<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] 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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 75-2243266
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification No.)
</TABLE>
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 17, 1999 the issuer had 5,916,527 of shares of Common Stock, par value
$0.01 per share, outstanding.
<PAGE> 2
FRANKLIN CREDIT MANAGEMENT CORPORATION
FORM 10-QSB
March 31, 1999
C O N T E N T S
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations (unaudited) for the three months ended
March 31, 1999 and March 31, 1998 4
Consolidated Statements of Stockholders' Equity (unaudited) for the three
months ended March 31, 1999 and 1998 5
Consolidated Statement of Cash Flows (unaudited) for the three months ended
March 31, 1999 and 1998 6
Notes to consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20-21
SIGNATURES 22
</TABLE>
<PAGE> 3
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
31-MAR-99 31-DEC-98
--------- ---------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 4,286,376 $ 5,119,906
RESTRICTED CASH 1,103,446 1,103,446
NOTES RECEIVABLE:
Principal 155,542,015 158,730,622
Joint venture participations (296,811) (301,990)
Purchase discount (19,685,312) (20,435,067)
Allowance for loan losses (21,430,720) (22,168,345)
------------- -------------
Net notes receivable 114,129,172 115,825,220
LOANS HELD FOR SALE 3,203,535 5,699,577
ACCRUED INTEREST RECEIVABLE 1,792,417 1,924,601
OTHER REAL ESTATE OWNED 9,962,902 10,357,181
OTHER RECEIVABLES 2,417,630 1,231,667
DEFERRED TAX ASSET 1,842,932 1,842,932
OTHER ASSETS 2,390,175 1,453,158
BUILDING, FURNITURE AND FIXTURES- Net 950,567 751,512
DEFERRED FINANCING COSTS 1,535,465 1,582,227
------------- -------------
TOTAL ASSETS $ 143,614,617 $ 146,891,427
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses 2,867,145 2,946,071
Lines of credit 3,963,228 6,197,803
Notes payable 131,082,433 132,227,257
203(k) rehabilitation escrow payable 72,386 72,386
Subordinated debentures 531,840 598,050
Notes payable, affiliates and stockholders 211,014 181,129
Deferred tax liability 1,922,991 1,922,991
------------- -------------
Total liabilities 140,651,037 144,145,687
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 10,000,000 authorized
shares; issued and outstanding 1999 and 1998:
5,916,527 and 5,916,527 59,167 59,167
Additional paid-in capital 6,985,968 6,985,968
Accumulated deficit (4,081,555) (4,299,395)
------------- -------------
Total stockholders' equity 2,963,580 2,745,740
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 143,614,617 $ 146,891,427
============= =============
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 4
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
31-Mar-99 31-Mar-98
--------- ---------
<S> <C> <C>
REVENUES:
Interest Income $ 3,241,418 $ 1,341,777
Purchase discount earned 960,478 $ 1,026,364
Gain on sale of portfolios 486,201 0
Gain on sale of originated loans 75,113 122,429
Gain (loss) on sale of other real estate owned 80,376 (104,305)
Rental Income 237,472 160,551
Other 75,130 62,688
----------- -----------
5,156,188 2,609,504
----------- -----------
OPERATING EXPENSES:
Interest expense 2,811,494 2,050,957
Collection, general and administrative 1,983,258 1,501,993
Provision for loan losses 0 32,830
Amortization of deferred financing costs 119,021 52,787
Depreciation 24,575 30,386
----------- -----------
4,938,348 3,668,953
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES 217,840 (1,059,449)
----------- -----------
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
----------- -----------
NET INCOME(LOSS) $ 217,840 $(1,059,449)
=========== ===========
NET INCOME(LOSS) PER COMMON SHARE:
Basic $ 0.04 $ (0.19)
Dilutive $ 0.04 $ (0.19)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,916,527 5,516,527
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,516,527 $55,167 $6,489,968 ($3,008,013) $3,537,122
Private placement 400,000 $4,000 $496,000 $500,000
Net Loss ($1,291,382) ($1,291,382)
----------------------------------------------------------------------------------------
Balance, December 31, 1998 5,916,527 $59,167 $6,985,967 ($4,299,395) $2,745,740
Net Income $217,840 $217,840
----------------------------------------------------------------------------------------
Balance, March 31, 1999 5,916,527 $59,167 $6,985,967 ($4,081,555) $2,963,580
========================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
31-MAR-99 31-MAR-98
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 217,840 (1,059,449)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 24,575 30,386
Amortization 119,021 52,787
Purchase discount earned (960,478) (1,026,364)
Gain on Sale of REO (80,376) 104,305
Provision for loan loss 0 32,830
Deferred tax provision 0 0
(Increase)decrease in:
Accrued interest receivable 132,184 95,382
Foreclosures on real estate 399,624 47,672
Assets held for sale 2,496,042 (620,450)
Other receivables (1,185,963) (10,322)
Other current assets (937,017) 2,818,978
Increase(decrease) in:
Accounts payable & accrued expenses (78,926) (527,302)
203(k) rehabilitation escrow 0 (2,589,626)
Due to affiliates 29,885 0
-------------------------------------
Net cash provided (used) by operating activities 154,411 (2,651,173)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions 0 0
Additional capital contributed 0 0
Acquisition and loan fees (72,259) (155,855)
Acquisition of notes receivable (7,049,038) (15,478,600)
Acquisition of REO 0 0
Proceeds from sale of REO 2,288,975 1,487,541
Foreclosures on real estate (237,110) (371,830)
Reclassification of notes receivable for foreclosures 1,911,471 1,009,907
Acquisition of furniture & equipment (237,109) (23,352)
Participation interest (5,179) (1,709)
Advances to subsidiaries 0 0
Principal collection on notes receivable 5,844,437 2,513,533
(Increase) decrease in restricted cash 0 (10,000)
-------------------------------------
Net cash provided (used) by investing activities 2,457,668 (11,030,365)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debenture notes payable (66,210) (66,263)
Payments on line of credit (2,739,515) (414,290)
Proceeds from line of credit 504,940 1,135,953
Proceeds from notes payable 7,225,936 15,585,498
Payments on notes payable (8,370,760) (3,083,017)
-------------------------------------
Net cash provided (used) by financing activities (3,445,609) 13,157,881
-------------------------------------
NET INCREASE (DECREASE) IN CASH (833,530) (523,657)
CASH, BEGINNING OF YEAR 5,119,906 2,783,920
=====================================
CASH, ENDING 4,286,376 2,260,263
=====================================
</TABLE>
See accompanying notes to financials.
Page 6
<PAGE> 7
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Franklin Credit Management Corporation (together with its
subsidiaries the "Company"), incorporated under the laws of the State of
Delaware, acquires performing, nonperforming, nonconforming and subperforming
notes receivable and promissory notes from financial institutions, and mortgage
and finance companies. The Company services and collects such notes receivable
through enforcement of terms of original note, modification of original note
terms and, if necessary, liquidation of the underlying collateral.
In January 1997, a wholly owned subsidiary was formed, to originate or purchase,
sub prime residential mortgage loans to individuals whose credit histories,
income and other factors cause them to be classified as nonconforming borrowers.
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 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 real estate mortgage loans purchased from
financial institutions, and mortgage and finance companies. Such notes
receivable are generally nonperforming or underperforming at the time of
purchase and, accordingly, are usually purchased at a 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. Impaired notes are measured based on the present value of expected
future cash flows discounted at the note's effective interest rate or, as a
practical expedient, at the observable market price of the note receivable or
the fair value of the collateral if the note is collateral dependent. A note
receivable is impaired when it is probable the Company will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the note agreement.
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
Page 7
<PAGE> 8
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.
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 uncollectable 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.
Page 8
<PAGE> 9
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.
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 basis.
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 - Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No. 128), 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.
Page 9
<PAGE> 10
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments (SFAS
No. 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. 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. SFAS 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:
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.
BUSINESS SEGMENTS - During 1998, the Company adopted Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
reporting that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also require disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not
affect results of operations or the financial position of the Company.
COMPREHENSIVE INCOME - SFAS No. 130, Reporting Comprehensive Income
defines comprehensive income as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances, excluding those resulting from investments by and
distributions to stockholders. The Company had no items of other
comprehensive income for the three months ended March 31, 1999 and 1998.
RECENT PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
The Company is required to implement SFAS No. 133 on January 1, 2000.
Page 10
<PAGE> 11
SFAS No. 133 require that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges will be recognized in
earnings. The Company does not believe that it will have any effect on its
results of operations and financial position.
Page 11
<PAGE> 12
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 the Form
10-QSB 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 Senior Debt Lender, the status
of relations between the Company and its sources for loan purchases,
unanticipated difficulties in collections under loans in the Company's portfolio
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 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,
1999, the Company purchased 465 loans in five portfolio's consisting primarily
of first and second mortgages, with an aggregate face value of $7.8 million at
an aggregate purchase price of $7.0 million or 90% of the face value and no OREO
properties, compared with the purchase during the three months ended March 31,
1998 of 1,196 loans with an aggregate face value of $17.8 million at an
aggregate purchase price of $15.6 million or 88% of aggregate face value, and
no OREO properties. Acquisition of these portfolios was fully funded through
Senior Debt in the amount equal to the purchase price plus a 1% loan origination
fee.
The Company believes these acquisitions of high yielding coupon loans
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 of the new portfolios. Payment streams are
only generated once the loans are incorporated into the Company's loan tracking
system, contact with the borrower is made, and any non-performing loans are
restructured or collection litigation initiated.
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 interest rate spread based upon the Company's
cost of funds, non-performing real estate secured loans and OREO properties 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 collection, general and administrative
expenses excluding personnel. There can be no assurance the Company will be able
to acquire any additional loans on favorable terms or at all. 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 no additional loan portfolios were acquired during 1999.
Page 12
<PAGE> 13
SINGLE-FAMILY RESIDENTIAL LENDING. In January 1997, the Company formed
a wholly-owned subsidiary, Tribeca Lending Corp. ("Tribeca"), to originate
primarily subprime residential mortgage loans made to individuals whose credit
histories, income and other factors cause them to be classified as
non-conforming borrowers. Management believes that lower credit quality
borrowers present an opportunity for the Company to earn superior returns for
the risks assumed. Tribeca provides first and second mortgages, originated on a
retail basis through marketing efforts including utilization of the FCMC data
base. Tribeca is currently licensed as a mortgage banker in Connecticut,
District of Columbia, Florida, Georgia, Kentucky, Maryland, Massachusetts,
Missouri, New York, New Jersey, North Carolina, Oklahoma, South Carolina, and
Virginia, and is a Department of Housing and Urban Development FHA Title I and
Title II approved lender. Tribeca originated loans are typically expected to be
sold in the secondary market through whole-loan, servicing-released sales.
Tribeca anticipates holding certain of its mortgages in its portfolio when it
believes that the return from holding the mortgage, on a risk-adjusted basis,
outweighs the return from selling the mortgage in the secondary market.
During the three months ending March 31, 1999 Tribeca originated 2
loans and $198,000 in mortgages, compared to 17 loans and $1.4 million in
mortgages during the three months ending March 31 1998. During the three months
ending March 31, 1999, Tribeca incurred an operating loss of $127,000. This loss
and the decrease in originations reflected a restructuring period during which
management changed strategies and became a retail operation, with a focus on
refinancing the existing customer base from the Company instead of direct
origination activity. As of March 31, 1999, Tribeca had approximately $3.2
million face value of loans held for sale. Revenues and expenses related to such
loans, other than periodic interest payments, and fee income are expected to be
realized upon sale of such loans.
COST OF FUNDS. The weighted average interest rate on borrowed funds for
the Senior Debt based on the balances as of March 31, 1999 and March 31, 1998
were 8.3% and 9.5%, respectively. As of March 31,1999, the Company had
fifty-three loans outstanding with an aggregate principal balance of $131
million. Additionally the Company with Tribeca has lines of credit, which had an
outstanding balance of $4.0 million at March 31, 1999. The majority of the loans
purchased by the Company bear interest at a fixed rate; consequently, there was
a corresponding change in interest income due to changes in market interest rate
conditions.
The majority of the loans purchased by the Company bear interest at a
fixed rate, Senior Financing is at a variable rate adjusted with the prime rate.
Consequently, changes in market interest rate conditions cause directly
corresponding changes in interest income. 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.
INFLATION. The impact of inflation on the Company's operations during
the three months ending March 31, 1999 and 1998 was immaterial.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDING MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDING MARCH
31, 1998.
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, increased by $2,546,684 or
98%, to $5,156,188 during the three months ending March 31, 1999 from $2,609,504
during the three months ending March 31, 1998.
Page 13
<PAGE> 14
Interest income increased by $1,899,641 or 142%, to $3,241,418 during
the three months ending March 31, 1999 from $1,341,777 during the three month
ending March 31, 1998. 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 $85.1 million in higher yielding notes acquired
by the Company during 1998, which resulted in a larger portion of the revenues
related to these notes being realized as interest income, and an increase in
collection of accrued interest on non-performing loans which had a partial or
full settlement during the three months ending March 31, 1999.
Purchase discount earned decreased by $65,886 or 6%, to $960,478 during
the three months ending March 31, 1999 from $1,026,364 during the three months
ending March 31, 1998. This decrease reflected the Company's implementation
beginning in 1997 of a policy of selling performing 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.
The Company closed three bulk sales of notes during the three months
ending March 31, 1999 of $3.2 million with a gain of $486,201, as compared to
no bulk sales during the three months ending March 31, 1998.
Gain on sale of loans originated decreased by $47,316 or 39% to $75,113
during the three months ending March 31, 1999 as compared to $122,429 during the
three months ending March 31, 1998. This decrease reflected a decrease in the
number of Tribeca loans sold during the three months ending March 31, 1999 as
compared to the three ending March 31, 1998 due to the decrease in available
inventory.
Gain on sale of OREO increased by $184,672 to $80,376 during the three
months ending March 31, 1999 from a loss of $104,305 during the three months
ending March 31, 1998. This increase resulted primarily from the liquidation
during the three months ending March 31, 1998 of a substantial number of the
longest-held OREO properties in the Company's portfolio at a loss and the sale
of several OREO properties at a gain during the three months ending March
31,1999.
Rental income increased by $76,921 or 48% to $237,472 during the
three months ending March 31, 1999, as compared to $160,551 during the three
months ending March 31, 1998. This increase reflected concurrent increases in
the number of rental properties in the Company's portfolio for which the Company
believes that renting produces a greater return than selling at the present
time.
Other income increased by $12,442 or 20%, to $75,130 during the three
months ending March 31, 1999 from $62,688 during the three months ending March
31, 1998. Other income in the Company's core operations increased which
primarily reflected an increase in late charges, modification fees and loan fees
associated with Tribeca loans sold.
Total operating expenses increased by $1,269,395 or 35% to $4,938,348
during the three months ending March 31, 1999 from $3,668,953 during the three
months ending March 31, 1998. Total operating expenses includes interest
expense, collection, general and administrative expenses, provisions for loan
losses, amortization of deferred financing cost and depreciation expense.
Interest expense increased by $760,537 or 37%, to $2,811,494 during the
three months ending March 31, 1999 from $2,050,957 during the three months
ending March 31, 1998. Total debt increased by $36,459,530 or 37%, to
$135,788,515 as of March 31, 1999 as compared with $99,328,985 as of March 31,
1998 reflecting additional borrowings principally to fund increases in the size
of the
Page 14
<PAGE> 15
Company's portfolio of notes. Total debt includes Senior Debt, debentures, lines
of credit and loans from affiliates.
Collection, general and administrative expenses increased by $481,265
or 32%, to $1,983,258 during the three months ending March 31, 1999 from
$1,501,993 during the three months ending March 31, 1998. Collection, general
and administrative expense consists primarily of personnel expense, OREO related
expense, litigation expense, and miscellaneous collection expense.
Personnel expenses increased by $113,207 or 17% to $785,640 during
the three months ending March 31, 1999 from $672,433 during the three months
ending March 31, 1998. This increase resulted largely from increases in staffing
and the experience level of personnel in the Company's core business. OREO
related expenses increased by $63,045 or 26% to $302,462 during the three months
ending March 31, 1999 from $239,417 during the three months ending March 31,
1998. This increase resulted from an increase in OREO properties and an increase
in the Company's rental portfolio and its related expenses, each of which
reflected increased foreclosure activity resulting from the growth in size of
the Company's portfolio. All other collection expenses increased by $294,525 or
88% during the three months ending March 31, 1999 to $629,697 from $335,172
during the three months ending March 31, 1998. This increase reflected expenses
associated with occupying an additional corporate office, increased computer
consulting expenses due to increase in the size of the portfolio, training
expenses incurred in connection with the conversion to a new general ledger
accounting software package, and an increase in miscellaneous expenses.
Provisions for loan losses decreased by $32,830 or 100%, to $0 during
the three months ending March 31, 1999 from $32,830 during the three months
ending March 31, 1998. There was no provision for loan loss during the three
months ending March 31, 1999.
Amortization of deferred financing costs increased by $66,234 or 125%,
to $119,021 during the three months ending March 31, 1999 from $52,787 during
the three months ending March 31, 1998. This increase resulted primarily from
three bulk sales of loans during the three months ending March 31, 1999 as well
as increased principal collections on the portfolio.
Depreciation expense decreased $5,811 or 19%, to $24,575 during the
three months ending March 31, 1999 from $30,386 during the three months ending
March 31, 1998.
Net income increased by $1,277,289 to a gain of $217,840 during the
three months ending March 31, 1999 from a loss of $1,059,449 during the three
months ending March 31, 1998 as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. During the three months ending March 31, 1999 the Company purchased
465 loans with an aggregate face value of $7.8 million at an aggregate purchase
price of $6.9 million or 88% of the face value and no OREO properties. During
the three months ending March 31, 1998 the Company purchased 1196 loans with an
aggregate face value of $17.8 million at an aggregate purchase price of $15.6
million or 88% of aggregate face value, and no OREO properties. The Company's
portfolio acquisitions have
Page 15
<PAGE> 16
been slow during the three months ending March 31,1999 due to market conditions.
The Company's portfolio of notes receivable at March 31, 1999 had a
face value of $155.5 million and included net notes receivable of approximately
$114.1 million. The Company's portfolio of notes receivable at March 31, 1998
had a face value of $127.3 million and included net notes receivable of
approximately $84.7 million. 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 the three months ending March 31, 1998, the Company provided
cash in the amount of $154,411 in its operating activities primarily for
interest expense, overhead, and litigation expense incidental to its ordinary
collection activities and for the foreclosure and improvement of OREO. The
Company provided $2,457,668 from its investing activities, which reflected
primarily the sale of notes receivable offset by principal collections upon its
notes receivable and proceeds from sales of OREO. The amount of cash provided
in operating and investing activities was offset by $3,445,609 of net cash used
by financing activities, primarily for the repairment of Senior Debt. The above
activities resulted in the net decrease in cash at March 31, 1999 over December
31, 1998 of $833,530.
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, 1999 and 1998, the Company held OREO recorded on the
financial statements at $9.9 million and $10.6 million, 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, 1999, 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 $10.8 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.
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, 1999, the Company had unrestricted cash, cash equivalents
and marketable securities of $4.3 million. 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
Page 16
<PAGE> 17
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, 1999, the Company owed an aggregate of
$131 million to the Senior Debt Lender under 53 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 an 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
$1,103,446 and $1,000,466 on March 31, 1999 and March 31, 1998, respectively.
Total Senior Debt availability was approximately $200 million at March
31, 1999, of which approximately $131 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 $14.3 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 $83.3 million available to purchase additional portfolios of notes
receivable and OREO.
The Company's Senior debt Lender has provided Tribeca with a
warehouse line of credit of $5 million. At March 31, 1999, Tribeca had drawn
down $3.1 million on the line.
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, 1999 and December 31, 1998,
$132,240 and $176,250 respectively, of these debentures were outstanding. The
12% Debentures bear interest at the rate of 12% per annum payable in quarterly
installments. The principal is to be repaid over four years in sixteen equal
installments of $44,062 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.
Page 17
<PAGE> 18
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, 1999 and December 31, 1998, $399,600 and $421,800, 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, 1999 and December 31, 1998, were $844,878 and $645,415,
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.
Page 18
<PAGE> 19
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") and certain
individuals 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 recission 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 continue to 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.
On November 12, 1997 PCC filed a motion to dismiss in the Company's
Amended Complaint and the Company responded to the motion to dismiss on December
1997. On May 8, 1998, the United States District Court dismissed the Company's
Amended Complaint, with leave to amend. On September 5, 1998, FCMC filed its
Second Amended Complaint alleging claims based on fraud and breach of contract.
By a ruling dated September 22, 1998, the court dismissed one of the Company's
fraud claims against PCC and all of the Company's claims against the individual
defendants and declined to dismiss the Company's remaining claims against PCC
based on fraud and breach of contract. On October 22, 1998, PCC filed an answer
and counterclaim alleging a breach of the purchase agreement and seeking its
cost and fees incurred in connection with the proceeding. It is currently
anticipated that trial in this matter will occur in the fourth quarter of 1999.
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, conversion 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 principals
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 K with consulting
contracts pursuant to the terms of the Letter Agreement.
On December 22, 1997, the Company, Tribeca and Mr. Axon filed an answer
and counterclaim vigorously denying the allegations of the complaint. In
addition, Tribeca filed a counterclaim alleging fraud and breach of contract
against K. During January 1999, the United States District Court struck
Plaintiff's jury demand and dismissed K's claims based on fraud, unjust
enrichment and conversion. Trial on the remaining claims was conducted in April
and May of 1999. Following the conclusion of K's case in chief, the court
dismissed K's claims against the Company leaving open the remaining claims
against Tribeca. The matter is currently under advisement before the Court.
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
Page 19
<PAGE> 20
failure by the Company to pay legal fees allegedly due Rosen. Rosen, now
dissolved, had represented the Company in a federal trademark action which is no
longer pending. Rosen withdrew from representation of the Company when James
Jacobs, the lead attorney for the Company in the trademark action, joined a firm
that was representing the Company's adversary in other matters. The complaint
seeks $145,000 in damages. Rosen's motion for summary judgement was denied by
the court. The Company plans to continue its vigorous defense of this action. It
is currently anticipated that trial in this matter may occur during the first
half of 2000.
OTHER LEGAL ACTIONS. Since 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, as well
as certain settlements (the "Schultz Settlements"), 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 Form 10-KSB for the year ended
December 31, 1994, filed with the SEC on March 31, 1995 and included in the
Company's 10-KSB for the year ended December 31, 1996, filed with the SEC on
March 31, 1997.
During 1997 the Company initiated efforts to foreclose on its Deed of
Trust on a 4,000-acre ranch owned by the parties to the original Shultz
Settlement. A judicial foreclosure is expected by management to be placed on the
Court's calendar for hearing in the second or third quarter of 1999. The Company
is a defendant in related matters in which the same parties are seeking quiet
title to the above mentioned ranch and thereby deny enforceability of the Deed
of Trust in favor of the Company. The Company will vigorously defend its
position.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT TABLE
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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.
(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.
</TABLE>
Page 20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
(b) Warrants associated with principal repayment of the 15%
Convertible Subordinated Debentures. Previously filed with,
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 the
Citizens Banking Company. Previously filed.
10(f) Loan and Real Estate Purchase Agreement dated September 17,
1998 by and among Franklin credit Management Corporation
and Home Gold Financial Inc. f/k/a Emergent Mortgage Corp.
Previously filed with, and incorporated herein by
reference to, the Company's Form 8K filed with the
Commission on September 30, 1998.
10(g) Form of Subscription Agreement and Investor Representation,
dated as of September 8, 1998 between the Company and
certain subscribers. Previously filed.
10(h) Loan Purchase Agreement dated December 31, 1998 between the
Company and Thomas Axon, corporate General Partner.
Previously filed with, and incorporated with, and
incorporated herein by reference to, the Company's Form
10K-SB, filed with the Commission on April 16, 1999.
10(i) Promissory Note between Thomas J. Axon and the Company
dated December 31, 1998. Filed with, and incorporated
herein by reference to, the Company's Form 10K-SB, filed
with the Commission on April 16, 1999.
11 Computation of earnings per share. Filed herewith.
</TABLE>
Page 21
<PAGE> 22
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
May 17, 1999 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
THOMAS J. AXON President, Chief Executive Officer May 17, 1999
- ------------------- and Director -----------------
Thomas J. Axon
(Principal executive officer)
PETER SPIELBERGER Executive Vice President, Treasurer, May 17, 1999
- ----------------- Chief Financial Officer ----------------
Peter Spielberger
(Principal financial and
accounting officer)
JOSEPH CAIAZZO Vice President, Chief Operating May 17, 1999
- -------------- Officer, Secretary and Director ----------------
Joseph Caiazzo
</TABLE>
Page 22
<PAGE> 1
Exhibit 11.
Computation of earnings per share first quarter 1999.
No. of Shares Weight
------------- ------
06/30/98 Common stock 5,516,527
-----------------------
5,516,527 25% 1,379,132
09/30/98 Common stock
5,916,527
-----------------------
5,916,527 25% 1,479,132
---------------
12/31/98 Common stock
5,916,527
-----------------------
5,916,527 25% 1,479,132
---------------
03/31/99 Common stock
5,916,527
-----------------------
5,916,527 25% 1,479,132
---------------
23,266,108
Weighted average number of shares 5,816,528
Earnings per Common share:
Net Income $217,840 $ 0.04
<PAGE> 1
Exhibit 11.
Computation of earnings per share first quarter 1998.
No. of Shares Weight
------------- ------
06/30/97 Common stock
5,516,527
-----------------------
5,516,527 25% 1,379,132
09/30/97 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
---------------
03/31/98 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)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,389,822
<SECURITIES> 0
<RECEIVABLES> 159,752,062
<ALLOWANCES> (21,430,720)
<INVENTORY> 0
<CURRENT-ASSETS> 11,990,044
<PP&E> 950,567
<DEPRECIATION> 24,575
<TOTAL-ASSETS> 143,614,617
<CURRENT-LIABILITIES> 7,424,599
<BONDS> 0
0
0
<COMMON> 59,167
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 143,614,617
<SALES> 0
<TOTAL-REVENUES> 5,156,188
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,102,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,811,494
<INCOME-PRETAX> 217,840
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,840
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
