SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 14, 2006
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FRANKLIN CREDIT MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-17771 75-2243266
(Commission file number) (I.R.S. employer identification no.)
Six Harrison Street 10013
New York, New York
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 604-4402
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Check the appropriate box below in the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240. 14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 4.02(a) Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
As previously disclosed in its Current Report on Form 8-K, filed with the
Securities and Exchange Commission (the "Commission") on April 6, 2006 (the
"Previously Filed 8-K"), Franklin Credit Management Corporation (the "Company")
will restate certain previously issued financial statements covering the fiscal
years ended December 31, 2004 and 2003, the quarterly periods within those years
and the first three quarterly periods in the fiscal year ended December 31,
2005, and, accordingly, the Company's financial statements for such periods, as
well as the related reports of the Company's independent registered public
accounting firm, should no longer be relied upon.
As disclosed in the Previously Filed 8-K, the Company was evaluating
whether the restated financial statements for the periods indicated above should
also correct the Company's accounting treatment for success fees both currently
and potentially payable to its principal lender following repayment of existing
term debt. On April 14, 2006, the Company's management, in consultation with the
Chairman of the Audit Committee of the Board of Directors and with the Company's
independent registered public accounting firm, Deloitte & Touche LLP, concluded
that SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is applicable to such fees, and that, as a result, additional
adjustments to the financial statements for the periods mentioned above will be
required. SFAS No. 133 requires establishing and maintaining an estimate of the
anticipated net present value of future payment of such fees at each reporting
period and amortizing to interest expense that estimate over the estimated pay
down of the related term debt. The impact, after tax, on net income is estimated
to be a decrease of approximately $608,000 (inclusive of the cumulative effect
of the accounting change) for the fiscal year ended December 31, 2003, a
decrease of approximately $417,000 for the fiscal year ended December 31, 2004
and a decrease of approximately $395,000 for the previously reported nine-months
ended September 30, 2005.
The Company will file its restated financial statements for the periods
indicated above in its Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 (the "Form 10-K"). The Registrant filed a Form 12b-25 with the
Commission on April 3, 2006 to extend the filing deadline of the Form 10-K, and
expects to file the Form 10-K on April 24, 2006.
While the Company's review of its internal control over financial
reporting is ongoing, the Company has identified material weaknesses as defined
by the Public Company Accounting Oversight Board (United States), including with
respect to the matter discussed above. The Company has corrected its accounting
and reporting for success fees in connection with the restatement of such fees
as discussed above, and is in the process of reviewing and remedying the
material weaknesses in its accounting and related systems of internal controls
over financial reporting identified in connection with the preparation of the
Company's 2005 financial statements.
The Company's management has discussed with Deloitte & Touche LLP the
matters disclosed in this filing pursuant to this Item 4.02(a).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRANKLIN CREDIT MANAGEMENT CORPORATION
By: /s/ Paul D. Colasono
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Name: Paul D. Colasono
Title: Chief Financial Officer and
Executive Vice President
Date: April 24, 2006