UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-17771
FRANKLIN CREDIT MANAGEMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2243266
(I.R.S. Employer identification No.)
Six Harrison Street
New York, New York 10013
(212) 925-8745
(Address of principal executive offices, including zip code,
and telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No .
As of May 30, 1998 the issuer had 5,516,527 of shares of Common Stock, par
value $0.01 per share, outstanding.
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FRANKLIN CREDIT MANAGEMENT CORPORATION
FORM 10-QSB
March 31,1998
C O N T E N T S
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 1998 (unaudited) and
December 31, 1997 3
Consolidated Statements of Income (unaudited) March 31, 1998
and December 31, 1997 4
Consolidated Statements of Stockholders' Equity (unaudited)
for the three months ended March 31, 1998 and 1997 5
Consolidated Statement of Cash Flows (unaudited) for the
three months ended March 31, 1998 and 1997 6
Notes to consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
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FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
31-Mar-98 31-Dec-97
------------------- ------------------
ASSETS
CASH AND CASH EQUIVALENTS 2,260,263 2,783,920
RESTRICTED CASH 1,000,466 990,466
NOTES RECEIVABLE:
Principal 127,347,211 115,965,158
Joint venture participations (319,801) (321,460)
Purchase discount (14,968,873) (16,175,518)
Allowance for loan losses (27,301,564) (27,424,641)
------------------- ------------------
Net notes receivable 84,756,973 72,043,539
LOANS HELD FOR SALE 1,566,200 3,702,723
ACCRUED INTEREST RECEIVABLE 942,356 929,908
OTHER REAL ESTATE OWNED 10,617,712 11,806,473
OTHER RECEIVABLES 682,029 695,471
DEFERRED TAX ASSET 1,938,221 1,479,939
OTHER ASSETS 761,326 735,075
BUILDING,FURNITURE AND FIXTURES-Net 723,121 729,285
DEFERRED FINANCING COSTS 1,263,637 1,161,437
------------------- ------------------
TOTAL ASSETS 106,512,303 97,058,236
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accts payable and accrued exp 2,416,876 2,938,340
Line of credit 2,102,042 1,376,403
Notes payable 96,146,029 83,643,550
203(k)rehab escrows payable 270,487 2,828,239
Subordinated debentures 796,837 863,100
Notes payable,affiliates & stockholders 284,077 311,484
Deferred tax liability 2,018,280 1,559,998
------------------- -----------------
Total liabilities 104,034,630 93,521,114
------------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 10,000,000 authorized
shares; issued and outstanding 1997 and 1996:
5,516,527 55,167 55,167
Additional paid-in capital 6,489,968 6,489,968
Accumulated deficit (4,067,462) (3,008,013)
------------------- ----------------
Total stockholders' equity 2,477,674 3,537,122
------------------- ----------------
TOTAL LIAB. AND STOCKHOLDERS'EQUITY 106,512,303 97,058,236
=================== ================
See notes to consolidated financial statements.
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FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 and 1997
31-Mar-98 31-Mar-97
------------------ --------------
REVENUES:
Interest Income 1,341,777 1,275,264
Purchase discount earned 1,026,364 1,583,225
Gain on sale of portfolios 0 0
Gain (loss) on sale of Originated Loans 122,429 0
Gain on sale of other real estate owned (104,305) 34,268
Rental Income 160,551 0
Other 62,688 68,396
------------------ --------------
2,609,504 2,961,153
------------------ --------------
OPERATING EXPENSES:
Interest Expense 2,050,957 1,955,355
Collection, general and administrative 1,501,992 994,876
Provision for loan losses 32,830 96,012
Banking service fees 0 31,395
Amortization of deferred financing costs 52,787 55,259
Depreciation 30,386 15,672
------------------ --------------
3,668,952 3,148,569
------------------ --------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME
TAXES (1,059,448) (187,416)
------------------ --------------
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
------------------ --------------
NET (LOSS) INCOME (1,059,448) (187,416)
================== ==============
NET (LOSS) INCOME PER COMMON SHARE:
Basic (0.19) (0.03)
Dilutive
(0.19) (0.03)
================== ===============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,516,527 5,516,527
================== ===============
See notes to consolidated financial statements.
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FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND DECEMBER 31, 1997
Additional Retained
Common Stock Paid-In Earnings
---------------------
Shares Amount Capital (Deficit) Total
- --------------------------------------------------------------------------------
Balance, December 31, 1996 1102077 11022 6534113 (2442115) 4103020
Four-for-one stock Dividend 4414450 44145 (44145)
Net Loss (565898) (565898)
----------------------------------------------------
Balance, December 31, 1997 5516527 55167 6489969 (3008013) 3537122
Net Loss (1059448) (1059448)
====================================================
Balance, March 31, 1998 5516527 55167 6489969 (4067461) 2477674
====================================================
See notes to consolidated financial statements.
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FRANKLIN CREDIT MANAGEMENT CORP & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months ended March 31, 1998 and 1997
31-Mar-98 31-Mar-97
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (1,059,448) (187,417)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 30,386
Amortization 52,787 70,931
Purchase discount earned (1,026,364) (1,583,225)
Gain on Sale of REO 104,305
Provision for loan loss 32,830 96,012
Deferred tax provision 0 0
(Increase)decrease in:
Accrued interest receivable 95,382 274,535
Foreclosures on real estate 47,672 (1,502,595)
Assets held for sale (620,450)
Other receivables (10,322) 28,422
Other current assets 2,818,978 8,427
Increase(decrease) in:
Accounts payable & accrued expenses (527,302) 221,871
203(k) rehabilitation escrow (2,589,626)
Due to affiliates 0 (80,547)
Net cash provided (used) --------------- ------------
by operating activities (2,651,172) (2,653,586)
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions 0 0
Additional capital contributed 0 0
Acquisition and loan fees (155,855) (66,206)
Acquisition of notes receivable (15,478,600) (5,813,924)
Acquisition of REO 0 0
Proceeds from sale of REO 1,487,541 0
Foreclosures on real estate (371,830) 0
Reclass of notes receivable for foreclosures 1,009,905 0
Acquisition of furniture & equipment (23,352) (5,861)
Participation interest (1,709) (12,928)
Advances to subsidiaries 0 0
Principal collection on notes receivable 2,513,533 5,207,348
(Increase) decrease in restricted cash (10,000) 122,079
Net cash provided (used) -------------- -------------
by investing activities (11,030,367) (569,492)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debenture notes payable (66,263) 0
Payments on line of credit (414,290) 362,298
Proceeds from line of credit 1,135,953 (73,135)
Proceeds from notes payable 15,585,498 7,813,050
Payments on notes payable (3,083,017) (3,682,379)
Net cash provided (used) ------------- -------------
by financing activities 13,157,882 4,419,834
------------- -------------
NET INCREASE (DECREASE) IN CASH (523,657) 1,196,756
CASH, BEGINNING OF YEAR 2,783,920 1,967,965
------------- -------------
CASH, ENDING 2,260,263 3,164,721
See notes to consolidated financial statements
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PART I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of
Business - Franklin Credit Management Corporation (the "Company"), incorporated
under the laws of the State of Delaware, acquires nonperforming, nonconforming
and subperforming notes receivable and promissory notes from financial
institutions, mortgage and finance companies and the Federal Deposit Insurance
Corporation ("FDIC"). The Company services and collects such notes receivable
through enforcement of terms of original note, modification of original note
terms and, if necessary, foreclosure on the underlying collateral.
In January 1997, a new wholly owned subsidiary was formed, to originate or
purchase, non-traditional residential mortgage loans, including, but not limited
to, sub-prime loans to individuals whose borrowing needs are not being served by
traditional financial institutions.
A summary of the Company's significant accounting policies follows.
Basis of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents includes all cash
accounts, with the exception of restricted cash, and money market funds. The
Company maintains amounts due from banks which at times may exceed federally
insured limits. The Company has not experienced any losses from such
concentrations.
Notes Receivable and Income Recognition - The notes receivable portfolio
consists primarily of secured consumer and real estate mortgage loans purchased
from financial institutions, mortgage and finance companies and the FDIC. Such
notes receivable are generally nonperforming or underperforming at the time of
purchase and, accordingly, are usually purchased at a substantial discount from
the principal balance remaining.
Notes receivable are stated at the amount of unpaid principal, reduced by
purchase discount and an allowance for loan losses. The Company has the ability
and intent to hold its notes until maturity, payoff or liquidation of
collateral.
In general, interest on the notes receivable is calculated based on
contractual interest rates applied to daily balances of the collectible
principal amount outstanding using the simple-interest method.
Accrual of interest on notes receivable, including impaired notes
receivable, is discontinued when management believes, after considering economic
and business conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful. When interest accrual
is discontinued, all unpaid accrued interest is reversed. Subsequent recognition
of income occurs only to the extent payment is received subject to management's
assessment of the collectibility of the remaining interest and principal. A
nonaccrual note is restored to an accrual status when it is no longer delinquent
and collectibility of interest and principal is no longer in doubt and past due
interest is recognized at that time.
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Loan purchase discount is amortized to income using the interest method
over the period to maturity. The interest method recognizes income by applying
the effective yield on the net investment in the loans to the projected cash
flows of the loans. Discounts are amortized if the projected payments are
probable of collection and the timing of such collections is reasonably
estimable. The projection of cash flows for purposes of amortizing purchase loan
discount is a material estimate which could change significantly in the near
term. Changes in the projected payments are accounted for as a change in
estimate and the periodic amortization is prospectively adjusted over the
remaining life of the loans. Should projected payments not exceed the carrying
value of the loan, the periodic amortization is suspended and either the loan is
written down or an allowance for uncollectibility is recognized.
Allowance for Loan Losses - The allowance for loan losses, a material
estimate which could change significantly in the near-term, is initially
established by an allocation of the purchase loan discount based on the
management's assessment of the portion of purchase discount that represents
uncollectible principal. Subsequently, increases to the allowance are made
through a provision for loan losses charged to expense and the allowance is
maintained at a level that management considers adequate to absorb potential
losses in the loan portfolio.
Management's judgment in determining the adequacy of the allowance is based
on the evaluation of individual loans within the portfolios, the known and
inherent risk characteristics and size of the note receivable portfolio, the
assessment of current economic and real estate market conditions, estimates of
the current value of underlying collateral, past loan loss experience and other
relevant factors. Notes receivable, including impaired notes receivable, are
charged against the allowance for loan losses when management believes that the
collectibility of principal is unlikely based on a note-by-note review. Any
subsequent recoveries are credited to the allowance for loan losses when
received. In connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties, when
considered necessary.
The Company's real estate notes receivable are collateralized by real
estate located throughout the United States with a concentration in the
Northeast. Accordingly, the collateral value of a substantial portion of the
Company's real estate notes receivable and real estate acquired through
foreclosure is susceptible to changes in market conditions.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on notes receivable,
future additions to the allowance or write-downs may be necessary based on
changes in economic conditions.
Other Real Estate Owned - Other real estate owned consisting of properties
acquired through, or in lieu of, foreclosure or other proceedings are held for
sale and are carried at the lower of cost or fair value less estimated costs of
disposal. Any write-down to fair value, less cost to sell, at the time of
acquisition is charged to the allowance for loan losses. Subsequent write-downs
are charged to operations based upon management's continuing assessment of the
fair value of the underlying collateral. Property is evaluated regularly to
ensure that the recorded amount is supported by current fair values and
valuation allowances are recorded as necessary to reduce the carrying amount to
fair value less estimated cost to dispose. Revenue and expenses from the
operation of other real estate owned and changes in the valuation allowance are
included in operations. Costs relating to the development and improvement of the
property are capitalized, subject to the limit of fair value of the collateral,
while costs relating to holding the property are expensed. Gains or losses are
included in operations upon disposal.
Building, Furniture and Fixtures- Building, furniture and fixtures are
recorded at cost net of accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 40 years. Gains and losses on dispositions are recognized upon
realization. Maintenance and repairs are expensed as incurred.
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Deferred Financing Costs - Debt financing costs, which include loan
origination fees incurred by the Company in connection with obtaining financing,
are deferred and are amortized based on the principal reduction of the related
loan.
Mortgage Servicing Rights - The Company allocates the total cost of the
mortgage loans purchased or originated, proportionately, to the mortgage
servicing rights and the loans based on the relative fair value. The servicing
rights capitalized are amortized in proportion to and over the period of,
estimated net servicing income including prepayment assumptions based upon the
characteristics of the underlying loans. Capitalized servicing rights are
periodically assessed for impairment based on the fair value of the rights with
any impairment recognized through a valuation allowance.
Pension Plan - The Company has a defined contribution retirement plan (the
"Plan") covering all full-time employees who have completed one year of service.
Contributions to the Plan are made in the form of payroll reductions based on
employees' pretax wages. Currently, the Company does not offer a matching
provision for the Plan.
Income Taxes - The Company recognizes income taxes under an asset and
liability method. Under this method, deferred tax assets are recognized for
deductible temporary differences and operating loss or tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
reduced by a valuation allowance when management determines that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of the enactment.
Earnings Per Common Share - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
128, Earnings Per Share (SFAS No. 128), which requires dual presentation of
Basic EPS and Diluted EPS on the face of the income statement for all entities
with complex capital structures and the restatement of all prior period earnings
per share data presented. SFAS No. 128 also requires a reconciliation of the
numerator and denominator of Basic EPS and Diluted EPS computation.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial assets and liabilities from its disclosure
requirements. Accordingly, the aggregate fair value amounts do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
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a. Cash, Restricted Cash, Accrued Interest Receivable, Other Receivable and
Accrued Interest Payable - The carrying values reported in the balance sheet are
a reasonable estimate of fair value.
b. Notes Receivable - Fair value of the net note receivable portfolio is
estimated by discounting the future cash flows using the interest method. The
carrying amounts of the notes receivable approximate fair value.
c. Short-Term Borrowings - The carrying amounts of the line of credit and
other short-term borrowings approximate their fair value.
d. Long-Term Debt - Fair value of the Company's long-term debt (including
notes payable, subordinated debentures and notes payable, affiliate) is
estimated using discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
carrying amounts reported in the balance sheet approximate their fair value.
Recent Accounting Pronouncements - The Financial Accounting Standards Board
("FASB") has issued several new accounting pronouncements. Statement No. 130,
Reporting Comprehensive Income ("SFAS No. 130"), which establishes standards for
reporting and displaying of comprehensive income and its components. Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS No. 131), which establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
products and services, geographic areas, and major customers. The two standards
are effective for the Company's 1998 financial statements. The Company does not
believe that SFAS 130 will have any effect on the Company's computation or
presentation of net income. The Company will adopt SFAS 131 for its mortgage
origination subsidiary beginning in 1998.
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Item 2. Management' Discussion and Analysis of Financial Condition and Results
Of Operations
General
Forward-Looking Statements. When used in this report, press releases and
elsewhere by the Company from time to time, the words "believes", "anticipates",
and "expects" and similar expressions are intended to identify forward-looking
statements that involve certain risks and uncertainties. Additionally, certain
statements contained in this discussion and this Quarterly Report on Form 10-QSB
generally may be deemed forward-looking statements that involve a number of
risks and uncertainties. Among the factors that could cause actual results to
differ materially are the following: unanticipated changes in the U.S. economy,
business conditions and interest rates and the level of growth in the finance
and housing markets, the availability for purchases of additional loans, the
status of relations between the Company and its primary sources for loan
purchases, the status of relations between the Company and its primary source of
senior financing ("Senior Debt Lender"), unanticipated difficulties in
collections under loans in the Company's portfolio or new loans purchased by the
Company other risks detailed from time to time in the Company's SEC reports.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date thereof. The Company undertakes no
obligation to release publicly the results on any events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Loan and OREO Acquisitions. During the three months ended March 31, 1998
("1st Quarter 1998") the Company purchased 1,196 loans in two portfolios with an
aggregate face value of $17,774,323 at an aggregate purchase price of
$15,585,498 or 88% of the face value and no OREO properties compared with the
purchase during the three months ended March 31, 1997 ("1st Quarter 1997") of
234 loans in six portfolios with an aggregate face value of $19,471285 at an
aggregate purchase price of $12,416,321 or 64% of aggregate face value, and no
OREO properties. Acquisition of these portfolios was fully funded through senior
financing ("Senior Debt") in the amount equal to the purchase price plus a 1%
loan origination fee. See "Liquidity and Capital Resources- Cash Flow from
Financing Activities- Senior Debt".
The Company believes these acquisitions will result in substantial
increases in the level of interest income and purchase discount income during
future periods. During the initial period following acquisitions, the Company
incurs the carrying costs of the related Senior Debt and administrative costs
related to the new portfolios. Payment streams are only generated once the loans
are incorporated into the Company's loan tracking system and contact with the
borrower is made, and in some cases non-performing loans are restructured or
collection litigation successfully concluded.
In May 1997, the Company purchased a portfolio of $3.7 million in face
value of notes receivable from Preferred Credit Corp ("PCC") for $1.8 million.
Although the Company conducted its own review of each loan file, it has come to
believe since the closing of the acquisition that certain information was
intentionally omitted or removed from such files or kept in another repository
of files which were not made available to the Company and that PCC intentionally
and materially misrepresented the status and quality of the notes receivable
included in the portfolio. Although, its estimate will be refined as the
purchased portfolio is seasoned, the Company currently believes that as much as
approximately 90% of the face value of the portfolio may be uncollectable, due
to debtor bankruptcies, in certain instances prior to the execution of the Asset
Purchase Agreement, or senior credit foreclosures of the underlying collateral.
The Company has recorded, on its 1997 Consolidated Statement of Income, a
Special Charge of $1.5 million reflecting its current estimate of the
uncollectable portion of the purchase price of such portfolio.
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The Company has initiated a suit and is seeking recision of the asset
purchase agreement or damages incurred in connection with the purchase. The
Company's litigation counsel has advised the Company that it believes the
Company has a substantial probability of prevailing in such suit. See "Part
II-Item 1. Legal Proceedings".
In the ordinary course of business, the Company acquires properties from
portfolio acquisitions or and foreclosures. Such properties are classified as
OREO and are evaluated regularly to ensure that recorded amounts are supported
by current fair market values.
Management intends to continue to expand the Company's earning asset base
through the acquisition of additional portfolios including performing and
non-performing real estate secured loans and OREO properties. The Company
believes that its current infrastructure is adequate to service additional loans
without any material increases in expenses. There can be no assurance the
Company will be able to acquire any additional loans or that it may do so on
favorable terms. While management believes that the acquisition of additional
loan portfolios would be beneficial, management does not believe that current
operations would be materially impacted if additional loan portfolios were not
acquired during 1998.
Single-Family Residential Lending. The Company, through its wholly-owned
subsidiary Tribeca Lending Corporation ("Tribeca"), provides first and second
mortgages to a target market of communities that are under-served by banks and
other lending institutions. This market includes borrowers who do not meet
conventional underwriting criteria. Tribeca focuses on developing an array of
niche products to fulfill needs such as high LTV, non-conforming,
rehabilitation, and second mortgages. Loans are originated through a network of
affiliates, including mortgage brokers, banks, and through a retail sales force.
The majority of loans originated are ultimately expected to be sold by Tribeca
in the secondary market. Tribeca processes, underwrites, and closes all loans in
its name, or in some circumstances in a correspondent's name where the loan is
purchased immediately after closing by the Company.
During 1st Quarter 1998 Tribeca originated $1,414,600 in mortgages, which
compared with no originations in the 1st Quarter of 1997, when Tribeca was in a
start-up phase.
Tribeca Lending Origination Volume for the 1st Quarter 1998
- ------------ ------------- -------------- ----------------- -------------------
FHA 1st Lien 2nd Lien Total
- ------------ ------------- -------------- ----------------- -------------------
- ------------ ------------- -------------- ----------------- -------------------
Face Value 258,800 888,800 267,000 1,414,600
- ------------ ------------- -------------- ----------------- -------------------
- ------------ ------------- -------------- ----------------- -------------------
Loans 2 7 8 17
- ------------ ------------- -------------- ----------------- -------------------
During 1st Quarter 1998 Tribeca incurred an operating loss of $310,000.
This loss reflected recognition of continuing start-up costs and an increase in
operating expenses, including processing and broker and account executive
commissions, without concurrent realization of substantial related revenues. As
of March 31, 1998, Tribeca had approximately $1.55 million face value of loans
held for sale. Revenues related to such loans, other than periodic interest
payments, and fee income are expected to be realized upon sale of such loans.
A substantial portion of Tribeca's costs related to the staffing and
setting up of its New York operations and processing center and several regional
sales offices. Management believes that Tribeca's current origination capacity
is sufficient to support substantially increased originations. From April 1,
1998 through May 20, 1998 Tribeca had originated approximately 87 loans with an
aggregate face value of $7.4 million. Additionally, in May, 1998 Tribeca entered
into a letter of intent for the sale of an aggregate for the sale of an
aggregate face value of $1.55 million of loans, however, there can be no
assurance that the transaction contemplated by such agreement will be
consummated.
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Cost of Funds. The increase in the prime rate from 8.25% from 8.50%, on
March 26, 1997, increased the benchmark rate for the interest on Senior Debt
used to fund loan portfolio acquisitions, thereby decreasing net income for
subsequent periods. As of March 31, 1998, the Company had thirty-six loans
outstanding to its Senior Debt Lender with an aggregate principal balance of
$96,146,029. Additionally the Company has lines of credit which had an
outstanding balance of $2,102,042 of which $1,456,627 was used to fund Tribeca's
loan originations. The remaining $645,415 was used to make advances to satisfy
senior lien positions and fund capital improvements in connection with
foreclosures of certain real estate loans financed by the Company.
The majority of the loans purchased by the Company bear interest at a fixed
rate; consequently, there is little corresponding change in interest income due
to changes in market interest rate conditions. The weighted average interest
rate on borrowed funds for the Senior Debt based on the balances as of March 31,
1998 and December 31, 1997 were 9.56% and 9.56%, respectively. Management
believes that any future increases in the prime rate will negatively impact the
net income of the Company while decreases may be expected to positively impact
such net income.
During a portion of 1997, the Company incurred additional financing costs
in the form of service fees and loan commitment fees. The service fees are
calculated as a percentage of gross collections on four specific portfolios
while loan commitment fees are points based upon origination of Senior Debt.
Additionally, in March 1997, certain ongoing service fees payable on Senior Debt
were replaced with a 1% exit fee applicable only to outstanding Senior Debt as
of December 31, 1996, for total fees payable of $700,000. Such fees will be
payable after repayment, in full, of such Senior Debt. If the funds collected
from the underlying notes receivable are insufficient to satisfy the related
Senior Debt any exit fee shortfall shall be forgiven. The Company believes that
its reduced cost of funds will have a material beneficial impact on the
Company's earnings.
The impact of inflation on the Company's operations during both 1st Quarter
1998 and 1st Quarter of 1997 was immaterial.
Results of Operations
The Three Months Ended March 31, 1998
Compared to the Three Months Ended March 31, 1997.
Total revenue, comprised of interest income, purchase discount earned,
gains recognized on the bulk sale of notes, gain on sale of notes originated,
gain on sale of OREO, rental income and other income, decreased by $351,649 or
12%, to $2,609,504 during 1st Quarter 1998, from $2,961,153 during 1st Quarter
1997.
Interest income on notes receivable increased by $66,513 or 5%, to
$1,341,777 during 1st Quarter 1998 from $1,275,264 during 1st Quarter 1997. The
Company recognizes interest income on notes included in its portfolio based upon
three factors: (i) interest on performing notes, (ii) interest received with
settlement payments on non-performing notes and (iii) the balance of settlements
in excess of the carried face value. This increase resulted primarily from the
higher quality of the notes acquired by the Company, which results in a larger
portion of the revenues related to these notes being realized as interest income
as opposed to purchase discount, and an increase in collection of accrued
interest on non-performing loans which had a partial or full settlement during
1st Quarter 1998.
Purchase discount earned decreased by $556,861 or 35%, to $1,026,364 during
1st Quarter 1998 from $1,583,225 during 1st Quarter 1997. This decrease
reflected the Company's implementation beginning in 1997 of a policy of selling
reperforming loans (which results in purchase discount which would otherwise be
earned in subsequent periods being in part accelerated as gain on sale of loans
and in part lost to the purchaser), a maturing of the Company's portfolio, and
an increase of $1.2 million in face value of loans foreclosed, which reduces
purchase discount available to be earned. Purchase discount associated with
loans that are foreclosed may subsequently be realized in the form of any gain
resulting from the sale of such foreclosed property for more than the carrying
cost (the lower of cost or market) at the date of the foreclosure. The Company
believes that the aggregate sales proceeds on its OREO portfolio will exceed the
lower of cost or market value at which it is recorded.
13
<PAGE>
The Company conducted no bulk sales of notes during either 1st Quarter 1998
or 1st Quarter 1997.
Gain on sale of notes originated by Tribeca was $122,429 during 1st Quarter
1998, as compared with no such gain during 1st Quarter 1997. This increase
reflected Tribeca's initiation of its activities in September 1997.
Gain on sale of OREO decreased by $138,573 to a loss of $104,305 during 1st
Quarter 1998 from a gain of $34,268 during 1st Quarter 1997. This decrease
resulted primarily from the liquidation during 1st Quarter 1998 of a substantial
number of the longest-held OREO properties in the Company's portfolio. The
Company believes that such properties were characterized by carrying costs
higher than those typical for properties in the Company's portfolio as a result
of their having been financed with Senior Debt incurred prior to various
reductions in the interest rates paid by the Company for new Senior Debt, their
higher incidence of defects in title, their higher rehabilitation costs and
their more remote locations than properties generally in the Company's
portfolio. As a result, the Company believes that its disposition of such
properties, while at a loss, will be beneficial to the Company's long-term
profitability. The Company is endeavoring to reduce the period of time that it
holds OREO assets for which the Company believes that sale is more profitable
than rental, and believes that such a strategy will improve the profitability of
such sales.
Rental income increased to $160,551 during 1st Quarter 1998, an compared
with immaterial rental income during 1st Quarter 1997. This increase reflected
an increase in the number of properties in the Company's portfolio for which the
Company believes that renting produces a greater return than selling at the
present time and the rental returns on such property.
Other income decreased by $5,708 or 8%, to $62,688 during 1st Quarter 1998
from $68,396 during 1st Quarter 1997. Other income in the Company's core
operations decreased $22,765 which primarily reflected a decline in late fees
resulting from an improvement in the Company's borrowing base. This decline was
partially offset by the initiation of operating activity in Tribeca which
produced other income of $17,057.
Total revenue decreased by $351,649 or 12%, to $2,961,154 during 1st
Quarter 1998, from $2,961,253 during 1st Quarter 1997. Total revenue during 1st
Quarter 1998 as a percentage of net notes receivable (i.e. notes receivable),
net of allowance for loan losses and joint venture participation as of the last
day of such quarter, on an annualized basis was 10.5% as compared with 13.1% for
1st Quarter 1997. This decline reflected the decline in revenues, as described
above, and an increase in net notes receivable at the end of 1st Quarter 1998 as
compared with the end of 1st Quarter 1997.
Total operating expenses increased by $520,383 or 17% to $3,668,952 during
1st Quarter 1998 from $3,148,569 during 1st Quarter 1997. Total operating
expenses includes interest expense, collection, general and administrative
expenses, provisions for loan losses, service fees, amortization of loan
commitment fees and depreciation expense.
14
<PAGE>
Interest expense increased by $95,602 or 5%, to $2,050,957 during 1st
Quarter 1998 from $1,955,355 during 1st Quarter 1997. Total debt increased by
$19,454,014 or 24%, to $99,328,986 as of March 31, 1998 as compared with
$79,874,972 as of March 31, 1997. Total debt includes Senior Debt, debentures,
lines of credit and loans from affiliates.
Collection, general and administrative expenses increased by $507,116 or
51%, to $1,501,992 during 1st Quarter 1998 from $994,876 during 1st Quarter
1997. Collection, general and administrative expense consists primarily of
personnel expense, OREO related expense, litigation expense, and miscellaneous
collection expense.
Personnel expenses increased by $344,957 or 105% to $672,433 during 1st
Quarter 1998 from $327,476 during 1st Quarter 1997. This increase resulted
largely from the staffing of Tribeca, which accounted for $233,676 of the
increase, and increases in staffing and the experience level of personnel in the
Company's core business. OREO related expenses increased by $186,962 or 356% to
$239,417 during 1st Quarter 1998 from $52,455 during 1st Quarter 1997. This
increase resulted from an increase in properties held as OREO to $10,617,712 as
of March 31, 1998 from $6,325,978 as of March 31, 1997 and an increase in the
Company's rental portfolio and its related expenses, which in turn reflected
increased foreclosure activity resulting from the growth in size of the
Company's portfolio and the increased purchase of OREO. Litigation expenses
decreased by $69,323 or 21%, to $254,971 during 1st Quarter 1998 from $324,294
during 1st Quarter 1997. This decrease reflected an increase in the negotiated
settlements of the Company's collection actions, which it believes is related to
the generally higher value of the collateral securing the Company's newer notes
receivable and the resulting increased incentive for the borrower to avert
foreclosure. All other collection expenses increased by $44,520 or 15% during
1st Quarter 1998 to $335,171 from $290,651 during 1st Quarter 1997. This
increase reflected the increase size of Company's portfolio of notes receivable.
Provisions for loan losses decreased by $63,182 or 66%, to $32,830 during
1st Quarter 1998 from $96,012 during 1st Quarter 1997. This decrease reflects
the improved performance during 1st Quarter 1998 of the Company's portfolio. Bad
debt expense expressed on an annualized basis as a percentage of face value of
notes receivable as of the last day of such quarters for 1st Quarter 1998 and
1st Quarter 1997 was approximately 0.10% and 0.34%, respectively.
Service fees decreased by $31,395 or 100%, to $0 during 1st Quarter 1998
from $365,459 during 1st Quarter 1997. This decrease resulted from the
elimination of service fees charged by its Senior Debt Lender effective March
1997. See "General- Cost of Funds."
Amortization of deferred financing costs decreased by $2,472 or 4%, to
$52,787 during 1st Quarter 1998 from $55,259 during 1st Quarter 1997. This
decrease resulted from a decrease in the asset balance of deferred financing
costs relative to the Company's total Senior Debt outstanding. On March 31, 1998
and March 31, 1997 deferred financing costs as a percentage of Senior Debt
outstanding was 1.31% and 1.69%, respectively.
Depreciation expense increased $14,714 or 94%, to $30,386 during 1st
Quarter 1998 from $15,672 during 1st Quarter 1997. This increase resulted from
an increase in depreciable assets owned by the Company.
Net income decreased by $872,032 to a loss of $1,059,448 during 1st Quarter
1998 from a loss of $187,316 during 1st Quarter 1997 as a result of the factors
described .
15
<PAGE>
Liquidity and Capital Resources
General. During 1st Quarter 1998 the Company purchased 1,196 loans in two
portfolios with an aggregate face value of $17,774,323 at an aggregate purchase
price of $15,585,498 or 88% of the face value and no OREO properties compared
with the purchase during 1st Quarter 1997 of 234 loans in six portfolios with an
aggregate face value of $19,471285 at an aggregate purchase price of $12,416,321
or 64% of aggregate face value, and no OREO properties. This increase, measured
by purchase price, reflected the increase in competitiveness of the Company's
bids resulting from the reduction in its cost of funds relative to the prime
rate and the increase in bidding opportunities associated with the Company's
beginning to purchase performing loans and well as non-conforming and
sub-performing loans. The increase in purchase price as a percentage of face
value of the loans purchased similarly reflected the increased quality of such
loans.
The Company's portfolio of notes receivable at March 31, 1998 had a face
value of $127,347,211 and included net notes receivable of approximately
$84,756,973. The Company's portfolio of notes receivable at March 31, 1997 had a
face value of $113,576,198 and included net notes receivable of approximately
$73,221,736. Net notes receivable are stated at the amount of unpaid principal,
reduced by purchase discount, an allowance for loan losses, and joint venture
participation. The Company has the ability and intent to hold its notes until
maturity, payoff or liquidation of collateral or where economically
advantageous, sale.
During 1st Quarter 1998, the Company used cash in the amount of $2,651,172
in its operating activities primarily for interest expense, overhead, litigation
expense incidental to its ordinary collection activities and for the foreclosure
and improvement of OREO. The Company used $11,030,367 in its investing
activities, which reflected primarily the purchase of notes receivable offset by
principal collections upon its notes receivable and proceeds from sales of OREO.
The amount of cash used in operating and investing activities was funded by
$13,157,882 of net cash provided by financing activities, primarily from a net
increase in Senior Debt of $12,502,481. The above activities resulted in a net
decrease in cash at March 31, 1998 over December 31, 1997 of $523,657.
In the ordinary course of its business, the Company accelerates and
forecloses upon real estate securing non-performing notes receivable included in
its portfolio. As a result of such foreclosures and selective direct purchases
of OREO, at March 31, 1998 and 1997, the Company held OREO recorded on the
financial statements at $10,617,712 and $6,325,978, respectively. OREO is
recorded on the financial statements of the Company at the lower of cost or fair
market value. The Company estimates, based on third party appraisals and broker
price opinions, that the OREO inventory held at March 31, 1998, in the
aggregate, had a net realizable value (market value less estimated commissions
and legal expenses associated with the disposition of the asset) of
approximately $11.5 million based on market analyses of the individual
properties less the estimated closing costs. There can be no assurance, however,
that such estimate is substantially correct or that an amount approximating such
amount would actually be realized upon liquidation of such OREO. The Company
generally holds OREO as rental property or sells such OREO in the ordinary
course of business when it is economically beneficial to do so.
Tribeca Operating Loss. During 1st Quarter 1998 Tribeca incurred an
operating loss of $315,066. This loss stemmed from substantial start-up costs
and an increase in operating expenses was associated with the ramp-up of the new
business and the lag time which may be expected before the related revenues
begin to be realized. The Company funded the start-up of Tribeca with $1.1
million of proceeds from the refinancing of two loan portfolios through its
Senior Debt Lender. Additionally, such lender has provided Tribeca with a
warehouse line of credit of $2,000,000 to fund loan originations. The Company
has secured additional warehouse lines of credit for Tribeca's use of $9.5
million from two other lending institutions. Tribeca began originating mortgages
on September 1, 1997. There can be no assurances that Tribeca will earn a profit
in the future, however, management believes that Tribeca's existing cash
balances, credit lines, and anticipated cash flow from operations together with
advances from the Company will provide sufficient working capital resources for
Tribeca's anticipated operating needs.
16
<PAGE>
Cash Flow From Operating and Investing Activities
Substantially all of the assets of the Company are invested in its
portfolios of notes receivable and OREO. Primary sources of the Company's cash
flow for operating and investing activities are collections on notes receivable
and gain on sale notes and OREO properties.
At March 31, 1998, the Company had unrestricted cash, cash equivalents and
marketable securities of $2,260,263. A portion of the Company's available funds
may be applied to fund acquisitions of companies or assets of companies in
complementary or related fields. Although the Company from time to time engages
in discussions and negotiations, it currently has no agreements with respect to
any particular acquisition. This may cause the Company to incur additional
capital expenditures, outside the acquisitions of additional notes receivable.
Management believes that sufficient cash flow from the collection of notes
receivable will be available to repay the Company's secured obligations and that
sufficient additional cash flows will exist, through collections of notes
receivable, the bulk sale of performing loan portfolios, sales and rental of
OREO, continued modifications to the secured debt credit agreements or
additional borrowing, to repay the current liabilities arising from operations
and to repay the long term indebtedness of the Company.
Cash Flow From Financing Activities
Senior Debt. As of March 31, 1998, the Company owed an aggregate of
$96,146,029 to the Senior Debt Lender, under 36 loans.
The Senior Debt is collateralized by first liens on the respective loan
portfolios for the purchase of which the debt was incurred and is guaranteed by
the Company. The monthly payments on the Senior Debt have been, and the Company
intends for such payments to continue to be, met by the collections from the
respective loan portfolios. The loan agreements for the Senior Debt call for
minimum interest and principal payments each month and accelerated payments
based upon the collection of the notes receivable securing the debt during the
preceding month. The Senior Debt accrues interest at variable rates of 0%, 1%
and 1.75% over the prime rate. The accelerated payment provisions of the Senior
Debt are generally of two types: the first requires that all collections from
notes receivable, other than a fixed monthly allowance for servicing operations,
be applied to reduce the Senior Debt, and the second requires a further amount
to be applied toward additional principal reduction from available cash after
scheduled principal and interest payments have been made. As a result of the
accelerated payment provisions, the Company is repaying the amounts due on the
Senior Debt at a rate faster than the minimum scheduled payments. While the
Senior Debt remains outstanding, these accelerated payment provisions may limit
the cash flow which is available to the Company.
Certain of the Senior Debt credit agreements required establishment of
restricted cash accounts, funded by an initial deposit at the loan closing and
additional deposits based upon monthly collections up to a specified dollar
limit. The restricted cash is maintained in a interest bearing account, held by
the Company's Senior Debt Lender. Restricted cash may be accessed by the Senior
Debt Lender only upon the Company's failure to meet the minimum monthly payment
due if collections from notes receivable securing the loan are insufficient to
satisfy the installment due. Historically, the Company has not called upon these
reserves. The aggregate balance of restricted cash in such accounts was
$1,000,466 and $706,767 on March 31, 1998 and March 31, 1997, respectively.
17
<PAGE>
Total Senior Debt availability was approximately $125.0 million at March
31, 1998, of which approximately $96.1 million had been drawn down as of such
date. Additionally the Senior Debt Lender has verbally informed the Company that
it will not deem approximately $10 million of Senior Debt that it had syndicated
to other banks as of such date as outstanding for purposes of determining
availability under of Senior Debt. As a result, the Company has approximately
$37.9 million available to purchase additional portfolios of notes receivable
and OREO.
12% Debentures. In connection with the acquisition of a loan portfolio
during 1994, the Company offered to investors $750,000 of subordinated
debentures ("12% Debentures"). As of March 31, 1998 and December 31, 1997,
$308,437 and $352,500, respectively, of these debentures were outstanding. The
12% Debentures bear interest at the rate of 12% per annum payable in quarterly
installments. The principal is to be repaid over four years in sixteen equal
installments of $44,062 that commenced March 31, 1996. The 12% Debentures are
secured by a lien on the Company's interest in certain notes receivable and are
subordinated to the Senior Debt encumbering the loan portfolio.
Harrison First Corporation 12% Debentures. In connection with the
acquisition of a loan portfolio during 1995, the Company offered to investors
$800,000 of subordinated debentures of which $555,000 were purchased. As of
March 31, 1998 and December 31, 1997, $488,400 and $510,600, respectively, of
these debentures were outstanding. The Harrison 1st 12% Debentures bear interest
at the rate of 12% per annum payable in quarterly installments. The principal is
to be repaid over three years in ten equal quarterly installments of $22,200
which payments commenced on September 30, 1997 with the remaining balloon
payment of $333,000 due June 30, 2000. The Harrison 1st 12% Debentures are
secured by a lien on the Company's interest in certain notes receivable and are
subordinated to the Senior Debt encumbering the loan portfolio.
Lines of Credit. The Company has a line of credit with the Senior Debt
Lender permitting it to borrow a maximum of approximately $1,500,000 at a rate
equal to such lender's prime rate plus two percent per annum. Principal
repayment of the lines is due six months from the date of each cash advance and
interest is payable monthly. The total amounts outstanding under the lines of
credit as of March 31, 1998 and December 31, 1997, were $645,415 and $583,916,
respectively. Advances made under the line of credit were used to satisfy senior
lien positions and fund capital improvements in connection with foreclosures of
certain real estate loans financed by the Company. Management believes the
ultimate sale of these properties will satisfy the related outstanding lines of
credit and accrued interest, as well as surpass the collectible value of the
original secured notes receivable. Management has reached an agreement in
principal with its Senior Debt Lender to increase the availability under this
credit facility to cover additional properties foreclosed upon by the Company
which the Company may be required to hold as rental property to maximize its
return.
18
<PAGE>
Part II Other Information
Item 1. Legal Proceedings
Asset Purchase Agreement Dispute. On August 19, 1997 the Company commenced
a civil action in the United States District Court for the Southern District of
New York against Preferred Credit Corporation ("PCC") alleging fraud, breach of
contract, and unjust enrichment in connection with the purchase by the Company
of $3.7 million in face value of notes receivable from ("PCC") for $1.8 million.
The Company is seeking recision of the asset purchase agreement or damages
incurred in connection with the purchase.
Although the Company conducted its own review of each loan file, it has
come to believe since the closing of the acquisition that certain information
was intentionally omitted or removed from such files or kept in another
repository of files which was not made available to the Company and that PCC
intentionally and materially misrepresented the status and quality of the notes
receivable included in the portfolio. Although, its estimate will be refined as
the purchased portfolio is seasoned, the Company currently believes that as much
as approximately 90% of the face value of the portfolio may be uncollectable,
due to debtor bankruptcies, in certain instances prior to the execution of the
Asset Purchase Agreement, or senior credit foreclosures of the underlying
collateral.
PCC filed a motion to dismiss in December 1997 which has been fully briefed
and is currently before the court for a decision on the matter. The Company's
litigation counsel has advised the Company that it believes the Company has a
substantial probability of prevailing in such suit.
Letter Agreement Dispute. On November 17, 1997 K Mortgage Corporation ("K")
filed a civil action in the United States District Court for the Southern
District Court of New York against the Company, Tribeca, and Thomas J. Axon
alleging breach of contract, fraud, and unjust enrichment in connection with a
May 9, 1997 letter agreement (the "Letter Agreement") pursuant to which Tribeca
was to purchase certain assets of K and retain three principles of K as paid
consultants and employ a fourth, Jim Ragan ("Ragan"). In the suit K seeks to
recover for damages of $10 million for the failure of the Company to make
certain payments to third parties, provide Ragan with an employment agreement
and provide the three other principals of with consulting contracts pursuant to
the terms of the Letter Agreement.
On December 22, 1997 the Company filed an answer and counterclaim
vigorously denying the allegations of the complaint and alleging fraud and
breach of contract against K and Ragan, and breach of fiduciary duty against
Ragan in what it believes to have been Ragan's unjustified unilateral
termination of his employment in violation of the Letter Agreement and asserts
its claims and seeking damages of $1 million. The Company intends to vigorously
asserts its claims and defend itself against K's claims and does not at this
time believe that its operations or financial position will be materially
impacted. The court has directed all parties to proceed with mediation, which is
currently scheduled for May 1998.
Legal Fee Dispute. On October 28, 1997 Rosen, Dainow & Jacobs ("Rosen")
filed a civil action against the Company in the Supreme Court of the State of
New York, County of New York alleging failure by the Company to pay fees due
Rosen in connection with work done for the Company in the Trademark Dispute and
seeking $145,000 in damages. Rosen was dismissed by the Company as counsel in
the Trademark Dispute after the law partnership was disbanded and James Jacobs,
the lead attorney for the Company in the Trademark Dispute, joined a firm that
was representing Franklin Resources, Inc in other matters. The Company plans to
vigorously defend itself in this matter and at this time does not feel that its
operations or financial position will be materially impacted.
Other Legal Actions. Since in July, 1991, the Company has been a plaintiff
in various actions ("Miramar Litigation") and party to settlements, with the
former directors and officers of Miramar Resources, Inc. ("Miramar"), a company
which the Company merged with in 1994, based upon allegations relating to
certain premerger events. Information regarding the Miramar Litigation ("Shultz
Settlement") concerning these matters, specifically the Shultz Settlement, and
the legal status of the Company's collection efforts is incorporated herein by
reference to "Item 3. Legal Proceedings" included in the Company's Annual
Reports on Form 10-KSB for the year ended December 31, 1994, 1996, and 1997.
19
<PAGE>
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Maters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT TABLE
Exhibit Description
3(a) Restated Certificate of Incorporation. Previously filed with,
and incorporated herein by reference to, the Company's 10-KSB,
filed with the Commission on December 31, 1994 and as amended by
the Company's 10-KSB, filed with the Commission on May 14, 1998.
(b) Bylaws of the Company. Previously filed with, and incorporated
herein by reference to, the Company's Registration Statement on
Form S-4, No. 33-81948, filed with the Commission on
November 24, 1994.
4(a) 15% Convertible Subordinate Debentures. Previously filed with,
and incorporated herein by reference to, the Company's
Registration Statement on Form S-4, No. 33-81948, filed with the
Commission on November 24, 1994.
(b) Warrants associated with principal repayment of the 15% Convertible
Subordinated Debentures. Previously filed with, and incorporated
herein by reference to, the Company's Registration Statement on
Form S-4, No.33-81948, filed with the Commission on November 24, 1994
10(d) Employment Agreement, dated December 4, 1996, between the
Company and Joseph Caiazzo. Previously filed with, and incorporated
herein by reference to, the Company's Form 10K-SB, filed with the
Commission on March 31, 1997.
10(e) Agreement dated March 29, 1997 between the Company and Citizens
Banking Company.
11 Computation of earnings per share. Filed here with.
21 Listing of subsidiaries. Filed here with.
(b) No reports on Form 8-K were filed during the first quarter of 1998.
20
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
May 29, 1998 FRANKLIN CREDIT MANAGEMENT
CORPORATION
By: THOMAS J. AXON
Thomas J. Axon
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
THOMAS J. AXON President, Chief Executive Officer May 29, 1998
Thomas J. Axon and Director
(Principal executive officer)
FRANK B. EVANS, Jr. Vice President, Treasurer, May 29, 1998
Frank B. Evans, Jr. Chief Financial Officer and Director
Secretary (Principal financial and accounting officer)
JOSEPH CAIAZZO Vice President, Chief Operating May 29, 1998
Joseph Caiazzo Officer and Director
21
<PAGE>
Exhibit 11
Computation of earnings per share 1st quarter 1998
No. of Shares Weight
6/30/97 Common stock 5,516,527
-----------
5,516,527 25% 1,379,132
9/30/97 Common stock 5,516,527
-----------
5,516,527 25% 1,379,132
12/31/97 Common stock 5,516,527
-----------
5,516,527 25% 1,379,132
3/31/98 Common stock 5,516,527
-----------
5,516,527 25% 1,379,132
22,066,108
Weighted average number of shares 5,516,527
Earnings per Common share:
Net Income $(1,059,448) $ (0.19)
22
<PAGE>
