregate  of
$96,597,286 to the Lender of Senior Debt, under 40 loans.

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

         Certain of the Senior Debt credit agreements  require  establishment of
restricted  cash accounts,  funded by an initial deposit at the loan closing and
additional  deposits  based upon monthly  collections  up to a specified  dollar
limit. The restricted cash is maintained in an interest bearing accounts held by
the Company's Senior Debt Lender.  Restricted cash may be accessed by the Senior
Debt Lender only upon the Company's  failure to meet the minimum monthly payment
due if collections from notes  receivable  securing the loan are insufficient to
satisfy the installment due. Historically, the Company has not called upon these
reserves.  The  aggregate  balance  of  restricted  cash  in such  accounts  was
$1,034,890 and $966,103 on June 30, 1998 and June 30, 1997, respectively.

         Total Senior Debt availability was approximately $125.0 million at June
30, 1998,  of which  approximately  $96.6 million had been drawn down as of such
date. Additionally the Senior Debt Lender has verbally informed the Company that
it will  not  deem  approximately  $10.0  million  of  Senior  Debt  that it had
syndicated  to other  banks  as of such  date as  outstanding  for  purposes  of
determining  availability  under of Senior  Debt.  As a result,  the Company has
approximately $38.4 million available to purchase additional portfolios of notes
receivable and OREO.

         12% Debentures.  In connection with the acquisition of a loan portfolio
during 1994, the Company sold to investors  $750,000 of subordinated  debentures
("12%  Debentures").  As of June 30, 1998 and December  31,  1997,  $264,375 and
$352,500, respectively, of these debentures were outstanding. The 12% Debentures
bear  interest at the rate of 12% per annum  payable in quarterly  installments.
The  principal  is  payable  over four years in sixteen  equal  installments  of
$44,062 that commenced  March 31, 1996. The 12% Debentures are secured by a lien
on the Company's  interest in certain notes  receivable and are  subordinated to
the Senior Debt encumbering such notes receivable.

         Harrison  First  Corporation  12%  Debentures.  In connection  with the
acquisition  of a loan  portfolio  during  1995,  the Company  sold to investors
$555,000 of subordinated debentures.  As of June 30, 1998 and December 31, 1997,
$466,200 and $510,600,  respectively,  of these debentures were outstanding. The
Harrison 1st 12%  Debentures  bear interest at the rate of 12% per annum payable
in  quarterly  installments.  The  principal  is payable over three years in ten
equal quarterly  installments  of $22,200 which payments  commenced on September
30, 1997 with the remaining  balloon  payment of $333,000 due June 30, 2000. The
Harrison 1st 12% Debentures  are secured by a lien on the Company's  interest in
certain notes  receivable and are  subordinated  to the Senior Debt  encumbering
such notes receivable.

OREO Line of Credit.  The  Company  has a line of credit  with the  Senior  Debt
Lender  permitting it to borrow a maximum of approximately  $1,500,000 at a rate
equal  to such  lender's  prime  rate  plus two  percent  per  annum.  Principal
repayment of cash advance under the line is due six months from the date of such
cash  advance and interest is payable  monthly.  The total  amounts  outstanding
under the  lines of  credit as of June 30,  1998 and  December  31,  1997,  were
$592,977 and $583,916, respectively. Advances made under the line of credit were
used  to  satisfy  senior  lien  positions  and  fund  capital  improvements  in
connection  with  foreclosures  of certain  real  estate  loans  financed by the
Company.  Management believes the ultimate sale of these properties will satisfy
the related outstanding lines of credit and accrued interest, as well as surpass
the collectible value of the original secured notes  receivable.  Management has
reached an agreement  in  principal  with its Senior Debt Lender to increase the
availability   under  this  credit  facility  to  cover  additional   properties
foreclosed  upon by the  Company  which the  Company  may be required to hold as
rental property to maximize its return.

Warehouse Lines-of Credit

As of June 30, 1998 the  Company  maintains  warehouse  lines of credit with two
financial institutions. Up to $11.5 million of funds, secured by owned mortgages
held for sale, are available to be advanced to the Company. See`General- Tribeca
loss'.













































                            Part II Other Information
0
Item 1.  Legal Proceedings
         Asset  Purchase  Agreement  Dispute.  On August  19,  1997 the  Company
commenced a civil action in the United  States  District  Court for the Southern
District of New York  against  Preferred  Credit  Corporation  ("PCC")  alleging
fraud, breach of contract, and unjust enrichment in connection with the purchase
by the Company of $3.7  million in face value of notes  receivable  from ("PCC")
for $1.8  million.  The  Company  is  seeking  recision  of the  asset  purchase
agreement or damages incurred concerning the purchase.

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

         PCC filed a motion to dismiss in FCMC's  Amended  Complaint on November
12, 1997 and FCMC responded to the motion to dismiss on December 9, 1997. On May
8, 1998, the United States  District Court dismissed  FCMC's Amended  Complaint,
with leave to file an amended complaint.  On June 5, 1998, FCMC filed its second
Amended Complaint alleging claims based on fraud and breach of contract. On July
24,  1998,  Defendants  moved to  dismiss  the  Second  Amended  Complaint.  The
Defendants'  Motion to  Dismiss  the  Second  Amended  Complaint  has been fully
briefed and is currently pending before the Court for disposition.

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

         On  December  22,  1997 the  Company  filed an answer and  counterclaim
vigorously  denying the  allegations  of the  complaint  and alleging  fraud and
breach of contract  against K and Ragan,  and breach of  fiduciary  duty against
Ragan.  In its  counterclaim  the Company seeks to recover damages of $1,000,000
for what it believes to have been Ragan's unjustified  unilateral termination of
his  employment  in violation of the Letter  Agreement.  The Company  intends to
vigorously assert its claims,  defend itself against K's claims, and does not at
this time  believe that the suit will have a material  adverse  impaction on its
operations or financial condition. The Court has directed all parties to proceed
with mediation, which is currently scheduled for the fall of 1998.

         Legal Fee Dispute. On October 28, 1997 Rosen, Dainow & Jacobs ("Rosen")
filed a civil  action  against the Company in the Supreme  Court of the State of
New York,  County of New York  alleging  failure by the  Company to pay fees due
Rosen in connection  with certain  matters in which it  represented  the Company
("Trademark  Dispute") and seeking  $145,000 in damages.  Rosen was dismissed by
the Company, as counsel in such matters after it was disbanded and the Company's
lead attorney in the Trademark  Dispute joined a firm that was  representing the
Company's  deputant in the  Trademark  Dispute.  The Company plans to vigorously
defend  itself in this matter and does not  currently  believe  that the outcome
will have a material impact on its operations or financial condition.

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


<PAGE>




Item 2.  Changes in Securities
                  None

Item 3.  Defaults Upon Senior Securities
                  None

Item 4.  Submission of Maters to a Vote of Security Holders

     On June 3, 1998 at the Company's annual meeting the  shareholders  voted to
reelect the  following  persons as  Directors to the Company  expiring  upon the
election and  qualification  of their  successors  at the annual  meeting of the
Company in the year 2001, and to ratify the appointment of Deloitte & Touche LLP
as the Company's independent public auditors for the fiscal year ending December
31,1998.

Director              For      Against   Not Voting    Total

Joseph Bartfield   4,392,101    2,180    1,117,014   5,511,295

Joseph Caiazzo     4,392,101    2,180    1,117,014   5,511,295

Robert M. Chiste   4,392,101    2,180    1,117,014   5,511,295


Independent Public Auditors   For    Against   Abstain   Not Voting     Total

Deloitte & Touche LLP     4,391,676    210       3,510   1,158,879    5,511,295



Item 5.  Other Information
                  None

Item 6.  Exhibits and Reports on form 8-K

                         None
(a)                               EXHIBIT TABLE
       Exhibit No.  Description
       3(a)         Restated  Certificate  of  Incorporation. Previously  filed
                    with, and incorporated herein by reference to,the Company's
                    10-KSB,  filed with the  Commission on December 31 1994 and
                    as  amended  by  the  Company's   10-KSB,  filed  with  the
                    Commission on May 14, 1998.
       (b)          Bylaws  of  the   Company.   Previously  filed  with,   and
                    incorporated   herein  by   reference  to,  the   Company's
                    Registration Statement on Form S-4, No.33-81948, filed with
                    the Commission on November 24, 1994.
       4(a)         15% Convertible  Subordinate  Debentures. Previously  filed
                    with, and incorporated herein by referenceto, the Company's
                    Registration Statement on Form S-4, No.33-81948, filed with
                    the Commission on November 24, 1994.
       (b)          Warrants  associated  with  principal repayment  of the 15%
                    Convertible Subordinated Debentures. Previously filed with,
                    and  incorporated  herein by  reference to,  the  Company's
                    Registration Statement on Form S-4, No.33-81948, filed with
                    the Commission on November 24, 1994.
       10(d)        Employment  Agreement,  dated December 4, 1996, between the
                    Company  and  Joseph  Caiazzo.  Previously  filed  with and
                    incorporated  herein by  reference  to, the  Company's Form
                    10K-SB, filed with the Commission on March 31, 1997.
       10(e)        Agreement  dated  March 29,  1997  between the  Company and
                    Citizens Banking Company.
       11           Computation of earnings per share.  Filed here with.
       21           Listing of subsidiaries.  Filed here with.
(b) No reports on Form 8-K were filed during the first quarter of 1998.



<PAGE>



                                   SIGNATURES

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

September 3, 1998                 FRANKLIN CREDIT MANAGEMENT
                                   CORPORATION


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


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

Signature                           Title                          Date

THOMAS J. AXON          President, Chief Executive Officer   September 3, 1998
---------------         and Director                         -----------------
Thomas J. Axon             
(Principal executive officer)


FRANK B. EVANS, Jr.       Vice President, Treasurer          September 3, 1998
-------------------                                          ----------------- 
Frank B. Evans, Jr.     Chief Financial Officer and Director
Secretary (Principal financial and accounting officer)


JOSEPH CAIAZZO          Vice President, Chief Operating       September 3, 1998
--------------                                                -----------------
Joseph Caiazzo          Officer and Director




<PAGE>


Exhibit 11.

Computation of earnings per share second quarter 1998.
                              No. of shares Weight

 09/30/97 Common stock         5,516,527
                               ---------     25%     1,379,132
                               5,516,527

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


 03/31/98  Common stock        5,516,527
                               ---------     25%     1,379,132
                               5,516,527

 06/30/98  Common stock        5,516,527
                               ---------     25%     1,379,132
                               5,516,527

    Weighted average number of shares                 5,516,527 

Earnings per Common share:
              Net Income        $(1,303,904)             (0.22)