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

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2005

|_| 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

Delaware 75-2243266
(State of incorporation) IRS Employer Identification No.

101 Hudson Street
Jersey City, New Jersey 07302
(201) 604-1800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|
Indicate by check mark whether the registrant: (1) has 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
|_| Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Based upon the closing sale price on the last business day of the registrant's
most recently completed second fiscal quarter ($9.95 on June 30, 2005), the
aggregate market value of common stock held by non-affiliates of the registrant
as of such date was approximately $14,617,555. There is no non-voting stock
outstanding.
Number of shares of the registrant's common stock, par value $0.01 per share,
outstanding as of March 23, 2006: 7,544,295

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, which will be filed
within 120 days of December 31, 2005, are incorporated by reference into Part
III.

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FRANKLIN CREDIT MANAGEMENT CORPORATION

FORM 10-K
December 31, 2005

INDEX

Page
PART I

Item 1. Business.............................................................3

Item 1A Risk Factors........................................................27

Item 1B Unresolved Staff Comments...........................................42

Item 2. Properties..........................................................42

Item 3. Legal Proceedings...................................................43

Item 4. Submission of Matters to a Vote of Security Holders.................43

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities...............................44

Item 6. Selected Financial Data.............................................45

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................47

Item 7A Quantitative and Qualitative Disclosure About Market Risk...........63

Item 8. Financial Statements and Supplementary Data.........................64

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................64

Item 9A Controls and Procedures.............................................65

Item 9B Other Information...................................................65

PART III

Item 10 Directors and Executive Officers of the Registrant..................66

Item 11 Executive Compensation..............................................66

Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.........................................66

Item 13 Certain Relationships and Related Transactions......................66

Item 14 Principal Accountant Fees and Services..............................66

PART IV

Item 15 Exhibits and Financial Statement Schedules..........................67

PART I

ITEM 1. BUSINESS

Overview

We are a specialty consumer finance company primarily engaged in two
related lines of business: (1) the acquisition, servicing and resolution of
performing, reperforming and nonperforming residential mortgage loans and real
estate assets; and (2) the origination of non-prime mortgage loans, both for our
portfolio and for sale into the secondary market. We specialize in acquiring and
originating loans secured by 1-to-4 family residential real estate that
generally fall outside the underwriting standards of Fannie Mae and Freddie Mac
and involve elevated credit risk as a result of the nature or absence of income
documentation, limited credit histories, higher levels of consumer debt or past
credit difficulties. We typically purchase loan portfolios at a discount, and
originate loans with interest rates and fees, calculated to provide us with a
rate of return adjusted to reflect the elevated credit risk inherent in the
types of loans we acquire and originate. Unlike many of our competitors, we
generally hold for investment the loans we acquire and a significant portion of
the loans we originate.

From inception through December 31, 2005, we had purchased and originated
in excess of $2.9 billion in mortgage loans. As of December 31, 2005, we had
total assets of $1.33 billion, our portfolios of notes receivable and loans held
for investment and sale totaled $1.23 billion, and our stockholders' equity was
$47.6 million. For the year ended December 31, 2005, we reported net income of
$7.9 million.

Loan Acquisitions

Since commencing operations in 1990, we have become a nationally
recognized buyer of portfolios of residential mortgage loans and real estate
assets from a variety of financial institutions in the United States, including
mortgage banks, commercial banks and thrifts, other traditional financial
institutions and other specialty finance companies. These portfolios generally
consist of one or more of the following types of mortgage loans:

o performing loans - loans to borrowers who are contractually current,
but may have been delinquent in the past and which may have
deficiencies relating to credit history, loan-to-value ratios,
income ratios or documentation;
o reperforming loans - loans to borrowers who are not contractually
current, but have recently made regular payments and where there is
a good possibility the loans will be repaid in full; and
o nonperforming loans - loans to borrowers who are delinquent, not
expected to cure, and for which a primary avenue of recovery is
through the sale of the property securing the loan.

We sometimes refer collectively to these types of loans as "scratch and
dent" or "S&D" loans.

We have developed a specialized expertise at risk-based pricing, credit
evaluation and loan servicing that allows us to effectively evaluate and manage
the potentially higher risks associated with this segment of the residential
mortgage industry, including the rehabilitation or resolution of reperforming
and nonperforming loans.

We refer to the S&D loans we acquire as "notes receivable." In 2005, we
purchased notes receivable with an aggregate unpaid principal balance of $505.7
million at an aggregate purchase price equal to 93% of the face amount of the
notes.

Loan Originations

We conduct our loan origination business through our wholly owned
subsidiary, Tribeca Lending Corp., ("Tribeca"), which we formed in 1997 in order
to capitalize on our experience in evaluating and servicing scratch and dent
residential mortgage loans. We originate primarily non-prime residential
mortgage loans to individuals whose documentation, credit histories, income and
other factors cause them to be classified as non-prime borrowers and to whom, as
a result, conventional mortgage lenders often will not make loans. The loans we
originate typically carry interest rates that are significantly higher than
those of prime loans and we believe have fairly conservative loan-to-value
ratios. The principal factor in our underwriting guidelines has historically
been our determination of the borrower's equity in his or her home and the
related calculation of the loan-to-value ratio based on the appraised value of
the property, and not, or to a lesser extent, on a determination of the
borrower's ability to repay the loan. We have recently begun in an increasing
number of cases to gather and analyze additional information that allows us to
assess to a reasonable degree the borrower's ability and intent to repay the
loan in connection with our credit decision. We have chosen to focus our
marketing efforts on this segment of the 1-to-4 family residential real estate
mortgage market in order to capitalize on our extensive experience in acquiring
and servicing loans with similar performance characteristics.

In 2005, we originated $427.3 million in non-prime mortgage loans, 91% of
which were adjustable-rate (fixed-rate for the first two years) loans. We
originated approximately 47% of our mortgage loans on a retail basis and the
remainder through our wholesale network of mortgage brokers. We hold the
majority of mortgages we originate in our portfolio and sell the remainder for
cash in the whole loan market, depending on market conditions and our own
portfolio goals.

Loan Servicing

We have invested heavily to create a loan servicing capability that is
focused on collections, loss mitigation and default management. In general, we
seek to ensure that the loans we acquire and originate are repaid in accordance
with the original terms or according to amended repayment terms negotiated with
the borrowers. Because we expect our loans will experience above average
delinquencies, erratic payment patterns and defaults, our servicing operation is
focused on maintaining close contact with our borrowers and as a result is more
labor-intensive than traditional mortgage servicing operations. Through frequent
communication we are able to encourage positive payment performance, quickly
identify those borrowers who are likely to move into seriously delinquent status
and promptly apply appropriate loss mitigation strategies. Our servicing staff
employs a variety of collection strategies that we have developed to
successfully manage serious delinquencies, bankruptcy and foreclosure.
Additionally, we maintain a real estate department with extensive experience in
property management and the sale of residential properties.

Financing

We have historically financed both our acquisitions of mortgage loan
portfolios and our originations through arrangements with Sky Bank ("Sky"), a
$16 billion regional bank headquartered in Bowling Green, Ohio, and its
predecessors. We have had a strong relationship with Sky since the early 1990s.
In October 2004, we consolidated most of our arrangements with Sky relating to
the funding of loan acquisitions under our master credit and security agreement,
or master credit facility. Our borrowings under the master credit facility are
secured by a first priority lien on the mortgage loans financed by the proceeds
of our borrowings. In connection with our continued growth in 2004, Sky arranged
for two additional financial institutions to participate under our master credit
facility.

To finance the loans it originates, Tribeca also has entered into a
warehouse facility with Sky, in which additional financial institutions also
participate. In October 2005, we entered into a warehousing agreement with Sky
to fund Tribeca loan originations; this revolving commitment is for $60 million
and represents a 50% increase over the prior warehousing commitment.
Historically, Sky has agreed to convert amounts borrowed under the warehouse
facility into term loans with similar terms as our master credit facility, which
we refer to as term loan agreements. In the first quarter of 2006, Tribeca and
certain of its subsidiaries entered into a new master credit and security
agreement with Sky pursuant to which certain Tribeca subsidiaries may borrow
funds to finance their acquisition of loans that Tribeca previously financed
under its warehouse facility, and consolidate and refinance prior term loans
made by Sky to such subsidiaries. Also in the first quarter of 2006, Tribeca and
one of its subsidiaries entered into a new $100,000,000 master credit and
security agreement with BOS (USA) Inc., an affiliate of the Bank of Scotland;
$98 million under this facility was used to consolidate and refinance term loans
previously made to certain Tribeca subsidiaries by Sky.

As our business grows, we expect that we may continue to seek additional
sources of external financing, which could include traditional direct lenders,
the direct issuance of debt instruments and/or the securitization of certain
acquired or originated loans in our portfolio.

Corporate History

We were formed in 1990 by, among others, Thomas J. Axon, our Chairman,
President and CEO, and Frank B. Evans, Jr., one of our directors, for the
purpose of acquiring consumer loan portfolios from the Resolution Trust Company,
or RTC, and the Federal Deposit Insurance Corporation, or FDIC. We became a
public company in December 1994, when we merged with Miramar Resources, Inc., a
publicly traded oil and gas company that had emerged from bankruptcy proceedings
in December 1993. The newly formed entity was renamed Franklin Credit Management
Corporation. At the time of the merger, we divested substantially all of the
remaining oil and gas assets directly owned by Miramar in order to focus
primarily on the non-conforming sector of the residential mortgage industry. At
that time, we decided to capitalize on our experience and expertise in acquiring
and servicing loans from RTC and the FDIC and began purchasing performing,
reperforming and nonperforming residential mortgage loans from additional
financial institutions. In 1997, we formed Tribeca to originate non-prime
residential mortgage loans to borrowers in the non-prime markets.

Loan Acquisitions - Franklin

Most financial institutions generally sell or securitize the majority of
the loans they originate in the secondary market. The vast majority of these
loans are sold at a premium to the face value of the loan, creating a profit for
the originator/seller. For a variety of reasons, however, a portion of their
loan production either cannot be sold as intended or must be repurchased due to
any number of reasons involving borrower credit, loan-to-value ratios,
delinquencies and documentation deficiencies. Such loans typically must be sold
at a discount to the face value of the note. Our acquisition business is focused
on purchasing these S&D loans for which a highly liquid secondary market does
not exist. We have a variety of opportunities to purchase S&D loans, both
shortly following origination and throughout the remainder of their lifecycle.

Newly originated loans. When a financial institution cannot sell a
newly-originated mortgage loan through normal secondary market channels, it may
sell that mortgage at a discounted price in order to free up cash or financing
capacity. Newly originated loans may be sold multiple times before they are
purchased by a long-term investor. A typical scenario is that a loan is
originated by a local mortgage banker, sold to an intermediary mortgage banker,
and finally either sold to a long-term investor or securitized. At any point in
this process, we may have an opportunity to purchase the loan for various
reasons, including:

o Investor Fallout. Mortgages may not meet the requirements of the
secondary market for a number of different reasons, including
noncompliance with purchaser program requirements, documentation
deficiencies and collateral valuation variances.

o Loan Repurchases. Once a mortgage is sold, it may be subject to a
required repurchase by the seller for a number of different reasons,
including a subsequent default by the borrower that occurs within a
specified period of time after the sale.

o Facilitation. Occasionally, financial institutions will originate
loans (frequently second liens) even though a liquid secondary
market does not exist for those loans in order to facilitate the
origination of mortgages that do have a liquid secondary market.

Seasoned loans. Seasoned loans may be sold in the secondary market for a
number of reasons, including:

o Mergers and Acquisitions. The acquirer in a merger or acquisition
may find that it has acquired mortgages that do not fit within its
credit parameters.

o Credit or Performance Issues. A portfolio holder of mortgages may
have accumulated mortgages that have credit or performance
characteristics that do not meet its current needs.

o Securitization Terminations. When mortgage loans are securitized,
the securitization trust normally sells bonds with maturities that
are shorter than the life of some of the mortgage loans that act as
collateral. Optional call provisions may also provide certain
interested parties with the ability to collapse the trust by selling
or refinancing the remaining mortgage loans in the trust prior to
maturity.

o Insolvency. When a financial institution becomes insolvent, a
trustee may decide to liquidate a mortgage portfolio in order to
satisfy the creditors of the insolvent institution.

It is often more efficient and economical (and sometimes imperative) for
lenders in the situations described above to sell S&D loans at a discount to a
third-party than to expend the resources necessary to rehabilitate these loans
internally, as these lenders generally do not possess the financial capability,
desire or specialized skills and infrastructure necessary to effectively value
or service these types of assets. In contrast, we have developed specialized
expertise and an economically-scaled organization that permits us to effectively
evaluate, bid, finance and service portfolios of these loans.

Since commencing operations, we have purchased in excess of $2.3 billion
in S&D loans, comprised of approximately 61,000 loans, primarily from financial
institutions. During 2005, we purchased over $505 million of principally S&D
loans, compared with approximately $652 million during 2004 and $244 million
during 2003.

Our acquisition department seeks out and identifies opportunities to
purchase portfolios of S&D loans, performs due diligence on the loans included
in a portfolio, prepares a bid for the portfolio in accordance with our price
and yield guidelines based on the results of its due diligence investigation and
assists in the integration of the loans that we ultimately acquire into our
existing portfolio.

"Bulk" and "Flow" Acquisitions

Some lenders sell their S&D loans in the secondary market in small amounts
on a frequent basis, while other institutions tend to accumulate larger pools of
mortgages before selling them. We have established an acquisition group to focus
on each of these two segments of the selling market. Our bulk purchase unit is
responsible for acquisitions of portfolios with a face value of notes receivable
in excess of $1.5 million, while our flow unit is responsible for acquisitions
of portfolios or individual notes with a face value of up to $1.5 million. We
make the majority of our bulk pool purchases of S&D loans from large
conventional lenders in connection with the various opportunities described
above. In contrast, our flow purchases are generally made on a more regular
basis from smaller, regional mortgage banks that have a need to quickly dispose
of one or more S&D loans. Bulk purchases constituted 79% of our overall
purchases in 2005, 84% in 2004 and 71% in 2003, respectively.

Due Diligence

We have established a due diligence review process over our years of
experience with sellers of S&D loans that we use for all prospective purchases.
In connection with our purchases of bulk portfolios, the due diligence process
includes an analysis of a majority of the loans in a prospective portfolio,
except in the case of very large portfolios where, due to time constraints, we
analyze a representative sample of assets in the portfolio. Our team evaluates,
among other things, lien position, the value of collateral and the borrower's
debt-to-income ratio, creditworthiness, employment stability, number of years of
home ownership, credit bureau reports and mortgage payment history. Where
appropriate, our acquisition department performs an on-site evaluation of the
seller's loan servicing department in addition to reviewing the loan files that
comprise the portfolio. This process provides us with additional information as
to the actual quality of the servicing of the loans in the portfolio, which we
believe is critical to our ability to properly evaluate the portfolio. In the
case of flow purchases, we typically perform due diligence at our office on each
loan we acquire, which focuses on the same matters described above. In all
cases, we tailor our review as appropriate based on the level of our prior
experience with the seller and other factors relevant to the specific portfolio.

Pricing

For both our bulk and flow purchases, we compare the information derived
from our due diligence review to our historical statistical database and,
coupled with our cumulative knowledge of the non-conforming segment of the
mortgage industry, our acquisition department projects a collection strategy and
estimates the collectibility, cost to service and timing of cash flows with
respect to the loans in the portfolio. Using this information, the acquisition
department prepares a bid based upon pricing and yield guidelines that reflect
the returns on assets we are then seeking on purchased assets.

We have accumulated significant proprietary databases, models and
statistical data, over our years of experience with borrowers of S&D loans,
based on our understanding of the entire credit cycle and our ability to resolve
loans. We believe our intellectual property provides us with a competitive
advantage in analyzing, pricing and bidding on S&D loans.

Competition

We face intense competition in the market for the acquisition of S&D
loans. Many of our competitors have financial resources, acquisition departments
and servicing capacity considerably larger than our own. Among our largest
competitors are Residential Funding Corporation, Bayview Financial Trading
Group, Countrywide Financial Corporation, The Goldman Sachs Group, Lehman
Brothers and Bear Stearns & Co., Inc. Competition for acquisitions is generally
based on price, reputation of the purchaser, funding capacity and ability to
execute within timing parameters required by the seller.

Borrowers

Our business model focuses for the most part on holding the mortgage
assets that we acquire through resolution. Our borrowers represent a broad and
diverse group of individuals and no single borrower represents a significant
portion of our S&D loans. Likewise, our borrowers are located in all fifty
states as of December 31, 2005, and no single state represents 12% or more of
the aggregate principal balance of loans in our portfolio.

Sellers

We acquire S&D loans through a variety of methods, including negotiated
sales, ongoing purchase agreements, joint-bids with other institutions and
private and public auctions. The supply of assets available for purchase by us
is influenced by a number of factors, including knowledge by the seller of our
interest in purchasing assets of the type it is seeking to sell, the general
economic climate, financial industry regulation and new residential mortgage
loan origination volume. During 2005, we purchased an aggregate of 402
portfolios from 160 sellers, compared with an aggregate of 341 portfolios from
153 sellers in 2004. Our sources of bulk loan acquisitions have historically
varied from year to year and we expect that this will continue to be the case.
In addition to acquiring loans directly from sellers, we also occasionally
acquire loans indirectly through brokers.

Marketing

Members of the sales and marketing group of our acquisitions department
continually seek to identify new opportunities for the purchase of bulk and flow
mortgage assets. They focus on deepening relationships with sellers from whom we
have made acquisitions in the past and on developing relationships with new
sellers, as well as with brokers who have access to sellers of the types of
portfolios that we are interested in purchasing.

Loan Originations - Tribeca

We formed Tribeca, our wholly-owned subsidiary, in 1997 as an origination
platform for non-prime residential mortgages. Tribeca's mortgage origination
platform provides us with an additional vehicle for growth and reduces our
reliance on loan acquisitions from other financial institutions for growth.
Since commencing operations in 1997, Tribeca has originated approximately $873
million in non-prime residential mortgage loans for individuals with credit
histories, income and/or other factors that cause them to be classified as
non-prime borrowers.

Through Tribeca, we originate principally first mortgage loans. While our
current strategy is to hold a majority of originated loans in our portfolio for
investment, our strategy has changed in the past and may do so in the future
based on market conditions and our own portfolio needs. We focus on developing
and offering an array of proprietary niche products, including innovative
purchase and refinance loans for 1-to-4 family residential real estate. We offer
both fixed and adjustable rate mortgages. Our maximum loan amount is $2 million
and our maximum loan-to-value ratio is 75% for portfolio loans (100% for loans
underwritten to specific investor guidelines), depending on the specific product
and that product's underwriting requirements. In 2005, our average loan amount
was $228,000, compared with an average loan amount of $173,000 in both 2004 and
2003. For loans originated in 2005, the weighted average loan-to-value ratio was
67%, compared with weighted average loan-to-value ratios of 69% and 72% for 2004
and 2003, respectively.

Wholesale and Retail Originations

Tribeca originates loans through both wholesale and retail channels. In
2005, approximately 47% of loans was originated through our retail channels,
with the remainder originated through a wholesale network of mortgage brokers.
Of retail loans originated in 2005, approximately 69% was Liberty Loans, which
we hold for our portfolio, while the balance represented loans that we
originated for sale to investors. Principally all of the wholesale loans we
originated in 2005 were Liberty Loans.

The focus of our retail operation is direct-to-consumer loans. Our
marketing efforts consist primarily of pursuing internet-generated leads and to
a lesser extent, referral-based business from attorneys, accountants, real
estate agents and financial planners, as well as the retention of existing
Franklin Credit Management Corporation borrowers. The focus of our wholesale
account executives is on identifying qualified mortgage brokers and generating a
consistent flow of business. Tribeca maintains three offices, located in New
York, New Jersey and Pennsylvania, but originates loans in 25 states.

Tribeca seeks to minimize the inherent risk of using mortgage brokers to
source a significant portion of its Liberty Loan originations through a mortgage
broker review and approval process. Only approved mortgage brokers can submit
mortgage loan request packages to Tribeca for processing and underwriting.
Tribeca considers a number of factors for broker approval, including requiring
experience in sourcing non-prime mortgage loans, appropriate state licenses, and
errors/omissions and fidelity insurance polices in force. Tribeca also reviews
broker tax returns, credit reports, and the broker's history of lending
experience and consumer complaints.

A complete mortgage loan request package includes in many cases a
completed borrower application in accordance with our particular program
guidelines, credit report, appraisal and other required documentation supporting
the application. Appraisals are only accepted from Tribeca-approved appraisers,
and appraised values generally are compared with various other sources of
property value estimates or opinions. When a mortgage loan request package is
received from an approved broker, Tribeca personnel review the package for all
required documents and information. If the package is complete, Tribeca
personnel underwrite the loan in accordance with its loan program requirements.
After receipt of the broker loan package, Tribeca controls the processing,
underwriting, approval/denial, legal and regulatory documents, closing and
funding of the approved loan.

Borrowers

As with loans we acquire, borrowers of loans we originate are a diverse
population and no single borrower represents a significant portion of our loans.
Our borrowers are located in 25 states, with approximately 62% and 58%,
respectively, of the amount of loans originated in 2005 and 2004 being secured
by property in New York and New Jersey. At December 31, 2005, approximately 64%
of originated loans held for investment is secured by property in New York and
New Jersey.

Secondary Marketing

We sell a portion of the Tribeca loan originations for a cash gain on a
whole-loan, servicing-released, basis. In 2005, we sold $60.7 million of loans
and realized a net gain on sale of $1.3 million, and in 2004, we sold $89.9
million of loans and realized a net gain on sale of $1.4 million. The percentage
of originated loans sold varies from year to year, depending on market
conditions and our portfolio needs. We have not historically hedged our
origination pipeline by entering into mandatory delivery commitments; however,
many mortgage originators do so in the ordinary course of business and we may
choose to do so in the future as well, if management deems it to be
advantageous. The purchasers of the whole loans we do sell are typically large
financial institutions. We regularly sell loans meeting specified loan
underwriting and other criteria to several large financial institutions with
whom we have ongoing investor relationships.

Licensing

Tribeca is currently licensed as a mortgage banker or exempt from
licensing in 25 states. Tribeca is also a Department of Housing and Urban
Development FHA Title I and Title II approved lender.

Products

We vary our product offerings depending on market conditions. Our
origination volume focuses on Liberty Loans, which we hold for investment in our
own portfolio, and Gold and Platinum loans, which we originate for sale to
investors as described above.

Liberty Loans. During 2005, a majority of our loan originations were
conducted through our Liberty Loan program. The Liberty Loan is oriented toward
borrowers who are undergoing a transition in their credit profile due to
unforeseen life events such as divorce, business failure, loss of employment,
health crises and similar events. We generally expect that Liberty Loan
customers will eventually refinance at a lower interest rate once they have
re-established their credit record. Currently, Liberty Loans are primarily
adjustable-rate mortgages, or ARMs, with 30-year terms, with a fixed rate of
interest for the first two years and a six-month adjustable rate of interest for
the remaining term of the mortgage. The maximum Liberty Loan amount is $2
million, with a maximum loan-to-value of 75%. Our average Liberty Loan amount in
2005 was $229,000, and in 2004 was $199,000.

Our loan application and approval process is streamlined, requiring little
documentation. The principal factor in our underwriting guidelines has
historically been our determination of the borrower's equity in his or her home
and the related calculation of the loan-to-value ratio based on the appraised
value of the property, and not, or to a lesser extent, on a determination of the
borrower's ability to repay the loan. The specific parameters of the Liberty
Loan program continue to evolve. We have recently begun in an increasing number
of cases to gather and analyze additional information that allows us to assess
to a reasonable degree the borrower's ability and intent to repay the loan in
connection with our credit decision. We currently offer borrowers several
variations of the Liberty Loan based on the amount of documentation provided by
the borrower, with the loan-to-value ratio increasing to a maximum of 75% for
the product variation requiring the most documentation supporting the ability
and intent of the borrower to repay the loan and decreasing to a maximum of 65%
for the product variation requiring the least of such documentation.

It is our policy not to originate loans that are subject to either HOEPA
or the various state and local laws regarding "high-cost" loans. Consistent with
what we believe are industry best practices, the Liberty Loan program, among
other things, does not allow for negative amortization, interest-only payments,
short-term balloon payments, the financing of single-premium credit life
insurance, long-term prepayment penalties, interest rates that increase upon
default, or mandatory arbitration clauses.

Platinum and Gold Loans. The balance of our loan originations in 2005 were
conducted through our Platinum and Gold programs. Borrowers of our Platinum and
Gold loans typically have higher credit ratings than borrowers under loans that
we hold for our portfolio, as they are underwritten to specific investor
guidelines that require higher credit profiles. The maximum loan amount for
these loans is generally $500,000, with a loan-to-value ratio of up to 100%.

Competition

The market for non-prime loan originations is highly competitive. Tribeca
competes with a variety of lenders, including banks and mortgage bankers, for
the origination of non-prime mortgages. Among the largest and most
well-established of these competitors are New Century Mortgage, Ameriquest
Mortgage, Countrywide Financial Corporation and Household Financial Services.
Many of our competitors possess greater financial resources, longer operating
histories and lower costs of capital than we do. Competition for mortgage
originations is based upon marketing efforts, loan processing capabilities,
funding capacity, loan product desirability, interest rates and fees and, to a
much lesser extent in our case, the ability to sell loans for a premium in the
secondary market.

Mortgage Banking Segment Summary Information

The following table sets forth certain information regarding revenues,
expenses and income before provision for income taxes for our mortgage banking
segment:

Year Ended December 31,
----------------------------------------

2005 2004 2003
------------ ------------ ------------
Revenues:
Interest income ..................... $ 24,331,218 $ 6,591,458 $ 3,227,252
Purchase discount earned ............ 459,742 597,841 241,915
Gain on sale of loans held for
sale ................................ 1,276,566 1,444,037 1,331,322
Gain on sale of other real
estate owned ........................ 34,181 93,397 31,231
Other income ........................ 1,263,883 232,089 649,843
Total revenues ..................... 27,365,590 8,958,822 5,481,563

Operating expenses:
Interest expense .................... 16,727,093 3,265,066 1,595,767
Collective, general and
administrative .................... 2,875,994 1,641,152 2,210,253
Provision for loan losses ........... 1,004,388 335,530 63,579
Amortization of deferred
financing costs ................... 1,123,187 334,651 127,869
Depreciation ........................ 221,062 114,342 76,106
Total expenses ..................... 21,951,724 5,690,741 4,073,574

Income before provision for
income taxes ....................... 5,413,866 3,268,081 1,407,989
Income tax provision ................. 2,434,508 1,503,317 647,664
Net income ....................... $ 2,979,358 $ 1,764,764 $ 760,325

Fixed-rate originations .............. $ 36,636,445 $ 54,128,022 $ 72,098,058
Adjustable-rate originations ......... $390,624,027 $146,173,263 $ 25,045,495
Total originations ................... $427,260,472 $200,301,285 $ 97,143,553
Loans sold ........................... $ 60,715,866 $ 89,925,754 $ 79,105,920

Servicing

Except for a short period of time after acquiring a pool of loans when
servicing may be performed for us by the seller, we hold and service
substantially all of the loans in our portfolio, including both purchased and
originated loans, until resolution. At December 31, 2005, our servicing
department consisted of 83 employees who managed 25,487 loans. Our servicing
operations are conducted in the following departments:

Loan Boarding and Administration. The primary objective of the loan
boarding department is to ensure that newly acquired loans are properly
transitioned from the prior servicer and that both newly acquired loans and
originated loans are accurately boarded onto our servicing systems. In the bulk
acquisition context, data is transmitted via an electronic file from the seller
which is loaded directly onto our system, while data for originated loans and
flow acquisitions is boarded directly by us onto our system. Our loan boarding
department audits loan information for accuracy in approximately 10% of bulk
purchased loans to ensure that the loans conform to the terms provided in the
original note and mortgage. For the remaining bulk purchased loans, we perform
verification of critical terms of the loans with information provided to us by
the sellers. The information boarded onto our systems provides us with a file
that we use to automatically generate introductory letters to borrowers
summarizing the terms of their loan, among other standard industry procedures.

The loan administration department performs typical duties related to the
administration of loans, including incorporating modifications to terms of loans
as well as, in the case of acquisitions, completing and recording the assignment
of collateral documents from the seller into our name, which it does in
conjunction with our acquisition department. The loan administration department
also ensures the proper maintenance and disbursement of funds from escrow
accounts and monitors non-escrow accounts for delinquent taxes and insurance
lapses. For purchased and originated loans with adjustable interest rates, the
loan administration group ensures that adjustments are properly made and
identified to the affected borrowers in a timely manner.

Customer Service. The primary objective of our customer service department
is to obtain timely payments from borrowers, respond to borrower requests and
resolve disputes with borrowers. Within ten days of boarding newly acquired
loans onto our servicing system, our customer service representatives contact
each new borrower to welcome them to Franklin Credit Management Corporation and
to gather and/or verify any missing information, such as loan balance, interest
rate, contact phone numbers, place of employment, insurance coverage and all
other pertinent information required to properly service the loan. The customer
service group responds to all inbound customer calls for information requests
regarding payments, statement balances, escrow balances and taxes, payoff
requests, returned checks and late payment and other fees. In addition, our
customer service representatives process payoff requests and reconveyances.

Collections. The main objective of our collections department is to ensure
loan performance through maintaining customer contact. Our collections group
continuously reviews and monitors the status of collections and individual loan
payments in order to proactively identify and solve potential collection
problems. When a loan becomes seven days past due, our collections group begins
making collection calls and generating past-due letters. Our collections group
attempts to determine whether a past due payment is an aberration or indicative
of a more serious delinquency. If the past due payment appears to be an
aberration, we emphasize a cooperative approach and attempt to assist the
borrower in becoming current or arriving at an alternative repayment
arrangement. Upon a serious delinquency, by which we mean a delinquency of 55
days by a borrower, or the earlier determination by our collections group based
on the evidence available that a serious delinquency is likely, the loan is
typically transferred to our legal department where loss mitigation begins. We
employ a range of strategies to modify repayment terms in order to enable the
borrower to make payments and ultimately cure the delinquency, or focus on
expediting the foreclosure process so that loss mitigation can begin as promptly
as practicable.

Legal. Our legal department, which consists of non-lawyer administrative
staff experienced in collection work, manages and monitors the progress of
seriously delinquent loans and loans which we believe will develop into serious
delinquencies. In addition to maintaining contact with borrowers through
telephone calls and collection letters, this department utilizes various
strategies in an effort to reinstate an account or revive cash flow on an
account. The legal department analyzes each loan to determine a collection
strategy to maximize the amount and speed of recovery and minimize costs. The
particular strategy is based upon each individual borrower's past payment
history, current credit profile, current ability to pay, collateral lien
position and current collateral value. We employ a range of strategies depending
on the specific situation, including the following:

o Short-term repayment plans, or forbearance plans, when a delinquency
can be cured within three months;

o Loan modifications, when a delinquency cannot be cured within three
months but the borrower has the financial ability to abide by the
terms of the loan modification;

o Short sales, when the borrower does not have the ability to repay
and the equity in the property is not sufficient to satisfy the
total amount due under the loan, but we accept the sale price of the
property in full satisfaction of the debt in order to expedite the
process for all parties involved;

o Deed-in-lieu, when the borrower does not have the ability to repay
and the equity in the property is not sufficient to satisfy the
total amount due, but we accept the deed in full satisfaction of the
debt in order to expedite the process for all parties involved;

o Assumption, when the borrower wishes to relinquish responsibility to
a third party and the prospective borrower demonstrates the ability
to repay the loan;

o Subordination, when we have the second lien on a property and the
first lien-holder wishes to refinance its loan, to which we will
agree if the terms of the refinanced loan permit the borrower to
repay our loan; and

o Deferment agreements, when we forgo collection efforts for a period
of time, typically as a result of a hardship incurred by the
borrower, such as a natural disaster or a death or illness in the
family, as a result of which the borrower is temporarily unable to
repay.

Seriously delinquent accounts not resolved through the loss mitigation
activities described above are foreclosed in accordance with state and local
laws, with the objective of maximizing asset recovery in the most expeditious
manner possible. This is commonly referred to as loss management. Foreclosure
timelines are managed through a timeline report built into the loan servicing
system. The report schedules milestones applicable for each state throughout the
foreclosure process, which enhances our ability to monitor and manage the
process. Properties acquired through foreclosure are transferred to our real
estate department to manage eviction and marketing of the properties. However,
until foreclosure is completed, efforts at loss mitigation are continued.

In addition, our legal department manages loans by borrowers who have
declared bankruptcy. The primary objective of the bankruptcy group within our
legal department, which utilizes outside counsel, is to proactively monitor
bankruptcy assets and outside counsel to ensure compliance with individual plans
and to ensure recovery in the event of non-compliance.

Real Estate. Our real estate department manages all properties acquired by
us upon foreclosure of a delinquent loan or through purchase as part of a loan
portfolio in order to preserve their value and ensure that maximum returns are
realized upon sale. We own real estate, or OREO, in various states that we
acquired through foreclosure, a deed-in-lieu or acquisition. These properties
are 1-to-4 family residences, co-ops and condos. We acquire or foreclose on
property primarily with the intent to sell it at a price to at least recover our
cost. From time to time, OREO properties may be in need of repair or
improvements in order to either increase the value of the property or reduce the
time that the property is on the market. In those cases, the OREO property is
evaluated independently and we make a determination of whether the additional
investment would increase our return upon sale of the property.

Portfolio Characteristics

Overall Portfolio

At December 31, 2005, our portfolio (excluding OREO) consisted of $970
million of notes receivable (inclusive of purchase discount not reflected on the
face of the balance sheet), $374 million of loans held for investment and $13
million of loans held for sale. Our total loan portfolio grew 45% to $1.36
billion at December 31, 2005, from $939 million at December 31, 2004. Not
boarded loans represent loans serviced by the seller on a temporary basis. The
following table sets forth information regarding the types of properties
securing our loans.

Percentage of Total
Property Types Principal Balance Principal Balance
- -------------- ----------------- -------------------
Residential 1-4 family .......... $ 1,082,548,596 79.75%
Condos, co-ops, PUD dwellings ... 108,745,880 8.01%
Manufactured homes .............. 19,144,044 1.41%
Multi-family .................... 1,560,530 0.11%
Commercial ...................... 2,468,732 0.18%
Unsecured loans ................. 10,255,642 0.76%
Other ........................... 69,408 0.01%
Not boarded ..................... 132,573,874* 9.77%
----------------- -------------------
Total ......................... $ 1,357,366,706 100.00%
================= ===================

- ------------------

* A portion of not boarded loans has been included in the appropriate
property type categories based on available information provided by the
servicer-seller. The total amount of not boarded loans was $188.0
million at December 31, 2005.

Geographic Dispersion. The following table sets forth information
regarding the geographic location of properties securing the loans in our
portfolio at December 31, 2005:

Percentage of Total
Location Principal Balance Principal Balance
- -------- ----------------- -------------------
New York ........................ $ 150,282,436 11.07%
New Jersey ...................... 135,499,885 9.98%
Florida ......................... 86,436,077 6.37%
California ...................... 81,076,492 5.97%
Ohio ............................ 79,328,189 5.84%
Pennsylvania .................... 65,556,950 4.83%
Texas ........................... 57,489,850 4.24%
Georgia ......................... 42,334,839 3.12%
Michigan ........................ 38,967,779 2.87%
Illinois ........................ 35,707,778 2.63%
All Others ...................... 584,686,431 43.08%
----------------- -------------------
Total ......................... $ 1,357,366,706 100.00%
================= ===================

Amounts included in the tables above under the heading "Principal Balance"
represent the aggregate unpaid principle balance outstanding of notes
receivable, loans held for investment and loans held for sale.

Asset Quality

Delinquency. The following tables provide a breakdown of the delinquency
status of our notes receivable, loans held for investment and loans held for
sale portfolios as of the dates indicated, by principal balance. Because we
specialize in acquiring and servicing loans with erratic payment patterns and an
elevated level of credit risk, a substantial portion of the loans we acquire are
in various stages of delinquency, foreclosure and bankruptcy when we acquire
them. We monitor the payment status of our borrowers based on both contractual
delinquency and recency delinquency. By contractual delinquency, we mean the
delinquency of payments relative to the contractual obligations of the borrower.
By recency delinquency, we mean the recency of the most recent full monthly
payment received from the borrower. By way of illustration, on a recency
delinquency basis, if the borrower has made the most recent full monthly payment
within the past 30 days, the loan is shown as current regardless of the number
of contractually delinquent payments. In contrast, on a contractual delinquency
basis, if the borrower has made the most recent full monthly payment, but has
missed an earlier payment or payments, the loan is shown as contractually
delinquent. We classify a loan as in foreclosure when we determine that the best
course of action to maximize recovery of unpaid principal balance is to begin
the foreclosure process. We classify a loan as in bankruptcy when we receive
notice of a bankruptcy filing from the bankruptcy court.

December 31, 2005
------------------------------------------------
Contractual Delinquency Recency Delinquency
----------------------- ----------------------
Days Past Due Amount % Amount %
------------- -------------- ------ -------------- -----
Current ...... 0 - 30 days $ 687,887,057 51% $ 791,779,227 58%
Delinquent ... 31 - 60 days 76,225,331 6% 36,316,774 3%
61 - 90 days 19,629,463 1% 15,938,651 1%
90+ days 139,882,279 10% 79,589,478 6%

Bankruptcy ... 0 - 30 days 38,018,748 3% 108,931,183 8%
Delinquent ... 31 - 60 days 11,207,345 1% 7,845,350 1%
61 - 90 days 4,725,448 -- 4,851,743 --
90+ days 113,808,976 8% 46,132,241 3%

Foreclosure .. 0 - 30 days 793,327 -- 8,414,493 1%
Delinquent ... 31 - 60 days 606,737 -- 2,934,832 --
61 - 90 days 895,794 -- 2,444,743 --
90+ days 131,112,327 10% 119,614,117 9%

Not Boarded(1) 132,573,874 10% 132,573,874 10%
-------------- ------ -------------- -----
Total $1,357,366,706 100% $1,357,366,706 100%
============== ====== ============== =====
Total loans .. 0 - 30 days $ 726,699,132 54% $ 909,124,903 67%
============== ====== ============== =====

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

December 31, 2004
------------------------------------------------
Contractual Delinquency Recency Delinquency
----------------------- ----------------------
Days Past Due Amount % Amount %
------------- -------------- ------ -------------- -----
Current ...... 0 - 30 days $ 481,579,021 51% $ 575,916,813 61%
Delinquent ... 31 - 60 58,347,499 6% 23,570,888 3%
days
61 - 90 17,130,134 2% 5,955,120 1%
days
90+ days 77,831,547 9% 29,445,380 3%

Bankruptcy ... 0 - 30 days 38,334,025 4% 105,488,483 11%
Delinquent ... 31 - 60 16,501,584 2% 9,796,137 1%
days
61 - 90 7,805,223 1% 2,493,004 --
days
90+ days 95,998,718 10% 40,861,927 5%

Foreclosure .. 0 - 30 days 168,426 -- 19,264,407 2%
Delinquent ... 31 - 60 1,617,959 -- 4,030,963 --
days
61 - 90 1,347,135 -- 5,112,161 1%
days
90+ days 132,950,118 14% 107,676,106 11%

Not Boarded(1) 9,399,114 1% 9,399,114 1%
Total $ 939,010,503 100% $ 939,010,503 100%
Total loans .. 0 - 30 days $ 520,081,472 55% $ 700,669,703 75%

Hurricanes Katrina, Rita and Wilma. In order to determine potential
losses, if any, as a result of the recent hurricanes, Katrina, Rita and Wilma,
the Company has identified its loans in the FEMA-designated areas, and continues
to contact these borrowers to assess the overall effect that the hurricanes will
have on the collectibility of the identified loans. Management does not consider
the net balances of such loans to be significant and has not identified a
material number of loans for which the collateral was significantly damaged by
the hurricanes. Management believes that the existing allowance is adequate to
cover potential future losses that have been identified as a result of
hurricanes Katrina, Rita and Wilma. However, additional provisions for loan
losses for a relatively small number of such loans may be required in the
future, and we cannot at this time determine if other borrowers near the
FEMA-designated areas may be affected in the future.

Notes Receivable Portfolio

As of December 31, 2005, our notes receivable portfolio, which consists of
purchased loans, included approximately 23,684 loans with an aggregate unpaid
principal balance ("UPB") of $970 million and a net UPB of $903 million (after
allowance for loan losses of $67 million), compared with approximately 22,100
loans with an aggregate UPB of $812 million and a net UPB of $722 million (after
allowance for loan losses of $90 million) as of December 31, 2004. Impaired
loans comprise and will continue to comprise a significant portion of our
portfolio. Many of the loans we acquire are impaired loans at the time of
purchase. We generally purchase such loans at significant discounts and have
considered the payment status, underlying collateral value and expected cash
flows when determining our purchase price. While interest income is not accrued
on impaired loans, interest and fees are received on a portion of loans
classified as impaired. The following table provides a breakdown of the notes
receivable portfolio by year:

2005 2004 2003
------------ ------------ ------------
Performing loans .................. $536,974,892 $436,366,893 $322,345,537
Allowance for loan losses ......... 14,266,781 19,154,310 15,584,769
------------ ------------ ------------
Total performing loans,
net of allowance for loan
losses .......................... 522,708,111 417,212,583 306,760,768
------------ ------------ ------------

Impaired loans .................... 244,986,933 280,078,060 126,341,722
Allowance for loan losses ......... 43,691,572 57,889,091 30,111,278
------------ ------------ ------------
Total impaired loans,
net of allowance for loan
losses .......................... 201,295,361 222,188,969 96,230,444
------------ ------------ ------------

Not yet boarded onto
servicing system ............... 188,037,218 95,440,903 16,866,611
Allowance for loan losses ......... 9,317,802 12,584,898 551,183
------------ ------------ ------------
Not yet boarded onto
servicing system,
net of allowance for loan
losses .......................... 178,719,416 82,856,005 16,315,428
------------ ------------ ------------
Total notes receivable,
net of allowance for loan
losses .......................... 902,722,888 722,257,557 419,306,640
------------ ------------ ------------

*Accretable Discount .............. 11,360,617 -- --
------------ ------------ ------------
*Nonaccretable Discount ........... 23,981,013 -- --
------------ ------------ ------------

Total Notes Receivable,
net of allowance for loan
losses and
accretable/nonaccretable
discount ........................ $867,381,258 $722,257,557 $419,306,640
============ ============ ============

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

The following table provides a breakdown of the balance of our portfolio
of notes receivable between fixed-rate and adjustable-rate loans, net of
allowance for loan losses and excluding loans purchased but not yet boarded onto
our servicing operations system as of December 31, 2005, December 31, 2004 and
December 31, 2003 of $178,719,416, $82,856,005, and $16,315,428, respectively:

2005 2004 2003
------------ ------------ ------------
Performing Loans:
Fixed-rate Performing Loans ....... $393,982,311 $300,286,566 $199,691,299
------------ ------------ ------------
Adjustable Performing Loans ....... 128,725,800 116,926,017 107,069,469
------------ ------------ ------------
Total Performing Loans ............ $522,708,111 $417,212,583 $306,760,768
============ ============ ============

Impaired Loans:
Fixed-rate Impaired Loans ......... $167,093,004 $184,312,204 $ 58,752,534
------------ ------------ ------------
Adjustable Impaired Loans ......... 34,202,357 37,876,765 37,477,910
------------ ------------ ------------
Total Impaired Loans .............. $201,295,361 $222,188,969 $ 96,230,444
============ ============ ============
Total Notes ....................... $724,003,472 $639,401,552 $402,991,212
============ ============ ============

*Accretable Discount .............. $ 11,360,617 $ -- $ --
============ ============ ============
*Nonaccretable Discount ........... $ 13,953,006 $ -- $ --
============ ============ ============
Total Notes Receivable,
net of allowance for loan
losses,
excluding loans not
boarded onto servicing
systems ......................... $698,689,849 $639,401,552 $402,991,212
============ ============ ============

Impaired loans comprise and will continue to comprise a significant
portion of our portfolio. Many of the loans we acquire are impaired loans at the
time of purchase. We generally purchase such loans at significant discounts and
have considered the payment status, underlying collateral value and expected
cash flows when determining our purchase price. While interest income is not
accrued on impaired loans, interest and fees are received on a portion of loans
classified as impaired.

Loan Acquisitions

We purchased over $505 million in assets (principally residential
single-family loans) in 2005, compared with approximately $652 million in assets
(principally residential single-family loans) during 2004 and approximately $244
million in assets (principally residential single-family loans) during 2003. A
substantial portion of the loans we acquired in 2004 resulted from the purchase
of two large portfolios, which together represented over $400 million in UPB at
the time of acquisition. The following table sets forth the amounts and purchase
prices of our mortgage loan acquisitions during the previous three calendar
years:

2005 2004 2003
----------- ----------- ------------
Number of loans ................ 12,311 12,914 3,476
Aggregate unpaid principal
balance at acquisition ....... $505,655,68 $625,762,75 $244,387,332
Purchase price ................. $468,324,93 $544,288,35 $213,638,801
Purchase price percentage ...... 93% 87% 87%

- ------------------
* Exclusive of credit card portfolio in the amount of $26.3 million.

Notes Receivable Dispositions

In the ordinary course of our loan servicing process and through the
periodic review of our portfolio of purchased loans, there are certain loans
that, for various reasons, we determine to sell. We typically sell these loans
on a whole-loan basis, servicing-released for cash. The following table sets
forth our dispositions of purchased loans during the previous three calendar
years:

2005 2004 2003
------------ ------------ ------------
Sale of Performing Loans
Aggregate unpaid principal
balance ........................ $ 13,573,871 $ 19,845,833 $ 15,146,598
Gain on sale ................... $ 1,263,866 $ 2,178,295 $ 2,203,490

Sale of Non-Performing Loans
Aggregate unpaid principal
balance ........................ $ 23,491,405* $ 1,154,505 $ 4,220,120
Gain (loss) on sale ............ $ 47,021 $ (477,182) $ (1,085,251)

Total gain on sale ............. $ 1,310,887 $ 1,701,113 $ 1,118,239

- ------------------
* Sale of credit card portfolio. The carrying value of this portfolio was
$1.2 million.

Tribeca's Loan Originations

The following table sets forth Tribeca's loan originations, as well as
dispositions, during the previous three calendar years. During 2004, we began to
originate loans, principally adjustable-rate loans with a fixed rate for the
first two years, to be held in our portfolio.

2004 2003
2005 (Restated) (Restated)
------------ ------------ ------------
Number of loans originated ..... 1,871 1,159 562
Original principal balance ..... $427,260,472 $200,301,285 $ 97,143,553
Average loan amount ............ $ 228,359 $ 172,823 $ 172,853

Originated as fixed ............ $ 36,636,445 $ 54,128,022 $ 72,098,058
Originated as ARM* ............. $390,624,027 $146,173,263 $ 25,045,495

Number of loans sold ........... 297 576 449
Aggregate face value ........... $ 60,715,866 $ 89,925,754 $ 79,105,920
Gain on sale ................... $ 1,276,566 $ 1,444,037 $ 1,331,322
Gain on sale percentage ........ 2.10% 1.61% 1.68%

- ------------------
* Originated ARM loans are principally fixed-rate for the first two years
and six-month adjustable-rate for the remaining term.

Other Real Estate Owned

The following table sets forth our real estate owned, or OREO portfolio,
and OREO sales during the previous three calendar years:

2005 2004 2003
----------- ----------- -----------
Other real estate owned ........... $19,936,274 $20,626,156 $13,981,665
OREO as a percentage of
total assets ...................... 1.50% 2.33% 2.94%
OREO sold ......................... $30,697,381 $20,273,482 $15,380,375
Gain on sale ...................... $ 1,758,351 $ 542,202 $ 1,027,130

Geographic Dispersion of Originated Loans. The following table sets forth
information regarding the geographic location of properties securing all loans
originated by Tribeca during 2005 and the aggregate portfolio of loans
originated and held for investment at December 31, 2005:

Loans Originated for Loans Held for Investment
Year Ended December 31, 2005 at December 31, 2005
---------------------------- -----------------------------
Percentage of Percentage of
Total Total
Principal Principal Principal Principal
Location Balance Balance Balance Balance
- -------------------------- ------------ ------------- ------------ -------------

New Jersey ............... $135,767,839 31.78% $118,832,285 31.73%
New York ................. 120,867,448 28.29% 119,036,624 31.79%
Pennsylvania ............. 31,170,265 7.30% 31,114,558 8.31%
Florida .................. 30,247,360 7.08% 20,078,932 5.36%
California ............... 22,886,500 5.36% 12,866,824 3.44%
Massachusetts ............ 21,711,370 5.08% 20,111,407 5.37%
Maryland ................. 15,987,825 3.74% 11,561,771 3.09%
Virginia ................. 15,742,400 3.68% 13,280,988 3.55%
Connecticut .............. 11,807,300 2.76% 11,665,914 3.12%
South Carolina ........... 4,483,800 1.05% 3,191,253 0.85%
All Others ............... 16,588,365 3.88% 12,727,490 3.39%
------------ ------------- ------------ -------------
$427,260,472 100.00% $374,468,046 100.00%*
============ ============= ============ =============

- ------------------
* UPB before purchase discount and allowance for loan losses.

Government Regulation

The mortgage lending industry is highly regulated. Our business is
regulated by federal, state and local government authorities and is subject to
federal, state and local laws, rules and regulations, as well as judicial and
administrative decisions that impose requirements and restrictions on our
business. At the federal level, these laws, rules and regulations include:

o the Equal Credit Opportunity Act and Regulation B;

o the Federal Truth in Lending Act and Regulation Z;

o Home Ownership and Equity Protection Act, or HOEPA;

o the Real Estate Settlement Procedures Act, or RESPA, and Regulation
X;

o the Fair Credit Reporting Act;

o the Fair Debt Collection Practices Act;

o the Home Mortgage Disclosure Act and Regulation C;

o the Fair Housing Act;

o the Telemarketing and Consumer Fraud and Abuse Prevention Act;

o the Telephone Consumer Protection Act;

o the Gramm-Leach-Bliley Act;

o the Soldiers and Sailors Civil Relief Act;

o the Fair and Accurate Credit Transactions Act; and

o the CAN-SPAM Act.

These laws, rules and regulations, among other things:

o impose licensing obligations and financial requirements on us;

o limit the interest rates, finance charges, and other fees that we
may charge;

o prohibit discrimination both in the extension of credit and in the
terms and conditions on which credit is extended;

o prohibit the payment of kickbacks for the referral of business
incident to a real estate settlement service;

o impose underwriting requirements;

o mandate various disclosures and notices to consumers, as well as
disclosures to governmental entities;

o mandate the collection and reporting of statistical data regarding
our customers;

o require us to safeguard non-public information about our customers;

o regulate our collection practices;

o require us to combat money-laundering and avoid doing business with
suspected terrorists;

o restrict the marketing practices we may use to find customers,
including restrictions on outbound telemarketing; and

o in some cases, impose assignee liability on us as purchaser of
mortgage loans as well as the entities that purchase our mortgage
loans.

Our failure to comply with these laws can lead to:

o civil and criminal liability, including potential monetary
penalties;

o loss of lending licenses or approved status required for continued
lending and servicing operations;

o demands for indemnification or loan repurchases from purchasers of
our loans;

o legal defenses causing delay and expense;

o adverse effects on our ability, as servicer, to enforce loans;

o the borrower having the right to rescind or cancel the loan
transaction;

o adverse publicity;

o individual and class action lawsuits;

o administrative enforcement actions;

o damage to our reputation in the industry;

o inability to sell or securitize our loans; or

o inability to obtain credit to fund our operations.

Although we have systems and procedures directed to compliance with these
legal requirements and believe that we are in material compliance with all
applicable federal, state and local statutes, rules and regulations, we cannot
assure you that more restrictive laws and regulations will not be adopted in the
future, or that governmental bodies will not interpret existing laws or
regulations in a more restrictive matter, which could render our current
business practices non-compliant or which could make compliance more difficult
or expensive. These applicable laws and regulations are subject to
administrative or judicial interpretation, but some of these laws and
regulations have been enacted only recently or may be interpreted infrequently.
As a result of infrequent or sparse interpretations, ambiguities in these laws
and regulations may leave uncertainty with respect to permitted or restricted
conduct under them. Any ambiguity under a law to which we are subject may lead
to non-compliance with applicable regulatory laws and regulations. We actively
analyze and monitor the laws, rules and regulations that apply to our business,
as well as the changes to such laws, rules and regulations.

New Areas of Regulation

Regulatory and legal requirements are subject to change, making our
compliance more difficult or expensive, or otherwise restricting our ability to
conduct our business as it is now conducted. In particular, federal, state and
local governments have become more active in the consumer protection area in
recent years. For example, the federal Gramm-Leach-Bliley financial reform
legislation imposes additional privacy obligations on us with respect to our
applicants and borrowers. The Fair and Accurate Credit Transactions Act of 2003,
enacted in December 2003, requires us to provide additional disclosures when we
disapprove a loan application. Additional requirements will apply to our use of
consumer reports and our furnishing of information to the consumer reporting
agencies. Additionally, Congress and the Department of Housing and Urban
Development have discussed an intent to reform RESPA. Several states are also
considering adopting privacy legislation. For example, California has passed
legislation known as the California Financial Information Privacy Act and the
California On-Line Privacy Protection Act. Both pieces of legislation became
effective July 1, 2004, and impose additional notification obligations on us
that are not preempted by existing federal law. If other states choose to follow
California and adopt a variety of inconsistent state privacy legislation, our
compliance costs could substantially increase. Moreover, several federal, state
and local laws, rules and regulations have been adopted, or are under
consideration, that are intended to protect consumers from predatory lending.
The impact of this legislation, should it be adopted in other states, may
negatively affect the availability of credit to a broader segment of the
borrowing population than the smaller group that the laws are aiming to protect.

Local, state and federal legislatures, state and federal banking
regulatory agencies, state attorneys general offices, the FTC, the Department of
Justice, the Department of Housing and Urban Development and state and local
governmental authorities have increased their focus on lending practices by some
companies, primarily in the non-prime lending industry, sometimes referred to as
"predatory lending" practices. Sanctions have been imposed by various agencies
for practices such as charging excessive fees, imposing higher interest rates
than the credit risk of some borrowers warrant, failing to disclose adequately
the material terms of loans to borrowers and abrasive servicing and collections
practices. The Office of the Comptroller of the Currency, the regulator of
national banks, issued a final regulation last year that prescribed an explicit
anti-predatory lending standard without regard to a trigger test based on the
cost of the loan, which prohibits a national bank from, among other
restrictions, making a loan based predominately on the foreclosure value of the
borrower's home, rather than the borrower's repayment ability, including current
and expected income, current obligations, employment status and relevant
financial resources. This restriction would prevent national banks and their
operating subsidiaries from purchasing the variation of the Liberty Loan where
no assessment is made of the borrower's ability to repay the loan. In addition,
if this standard were adopted more generally, it may impact the ability of
Tribeca to originate the Liberty Loan.

On May 16, 2005, the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, and the National Credit Union
Administration jointly issued "Credit Risk Management Guidance for Home Equity
Lending." The guidance promotes sound credit risk management practices for
institutions engaged in home equity lending (both home equity lines of credit
and closed-end home equity loans). Among other risk factors, the Guidance
cautions lenders to consider all relevant risk factors when establishing product
offerings and underwriting guidelines, including a borrower's income and debt
levels, credit score (if obtained), and credit history, as well as the loan
size, collateral value, lien position, and property type and location. It
stresses that prudently underwritten home equity loans should include an
evaluation of a borrower's capacity to adequately service the debt, and that
reliance on a credit score is insufficient because it relies on historical
financial performance rather than present capacity to pay. While not
specifically applicable to loans originated by Tribeca, the guidance is
instructive of the regulatory climate covering low and no documentation loans,
such as certain of Tribeca's Liberty Loan products.

HOEPA identifies a category of mortgage loans and subjects such loans to
restrictions not applicable to other mortgage loans. Loans subject to HOEPA
consist of loans on which certain points and fees or the annual percentage rate,
known as the APR, exceed specified levels. Liability for violations of
applicable law with regard to loans subject to HOEPA would extend not only to
us, but to the institutional purchasers of our loans as well. It is our policy
to seek not to originate loans that are subject to HOEPA or state and local laws
discussed in the following paragraph or purchase high cost loans that violate
such laws. On October 1, 2002, the APR and points and fees thresholds for
determining loans subject to HOEPA were lowered, thereby expanding the scope of
loans subject to HOEPA. We will continue to avoid originating loans subject to
HOEPA, and the lowering of the thresholds beyond which loans become subject to
HOEPA may prevent us from originating certain loans and may cause us to reduce
the APR or the points and fees on loans that we do originate. Non-compliance
with HOEPA and other applicable laws may lead to demands for indemnification or
loan repurchases from our warehouse lenders and institutional loan purchasers,
class action lawsuits and administrative enforcement actions.

Laws, rules and regulations have been adopted, or are under consideration,
at the state and local levels that are similar to HOEPA in that they impose
certain restrictions on loans on which certain points and fees or the APR
exceeds specified thresholds, which generally are lower than under federal law.
These restrictions include prohibitions on steering borrowers into loans with
high interest rates and away from more affordable products, selling unnecessary
insurance to borrowers, flipping or repeatedly refinancing loans and making
loans without a reasonable expectation that the borrowers will be able to repay
the loans. If the numerical thresholds were miscalculated, certain variations of
our Liberty Loan product, where the lending decision is or may have been based
entirely or primarily on the borrower's equity in his or her home and not, or to
a lesser extent, on a determination of the borrower's ability to repay the loan,
would violate HOEPA and many of these state and local anti-predatory lending
laws. In the past, we have sold a small portion of our Liberty Loan production
to third parties on a servicing-released, whole-loan basis. Going forward,
however, our ability to finance the origination of Liberty Loans or sell the
Liberty Loan product to third parties could be impaired if our sources of
financing or mortgage investors are required or choose to incorporate
prohibitions from certain anti-predatory lending practices into their
eligibility criteria, even if the laws themselves do not specifically apply to
us. Compliance with some of these restrictions requires lenders to make
subjective judgments, such as whether a loan will provide a "net tangible
benefit" to the borrower. These restrictions expose a lender to risks of
litigation and regulatory sanction no matter how carefully a loan is
underwritten. The remedies for violations of these laws are not based on actual
harm to the consumer and can result in damages that exceed the loan balance. In
addition, an increasing number of these laws, rules and regulations seek to
impose liability for violations on assignees, which may include our warehouse
lenders and whole-loan buyers, regardless of whether the assignee knew of or
participated in the violation.

The continued enactment of these laws, rules and regulations may prevent
us from originating certain loans and may cause us to reduce the interest rate
or the points and fees on loans that we do originate. We may decide to originate
a loan that is covered by one of these laws, rules or regulations only if, in
our judgment, the loan is made in accordance with our strict legal compliance
standards and without undue risk relative to litigation or to the enforcement of
the loan according to its terms. If we decide to relax our self-imposed
restrictions on originating loans subject to these laws, rules and regulations,
we will be subject to greater risks for actual or perceived non-compliance with
the laws, rules and regulations, including demands for indemnification or loan
repurchases from the parties to whom we broker or sell loans, class action
lawsuits, increased defenses to foreclosure of individual loans in default,
individual claims for significant monetary damages, and administrative
enforcement actions. In addition, the difficulty of managing the risks presented
by these laws, rules and regulations may decrease the availability of warehouse
financing and the overall demand for non-prime loans, making it difficult to
fund or sell any of our loans. If nothing else, the growing number of these
laws, rules and regulations will increase our cost of doing business as we are
required to develop systems and procedures to ensure that we do not violate any
aspect of these new requirements.

A portion of our mortgage loans are originated through independent
mortgage brokers. Mortgage brokers provide valuable services in the loan
origination process and are compensated for their services by receiving fees on
loans. Brokers may be paid by the borrower, the lender or both. If a borrower
cannot or does not want to pay the mortgage broker's fees directly, the loan can
be structured so that the mortgage broker's fees are paid from the proceeds of
the loan, or the loan can provide for a higher interest rate or higher fees to
the lender. Regardless of the manner in which a broker is compensated, the
payment is intended only to compensate the broker for the services actually
performed and the facilities actually provided.

RESPA prohibits the payment of fees for the mere referral of real estate
settlement service business. This law does permit the payment of reasonable
value for services actually performed and facilities actually provided unrelated
to the referral. In the past, several lawsuits have been filed against mortgage
lenders alleging that such lenders have made certain payments to independent
mortgage brokers in violation of RESPA. These lawsuits generally have been filed
on behalf of a purported nationwide class of borrowers alleging that payments
made by a lender to a broker in addition to payments made by the borrower to a
broker are prohibited by RESPA and are therefore illegal. On September 18, 2002,
the Eleventh Circuit Court of Appeals issued a decision in Heimmermann v. First
Union Mortgage Corp., which reversed the court's earlier decision in Culpepper
v. Irwin Mortgage Corp. in which the court found the yield spread premium
payments received by a mortgage broker to be unlawful per se under RESPA. The
Department of Housing and Urban Development responded to the Culpepper decision
by issuing a policy statement (2001-1) taking the position that lender payments
to mortgage brokers, including yield spread premiums, are not per se illegal.
The Heimmermann decision eliminated a conflict that had arisen between the
Eleventh Circuit and the Eighth and Ninth Circuit Courts of Appeals, with the
result that all federal circuit courts that have considered the issue have
aligned with the Department of Housing and Urban Development policy statement
and found that yield spread premiums are not prohibited per se. If other circuit
courts that have not yet reviewed this issue disagree with the Heimmermann
decision, there could be a substantial increase in litigation regarding lender
payments to brokers and in the potential costs of defending these types of
claims and in paying any judgments that might result. Although we believe that
our broker compensation programs comply with all applicable laws and are
consistent with long-standing industry practice and regulatory interpretations,
in the future new regulatory interpretations or judicial decisions may require
us to change our broker compensation practices. Such a change may have a
material adverse effect on us and the entire mortgage lending industry.

Compliance, Quality Control and Quality Assurance

We maintain a variety of quality control procedures designed to detect
compliance errors prior to funding. We have a stated anti-predatory lending
policy which is communicated to all employees at regular training sessions. In
addition, Tribeca, from time to time, subjects a statistical sampling of our
loans to post-funding quality assurance reviews and analysis. We track the
results of the quality assurance reviews and report them back to the responsible
origination units. Our loans and practices are reviewed regularly in connection
with the due diligence that our loan buyers and lenders perform. State
regulators also review our practices and loan files and report the results back
to us.

Privacy

The federal Gramm-Leach-Bliley Act obligates us to safeguard the
information we maintain on our borrowers. California has passed legislation
known as the California Financial Information Privacy Act and the California
On-Line Privacy Protection Act. Both pieces of legislation became effective on
July 1, 2004, and impose additional notification obligations on us that are not
pre-empted by existing federal law. Regulations have been proposed by several
agencies and states that may affect our obligations to safeguard information. If
other states or federal agencies adopt additional privacy legislation, our
compliance costs could substantially increase.

Fair Credit Reporting Act

The Fair Credit Reporting Act provides federal preemption for lenders to
share information with affiliates and certain third parties and to provide
pre-approved offers of credit to consumers. Congress also amended the Fair
Credit Reporting Act to place further restrictions on the use of information
shared between affiliates, to provide new disclosures to consumers when risk
based pricing is used in the credit decision, and to help protect consumers from
identity theft. All of these new provisions impose additional regulatory and
compliance costs on us and reduce the effectiveness of our marketing programs.

Home Mortgage Disclosure Act

In 2002, the Federal Reserve Board adopted changes to Regulation C
promulgated under the Home Mortgage Disclosure Act. Among other things, the new
regulations require lenders to report pricing data on loans that they originate
with annual percentage rates that exceed the yield on treasury bills with
comparable maturities by three percent. The expanded reporting takes effect in
2004 for reports filed in 2005. A majority of our loans are subject to the
expanded reporting requirements.

The expanded reporting does not provide for additional loan information
such as credit risk, debt-to-income ratio, LTV ratio, documentation level or
other salient loan features that might impact pricing on individual loans. As a
result, the reported information may lead to increased litigation and government
scrutiny to determine if any reported disparities between prices paid by
minorities and majorities may have resulted from unlawful discrimination. For
example, the Civil Rights Division of the New York State Attorney General's
office has requested that certain large lenders provide it with supplementary
information to explain the disparities in their reported HMDA data.

Telephone Consumer Protection Act and Telemarketing Consumer Fraud and Abuse
Prevention Act

The FCC and the FTC adopted "do-not-call" registry requirements, which, in
part, mandate that companies such as us maintain and regularly update lists of
consumers who have chosen not to be called. These requirements also mandate that
we do not call consumers who have chosen to be on the list. Those prohibitions
do not apply to calls made to a servicer's existing customers. Several states
have also adopted similar laws, with which we also seek to comply.

Environmental Matters

In the ordinary course of our business we have from time to time acquired,
and we may continue to acquire in the future, properties securing loans that are
in default. In addition, loans that we purchase that are initially not in
default may subsequently be defaulted on by the borrower. In either case, it is
possible that hazardous substances or waste, contamination, pollutants or
sources thereof could be discovered on those properties after we acquire them.
To date, we have not incurred any environmental liabilities in connection with
our OREO, although there can be no guarantee that we will not incur any such
liabilities in the future.

Employees

We recruit, hire, and retain individuals with the specific skills that
complement our corporate growth and business strategies. As of December 31,
2005, we had 216 full time employees, of which 78 were employed by Tribeca, our
origination subsidiary.

None of our employees are represented by a union or covered by a
collective bargaining agreement. We believe our relations with our employees are
good.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

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

Our success depends upon the continued availability of portfolios of
scratch and dent loans, or S&D loans, that meet our purchasing criteria, and our
ability to identify and successfully bid to acquire such portfolios. The
availability of such portfolios at favorable prices and on terms acceptable to
us depends on a number of factors outside of our control, including:

o general conditions in the U.S. and regional economies;

o interest rates;

o the demand for residential real estate purchases, refinancing or
home equity lines of credit;

o real estate values;

o underwriting criteria used by originators;

o the prices other acquirers are willing to pay;

o the securitization market; and

o laws and regulations governing consumer lending.

Significant changes in any of these factors could affect the availability
and/or the cost for us to acquire S&D loans. Any increase in the prices we are
required to pay for such loans in turn will reduce the profit, if any, we
generate from these assets. We cannot predict our future acquisition volume or
our ability to submit successful bids to purchase portfolios of S&D loans and we
cannot guarantee that we will be able to purchase these assets at the same
volume or with the same yields as we have historically purchased. Our
acquisition volume has in the past varied substantially from quarter to quarter,
and we expect that it will continue to fluctuate in the future. As a result of
our business strategy of purchasing pools of mortgage loans and the volatility
of such purchases in both amount and timing, our quarter-to-quarter and
year-to-year net income may be more volatile than those of other financial
services companies. If the volume of S&D loans purchased declines or the yields
of those assets decline, we could experience a material decrease in revenues and
profitability.

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

The success of the loan origination business of our wholly-owned
subsidiary, Tribeca Lending Corp., depends on our ability to market Tribeca's
loan origination products to non-prime borrowers seeking to obtain residential
mortgage loans. Adverse changes in the U.S. economy and the real estate market
could result in a decrease in borrowing activity generally, as well as an
increase in competition for non-prime borrowers among loan originators, which
could reduce the number of loans Tribeca is able to originate. Further, changes
in the regulatory environment that result in our adopting more demanding
underwriting standards or documentation requirements or other increased
restrictions on loans to non-prime borrowers, or the perception that such
changes are likely, may also reduce the number of loans Tribeca is able to
originate. A reduction in Tribeca's origination business would curtail the
growth of the number of loans in our portfolio from which we generate revenue
through interest and fee income, loan sales and servicing, which could
negatively affect our revenues and financial condition.

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

We currently receive a substantial majority of our external financing from
our principal lender, Sky Bank, under a series of credit facilities, including
our master credit facility, Tribeca's warehouse credit and security agreement,
or warehouse facility, and Tribeca's master credit and security agreement. If we
lose access to this primary source of external financing for any reason, we will
not have the liquidity to fund our business operations.

We depend on our credit facilities to:

o provide the cash necessary to fund our acquisition of S&D loans;

o fund our loan originations; and

o enable us to hold our loans for investment or pending sale.

Our credit facilities do not obligate our principal lender to make any
additional credit available to us. Accordingly, there is no guarantee that we
will continue to receive additional financing under our current agreements or
that our principal lender will enter into new agreements with us upon the
expiration of the current agreements on terms favorable to us or at all. If our
principal lender refuses to extend additional credit to us for any reason,
including, for example, a change in its policies, management or control, a
change in its criteria for eligible mortgage loans to secure credit advances, a
change in the regulatory environment, including a change in the financing of
mortgage loans where the lending decision is based entirely or primarily on the
borrower's equity in his or her home and not, or to a lesser extent, on a
determination of the borrower's ability to repay the loan, or a lack of
available funds, we would need to secure comparable financing from the other
banks currently participating with our principal lender and/or other sources in
order to continue to fund our acquisition and origination activities and
possibly working capital. There is no guarantee that, in such an event, we would
be able to secure other external financing on favorable terms or at all.

Even if our principal lender does agree to provide additional financing to
us, there is no guarantee that such financing will be on terms as favorable as
our current facilities. Our ability to be competitive in both portfolio
acquisitions and loan originations depends on the cost of our financing, and any
new facility could bear interest at higher rates than we currently pay. Such an
increase in our cost of funds would adversely affect our ability to bid
competitively for portfolio acquisitions and profitably originate loans, which
in turn would have an adverse effect on our business prospects and financial
condition.

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

Under our credit facilities with our lenders, we are required to submit
all payments we receive from obligors under pledged mortgage loans to a lockbox
maintained by our principal lender, from which we receive an operating
allowance, which is renegotiated from time to time and at least annually, to
sustain our business. All amounts submitted to the lockbox in excess of the
agreed upon operating allowance are used to pay down amounts outstanding under
our credit facilities with our lenders. The operating allowance may not be
sufficient to meet our liquidity needs in the future, particularly as we seek to
grow our operations. If it is insufficient, there is no guarantee that our
principal lender will increase our operating allowance, which would have a
material adverse impact on our business.

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

The unpaid principal balance of each loan under our master credit facility
and term loan agreements with our principal lender is amortized over a
twenty-year period, but matures three years after the date the loan was made.
Historically, our principal lender has routinely agreed to renew such loans for
additional three-year terms upon their maturity. Similarly, advances under
Tribeca's warehouse facility are required to be repaid within 120 days after the
date of advance (or, in some cases, earlier). Our principal lender has
historically allowed us to convert our indebtedness under the warehouse facility
to term loans outside the warehouse facility, and has provided us with
consolidation and refinancing opportunities. There is no guarantee that our
principal lender will continue to renew our loans under the term loan agreements
or provide us with opportunities to consolidate, refinance or convert our
borrowings under the warehouse facility, thereby relieving our immediate
repayment obligations. Our principal lender's refusal to provide us with such
renewal, conversion, consolidation and refinancing opportunities could cause our
indebtedness to become immediately due and payable upon the contractual maturity
of such indebtedness, which could result in our insolvency if we are unable to
refinance our debt through alternative lenders or other financing vehicles and
preclude us from further borrowings. There is no guarantee that we would be able
to refinance our debt through alternative lenders on favorable terms or at all
because we are highly leveraged and our ratio of equity to assets and/or our
ratio of debt to equity may not be sufficient to support traditional borrowing.

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

Our credit facilities require us to observe certain affirmative, negative
and financial covenants customary for financings of this type, including: a
covenant under our master credit facility with our principal lender requiring
that we and our subsidiaries maintain a minimum consolidated net worth of at
least $10.0 million; a covenant under Tribeca's warehouse facility with our
principal lender requiring that Tribeca and its subsidiaries maintain a minimum
consolidated net worth of at least $2.5 million; and covenants under our new
master credit and security agreements requiring that Tribeca and its
subsidiaries maintain a consolidated minimum net worth of at least $3.5 million
and rolling four-quarter pre-tax net income of $750,000. Failure to satisfy any
of these covenants could:

o cause our indebtedness to become immediately payable, which could
result in our insolvency if we are unable to repay our debt; and

o preclude us from further borrowings.

In addition, under our master credit facility with our principal lender,
Thomas J. Axon, our Chairman, President and CEO, ceasing to possess, directly or
indirectly, the power to direct our management and policies through his
ownership of our voting stock constitutes an event of default, which, without a
waiver from our principal lender, would cause our indebtedness to become
immediately payable and could result in our insolvency if we are unable to repay
our debt.

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

Our business may be adversely affected by changes in interest rates,
particularly changes that are unexpected in timing or size. The following are
some of the risks we face related to an increase in interest rates:

o All of our borrowings bear interest at variable rates, while a
significant majority of the loans in our portfolio have fixed rates.
As a result, an increase in rates is likely to result in an increase
in our interest expense without an offsetting increase in interest
income. Further, our adjustable-rate loans typically provide for
less frequent adjustments in response to rate increases than do our
borrowings, and sometimes also include interest rate caps. To the
extent this is the case, an increase in interest rates would result
in a greater increase in our interest expense than in our interest
income, which would adversely affect our profitability.

o An increase in interest rates would adversely affect the value that
we would receive upon a sale of loans that bear interest at fixed
rates, and our results of operations could be adversely affected.

o An increase in our funding costs without an offsetting increase in
revenue would cause our cash flow to decrease, which in turn may
have an adverse impact on our ability to meet our monthly debt
service obligations. In the event we are unable to meet our monthly
debt service obligations for this or for any other reason, we would
be in default under the obligations of our credit facilities and our
lenders would have the right to accelerate payments under our credit
facilities.

o A substantial and sustained increase in interest rates could harm
Tribeca's loan origination volume because refinancings of existing
loans, including cash-out refinancings and interest rate-driven
refinancings, would be less attractive and qualifying for a purchase
loan may be more difficult. Lower origination volume may harm our
earnings by reducing origination income, net interest income,
prepayment and other servicing fees and gain on sale of loans.

o An increase in interest rates would result in a slowdown of borrower
prepayments and a reduction of revenue as purchase discount accreted
into income would decline. An increase in interest rates may also
lead to an increase in our borrower defaults, if borrowers have
difficulties making their adjustable-rate mortgage payments, and a
corresponding increase in nonperforming assets, which could decrease
our revenues and our cash flows, increase our loan servicing costs
and our provision for loan losses, and adversely affect our
profitability.

We are also subject to risks from decreasing interest rates. For example,
a significant decrease in interest rates could increase the rate at which loans
are prepaid and reduce our interest income in subsequent periods.

We do not currently hedge against changes in interest rates because we
have determined that the costs associated with establishing hedging strategies
outweigh the potential benefits. Our lack of hedges means that we have
potentially greater exposure to interest rate volatility, particularly as a
result of increases in interest rates, than we would if we were able to
successfully employ hedging strategies.

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

The risks associated with our business are more acute during periods of
economic slowdown or recession because these periods may be accompanied by
decreased demand for mortgage loans and decreased real estate values, as well as
an increased rate of delinquencies, defaults and foreclosures. In particular,
any material decline in real estate values would increase the loan-to-value
ratios on loans that we hold and, therefore, weaken our collateral coverage,
increase the likelihood of a borrower with little or no equity in his or her
home defaulting and increase the possibility of a loss if a borrower defaults.

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

The residential mortgage origination business has historically been a
cyclical industry, enjoying periods of strong growth and profitability followed
by periods of shrinking volumes and reduced profits. The residential mortgage
industry has experienced rapid growth over the past three years due to interest
rates that are low by historical standards. The Mortgage Bankers Association of
America has predicted that residential mortgage originations will decrease in
2006 due to rising interest rates. During periods of rising interest rates,
refinancing originations decrease, as higher interest rates reduce economic
incentives for borrowers to refinance their existing mortgages. We expect this
to result in a decreased volume of industry-wide originations in the foreseeable
future. Historically, the non-prime market has been impacted less by the
interest rate cycle than has the market for prime residential mortgage loans.
However, there is no assurance that this will continue to be the case in the
future. Due to decreasing and stable interest rates over recent years, our
historical performance may not be indicative of results in a rising interest
rate environment, and our results of operations may be materially adversely
affected if interest rates continue to rise.

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

Our loan origination volume is comprised principally of cash-out
refinancings. This concentration increases the risk that our earnings will be
reduced if interest rates rise and/or the prices of homes decline, which would
reduce the demand and our origination volume for this type of refinancing. Such
a reduction could harm our results of operations, financial condition and
business prospects.

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

The purchase price and carrying value of the S&D loans we acquire is
determined largely by estimating expected future cash flows from such loans
based on the delinquency, loss, prepayment speed and discount rate assumptions
we use. If the amount and timing of actual cash flows are materially different
from our estimates, our cash flow and profitability would be materially
adversely affected and we could be required to record write-downs that could
adversely affect our financial condition.

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

Our loan losses could exceed the allowance for loan losses that we have
reserved for in our financial statements. Reliance on historic loan loss
experience may not be indicative of future loan losses. Regardless of the
underwriting criteria we utilize, losses may be experienced as a result of
various factors beyond our control, including, among other things, changes in
market conditions affecting the value of our loan collateral and problems
affecting the credit and business of our borrowers.

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

We recognize income from the purchase discount on our portfolio of notes
receivable using the interest method. We use this method only if we can
reasonably estimate the expected amount and timing of cash to be collected based
on historic experience and other factors. We reevaluate estimated future cash
flows quarterly. If future cash collections are less than what we estimated they
would be, we would recognize less than anticipated purchase discount, which
would reduce our earnings.

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

In recent years, we have experienced rapid growth that has placed, and
will continue to place, certain pressures on our infrastructure. We will need to
continue to upgrade and expand our financial, operational, administrative and
managerial systems and controls. Further, continued growth could require capital
resources beyond what we currently possess. In particular, our acquisition and
servicing of large "bulk" portfolios relative to our size, our origination
volume and our creation of new product lines, such as our Liberty Loan product,
require a significant amount of financial, operational and administrative
resources. As a result, we may not able to support such bulk purchases,
origination volume and new product lines without corresponding increases in our
general and administrative costs. If we do not manage our growth effectively,
our expenses could increase and our business, liquidity and financial condition
could be significantly harmed.

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

We continually need to attract, hire and successfully integrate additional
qualified personnel in an intensely competitive hiring environment in order to
manage and operate our growing business. The market for skilled acquisitions
management, account executives and loan officers is highly competitive and
employers have historically experienced a high rate of turnover. Competition for
qualified personnel may lead to increased hiring and retention costs. If we are
unable to attract, successfully integrate and retain a sufficient number of
skilled personnel at manageable costs, we will be unable to continue to acquire,
originate and service mortgage loans, which would harm our business, results of
operations and financial condition.

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

We require sufficient qualified personnel to service the loans that we
hold. On occasion, due to capacity constraints or lack of personnel, we
temporarily outsource the servicing of a newly acquired portfolio to a qualified
third-party servicer under a sub-servicing agreement. In our experience, a high
quality of servicing often has a positive effect on lowering delinquency and
default rates. To the extent that we deem it necessary to outsource the
servicing of a portion of our loans, we cannot guarantee that the servicing
performed by the contracted sub-servicers is at the same level that we would
typically perform or that the cash flows realized from the sub-serviced loans
will be as good as those we had projected in pricing the acquisition of such
loans or realized from otherwise similar loans in our portfolio that we service.

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

We face intense competition in our loan acquisition and loan origination
business from other specialty finance companies, finance and mortgage banking
companies, internet-based lending companies and, to a growing extent, from
traditional bank and thrift lenders that are entering the non-prime mortgage
industry. Some of our competitors are much larger than we are, have better name
recognition than we do, and have far greater financial and other resources than
us. Many of our competitors have superior access to capital sources and can
arrange or obtain lower costs of financing, resulting in a competitive
disadvantage to us with respect to such competitors.

Competition in our industry can take many forms, including the price and
other terms of bids for portfolio acquisitions, the speed with which
acquisitions can be completed, interest rates and costs of a loan, stringency of
underwriting standards, customer service, amount and term of a loan, and
marketing and distribution channels. The need to maintain mortgage loan volume
in this competitive environment creates a risk of price competition and may
result in increased purchase prices and reduced profitability, potentially to
such an extent that we believe that prices in the market are not supported by
the fundamentals. In addition, price competition could cause us to lower the
interest rates on loans originated by Tribeca, which could lower the value of
our loans. Any increase in these pricing and underwriting pressures could reduce
the volume of our loan acquisitions and originations and significantly harm our
business, results of operations, liquidity and financial condition.

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

A significant portion of Tribeca's mortgage loan origination activity is
concentrated in the northeastern United States, particularly in New York and New
Jersey. Of the loans originated by Tribeca and held for investment as of
December 31, 2005, a substantial majority of the aggregate principal was secured
by property in these two states. An overall decline in the economy or the
residential real estate market, the occurrence of events such as a natural
disaster or an act of terrorism in the northeastern United States could decrease
the value of residential properties in this region. This could result in an
increase in the risk of delinquency, default or foreclosure on mortgage loans in
our portfolio and restrict Tribeca's ability to originate new mortgage loans,
each of which could reduce our revenues, increase our expenses and reduce our
profitability.

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

We depend in large measure on independent mortgage brokers to source our
Liberty Loan product, which currently constitutes the majority of Tribeca's loan
production. These independent mortgage brokers have relationships with multiple
lenders and are not obligated by contract or otherwise to do business with us.
We compete with other lenders for independent brokers' business on pricing,
service and other factors. Such competition could negatively affect the volume,
quality and pricing of our loans, which could harm our revenues and
profitability.

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

The vast majority of the loans we originate are underwritten generally in
accordance with standards designed for non-prime residential mortgages. Mortgage
loans underwritten under these underwriting standards are likely to experience
rates of delinquency, foreclosure and loss that are higher, and may be
substantially higher, than prime residential mortgage loans. A majority of the
loans originated to date by Tribeca were made under a "limited documentation"
program, which generally places the most significant emphasis on the
loan-to-value ratio based on the appraised value of the property, and not, or to
a lesser extent, on a determination of the borrower's ability to repay the loan.
We cannot be certain that our underwriting and loan servicing practices will
afford adequate protection against the higher risks associated with loans made
to such borrowers. If we are unable to mitigate these risks, our cash flows,
results of operations, financial condition and liquidity could be materially
harmed.

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

When we acquire and originate mortgage loans, we typically rely heavily
upon information supplied by third parties, including the information contained
in the loan application, property appraisal, title information and, in some
cases, employment and income stated on the loan application. If any of this
information is intentionally or negligently misrepresented and such
misrepresentation is not detected prior to the acquisition or funding of the
loan, the value of the loan may be significantly lower than expected. Whether a
misrepresentation is made by the loan applicant, the mortgage broker, another
third party or one of our employees, we generally bear the risk of loss
associated with the misrepresentation except when we purchase loans pursuant to
contracts that include a right of return and the seller remains sufficiently
creditworthy to render such right meaningful.

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

We rely heavily upon communications and information systems to conduct our
business. Any failure, interruption or breach in security of or damage to our
information systems or the third-party information systems on which we rely
could cause delays in performing due diligence, pricing, servicing and
underwriting our loans. This could result in increased difficulty in effectively
identifying, evaluating and pricing loan portfolios available for purchase,
fewer loan applications being received, slower processing of applications,
increased expenses and reduced efficiency in loan servicing. In addition, we are
required to comply with significant federal and state regulations relating to
the handling of customer information, particularly with respect to maintaining
the confidentiality of such information. A failure, interruption or breach of
our information systems could result in regulatory action and litigation against
us. We cannot assure you that such failures or interruptions will not occur or
if they do occur that they will be adequately addressed by us or the third
parties on which we rely.

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

Our mortgage loan acquisition, origination and servicing businesses are
dependent upon our ability to effectively interface with our sellers, brokers,
borrowers and other third parties and to efficiently process loan purchases,
applications and closings. Technological advances, such as the ability to
automate loan servicing, process applications over the Internet, accept
electronic signatures and provide instant status updates, are playing an
increasing role in our ability to effectively interact with these third parties.
The intense competition in our industry has led to rapid technological
developments, evolving industry standards and frequent releases of new products
and enhancements. The failure to acquire new technologies or technological
solutions when necessary could limit our ability to remain competitive in our
industry and our ability to increase the cost-efficiencies of our operating
model, which would harm our business, results of operations and financial
condition. Alternatively, adapting to technological changes in the industry to
remain competitive may require us to make significant and costly changes to our
loan origination and information systems, which could in turn reduce our
profitability.

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

In the course of our business, we may foreclose on defaulted mortgage
loans and take title to the properties underlying those mortgages. If we do take
title, we could be subject to environmental liabilities with respect to these
properties. Hazardous substances or wastes, contaminants, pollutants or sources
thereof may be discovered on these properties during our ownership or after a
sale to a third party. Environmental defects can reduce the value of and make it
more difficult to sell such properties, and we may be held liable to a
governmental entity or to third parties for property damage, personal injury,
investigation, and cleanup costs incurred by these parties in connection with
environmental contamination, or may be required to investigate or clean up
hazardous or toxic substances or chemical releases at a property. These costs
could be substantial. If we ever become subject to significant environmental
liabilities, our business, financial condition, liquidity and results of
operation could be materially and adversely affected. Although we have not to
date incurred any environmental liabilities in connection with our real estate
owned, there can be no guarantee that we will not incur any such liabilities in
the future.

The loss of our Chairman may adversely affect our operations.

Thomas J. Axon, our Chairman, President and CEO, is responsible for making
substantially all of the most significant policy and managerial decisions in our
business operations, including determining which large bulk mortgage portfolios
to purchase, the purchase price and other material terms of such portfolio
acquisitions. These decisions are paramount to the success and growth of our
business. Mr. Axon is also instrumental in securing our external financing. The
loss of the services of Mr. Axon could disrupt our operations and adversely
affect our ability to successfully finance, acquire and service mortgage
portfolios, which would harm the prospects of our business.

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

State mortgage finance licensing laws vary considerably. Most states and
the District of Columbia impose a licensing obligation to originate first and/or
subordinate residential mortgage loans. In some of the states that impose a
licensing obligation to originate residential mortgage loans, the licensing
obligation also arises to purchase closed mortgage loans. Many of those mortgage
licensing laws impose a licensing obligation to service residential mortgage
loans. Certain state collection agency licensing laws require entities
collecting on delinquent or defaulted loans for others or to acquire such loans
to be licensed. If we are unable to obtain and maintain the appropriate state
licenses or do not qualify for an exemption, our operations may be adversely
affected.

Risks Related to the Restatement of Our Financial Statements

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

The restatement of our previously issued financial statements could expose
us to government investigation or legal action. The defense of any such actions
could cause the diversion of management's attention and resources, and we could
be required to pay damages to settle such actions or if any such actions are not
resolved in our favor. Even if resolved in our favor, such actions could cause
us to incur significant legal and other expenses. Moreover, we may be the
subject of negative publicity focusing on the financial statement inaccuracies
and resulting restatement and negative reactions from shareholders, creditors,
or others with which we do business. The occurrence of any of the foregoing
could harm our business and reputation and cause the price of our securities to
decline.

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

Effective internal controls are necessary for us to provide reliable
financial reports. Such controls are designed to provide reasonable, not
absolute assurance that we are providing reliable financial reports. If such
controls fail to operate effectively, this may result in material errors in our
financial statements. Deficiencies in our system of internal controls over
financial reporting may require remediation, which could be costly. Failure to
remediate such deficiencies or to implement required new or improved controls
could lead to material errors in our financial statements, cause us to fail to
meet our reporting obligations, and expose us to government investigation or
legal action. Any of these results could cause investors to lose confidence in
our reported financial information and could have a negative effect on the
trading price of our common stock.

Risks Related to the Regulation of Our Industry

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

The Federal Home Ownership and Equity Protection Act, or HOEPA, identifies
a category of residential mortgage loans and subjects such loans to restrictions
not applicable to other residential mortgage loans. Loans subject to HOEPA
consist of loans on which certain points and fees or the annual percentage rate,
which is based on the interest rate and certain finance charges, exceed
specified levels. Laws, rules and regulations have been adopted, or are under
consideration, at the state and local levels that are similar to HOEPA in that
they impose certain restrictions on loans that exceed certain cost parameters.
These state and local laws generally have lower thresholds and broader
prohibitions than under the federal law. The restrictions include prohibitions
on steering borrowers into loans with high interest rates and away from more
affordable products, selling unnecessary insurance to borrowers, flipping or
repeatedly refinancing loans and originating loans without a reasonable
expectation that the borrowers will be able to repay the loans without regard to
the value of the mortgaged property.

Compliance with some of these restrictions requires lenders to make
subjective judgments, such as whether a loan will provide a "net tangible
benefit" to the borrower. These restrictions expose a lender to risks of
litigation and regulatory sanction no matter how carefully a loan is
underwritten and impact the way in which a loan is underwritten. The remedies
for violations of these laws are not based on actual harm to the consumer and
can result in damages that exceed the loan balance. Liability for violations of
HOEPA, as well as violations of many of the state and local equivalents, would
extend not only to us, but to assignees, which may include our warehouse lenders
and whole-loan buyers, regardless of whether such assignee knew of or
participated in the violation.

It is our policy not to originate loans that are subject to either HOEPA
or these state and local laws and not to purchase high cost loans that violate
those laws. If we miscalculate the numerical thresholds described above,
however, we may mistakenly originate or purchase such loans and bear the related
marketplace and legal risks and consequences. These thresholds below which we
try to originate loans create artificial barriers to production and limit the
price at which we can offer loans to borrowers and our ability to underwrite,
originate, sell and finance mortgage loans. We may cease doing business in
jurisdictions in the future where we, or our counterparties, make similar
determinations with respect to anti-predatory lending laws. In California, for
example, a recently proposed amendment to its state anti-predatory lending law
substantially could broaden the trigger test for loans subject to its
restrictions. If the numerical thresholds were miscalculated, certain variations
of our Liberty Loan product, where the lending decision is or may have been
based entirely or primarily on the borrower's equity in his or her home and not,
or to a lesser extent, on a determination of the borrower's ability to repay the
loan, would violate HOEPA and many of these state and local anti-predatory
lending laws. In the past, we have sold a small portion of our Liberty Loan
production to third parties on a servicing-released, whole-loan basis. Going
forward, however, our ability to finance the origination of Liberty Loans and
sell the Liberty Loan product to third parties could be impaired if our
financing sources or mortgage investors are required or choose to incorporate
prohibitions from certain anti-predatory lending practices into their
eligibility criteria, even if the laws themselves do not specifically apply to
us.

We may decide to purchase a loan that is covered by one of these laws,
rules or regulations only if, in our judgment, the loan is made in accordance
with our strict legal compliance standards and without undue risk relative to
litigation or to the enforcement of the loan according to its terms. If we
decide to originate loans subject to these laws, rules and regulations, we will
be subject to greater risks for actual or perceived non-compliance, including
demands for indemnification or loan repurchases from the parties to whom we
broker or sell loans, class action lawsuits, increased defenses to foreclosure
of individual loans in default, individual claims for significant monetary
damages, and administrative enforcement actions. Any of the foregoing could
materially harm our business, financial condition and results of operations.

Some of our competitors that are national banks or federally chartered
thrifts and their operating subsidiaries may not be subject to these state and
local laws and may as a consequence be able to capture market share from us and
other lenders. Federal regulators have expressed their position that these
preemption provisions benefit mortgage subsidiaries of federally chartered
institutions as well. In January 2004, the Comptroller of the Currency finalized
preemption rules that confirm and expand the scope of this federal preemption
for national banks and their operating subsidiaries. Such federal preemption
rules and interpretations generally have been upheld in the courts. At least one
national rating agency has announced that, in recognition of the benefits of
federal preemption, it will not require additional credit enhancement by federal
institutions when they issue securities backed by mortgages from a state that it
deems to have anti-predatory lending laws with clear and objective standards. As
a non-federal entity, we will continue to be subject to such rating agency
requirements arising from state or local lending-related laws or regulations.
Accordingly, as a mortgage lender that is generally subject to the laws of each
state in which we do business, except as may specifically be provided in federal
rules applicable to all lenders, we may be subject to state legal requirements
and legal risks under state laws to which these federally regulated competitors
are not subject, and this disparity may have the effect of giving those federal
entities legal and competitive advantages. Passage of additional laws in other
jurisdictions could increase compliance costs, lower fee income and lower
origination volume, all of which would have a material adverse effect on our
results of operations, financial condition and business prospects.

The 108th United States Congress considered legislation, such as the
Ney-Lucas Responsible Lending Act introduced in 2003, which, among other
provisions, would limit fees that a lender is permitted to charge, including
prepayment fees, restrict the terms lenders are permitted to include in their
loan agreements and increase the amount of disclosure required to be given to
potential borrowers. Similar legislation has been introduced in the
recently-convened 109th Congress. We cannot predict whether or in what form
Congress or the various state and local legislatures may enact legislation
affecting our business. We are evaluating the potential impact of these
initiatives, if enacted, on our lending practices and results of operations. As
a result of these and other initiatives, we are unable to predict whether
federal, state, or local authorities will require changes in our lending
practices in the future, including reimbursement of fees charged to borrowers,
or will impose fines. These changes, if required, could adversely affect our
profitability, particularly if we make such changes in response to new or
amended laws, regulations or ordinances in states where we originate a
significant portion of our mortgage loans.

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

Because we may originate, purchase and service mortgage loans in all 50
states, we must comply with the laws and regulations pertaining to licensing,
disclosure and substantive practices, as well as judicial and administrative
decisions, of all of these jurisdictions, as well as an extensive body of
federal laws and regulations. The volume of new or modified laws and regulations
has increased in recent years, and government agencies enforcing these laws, as
well as the courts, sometimes interpret the same law in different ways. The laws
and regulations of each of these jurisdictions are different, complex and, in
some cases, in direct conflict with each other. As our operations continue to
grow, it may be more difficult to identify comprehensively and to interpret
accurately applicable laws and regulations and to employ properly our policies,
procedures and systems and train our personnel effectively with respect to all
of these laws and regulations, thereby potentially increasing our exposure to
the risks of noncompliance with these laws and regulations. For example,
individual cities and counties have begun to enact laws that restrict non-prime
loan origination activities in those cities and counties. State and local
governmental authorities have focused on the lending practices of companies in
the non-prime mortgage lending industry, sometimes seeking to impose sanctions
for practices such as charging excessive fees, imposing interest rates higher
than warranted by the credit risk of the borrower, imposing prepayment fees,
failing to adequately disclose the material terms of loans and abusive servicing
and collection practices.

Our failure to comply with this regulatory regimen can lead to:

o civil and criminal liability, including potential monetary
penalties;

o loss of lending licenses or approved status required for continued
lending and servicing operations;

o demands for indemnification or loan repurchases from purchasers of
our loans;

o legal defenses causing delay and expense;

o adverse effects on our ability, as servicer, to enforce loans;

o the borrower having the right to rescind or cancel the loan
transaction;

o adverse publicity;

o individual and class action lawsuits;

o administrative enforcement actions;

o damage to our reputation in the industry;

o inability to sell our loans; or

o inability to obtain credit to fund our operations.

Although we have systems and procedures directed to compliance with these
legal requirements and believe that we are in material compliance with all
applicable federal, state and local statutes, rules and regulations, we cannot
assure you that more restrictive laws and regulations will not be adopted in the
future, or that governmental bodies will not interpret existing laws or
regulations in a more restrictive manner, which could render our current
business practices non-compliant or which could make compliance more difficult
or expensive. These applicable laws and regulations are subject to
administrative or judicial interpretation, but some of these laws and
regulations have been enacted only recently or may be interpreted infrequently.
As a result of infrequent or sparse interpretations, ambiguities in these laws
and regulations may leave uncertainty with respect to permitted or restricted
conduct under them. Any ambiguity under a law to which we are subject may lead
to regulatory investigations, governmental enforcement actions or private causes
of action, such as class action lawsuits, with respect to our compliance with
applicable laws and regulations.

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

In June 2003, a California jury found a warehouse lender and
securitization underwriter liable in part for fraud on consumers committed by a
lender to whom it provided financing and underwriting services. The jury found
that the investment bank was aware of the fraud and substantially assisted the
lender in perpetrating the fraud by providing financing and underwriting
services that allowed the lender to continue to operate, and held it liable for
10% of the plaintiff's damages. This is the first case we know of in which an
investment bank was held partly responsible for violations committed by a
mortgage lender customer. Shortly after the announcement of the jury verdict in
the California case, the Florida Attorney General filed suit against the same
financial institution, seeking an injunction to prevent it from financing
mortgage loans within Florida, as well as damages and civil penalties, based on
theories of unfair and deceptive trade practices and fraud. The suit claims that
this financial institution aided and abetted the same lender involved in the
California case in its commission of fraudulent representations in Florida. As
of the date of this filing, there has been no ruling in this case. If other
courts or regulators adopt this "aiding and abetting" theory, investment banks
may face increased litigation as they are named as defendants in lawsuits and
regulatory actions against the mortgage companies with which they do business.
Some investment banks may exit the business, charge more for warehouse lending
and reduce the prices they pay for whole-loans in order to build in the costs of
this potential litigation. This could, in turn, have a material adverse effect
on our results of operations, financial condition and business prospects.

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

Mortgage brokers, from which we source some of our Tribeca loans, have
parallel and separate legal obligations to which they are subject. While these
laws may not explicitly hold the originating lenders responsible for the legal
violations of mortgage brokers, increasingly federal and state agencies have
sought to impose such assignee liability. For example, the FTC entered into a
settlement agreement with a mortgage lender where the FTC characterized a broker
that had placed all of its loan production with a single lender as the "agent"
of the lender. The FTC imposed a fine on the lender in part because, as
"principal," the lender was legally responsible for the mortgage broker's unfair
and deceptive acts and practices. In the past, the United States Department of
Justice has sought to hold a non- prime mortgage lender responsible for the
pricing practices of its mortgage brokers, alleging that the mortgage lender was
directly responsible for the total fees and charges paid by the borrower under
the Fair Housing Act even if the lender neither dictated what the mortgage
broker could charge nor kept the money for its own account. Accordingly, we may
be subject to fines or other penalties based upon the conduct of our independent
mortgage broker customers.

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

The federal Gramm-Leach-Bliley financial reform legislation imposes
significant privacy obligations on us in connection with the collection, use and
security of financial and other nonpublic information provided to us by
applicants and borrowers. In addition, California has enacted, and several other
states are considering enacting, even more stringent privacy or
customer-information-security legislation, as permitted under federal law.
Because laws and rules concerning the use and protection of customer information
are continuing to develop at the federal and state levels, we expect to incur
increased costs in our effort to be and remain in full compliance with these
requirements. Nevertheless, despite our efforts we will be subject to legal and
reputational risks in connection with our collection and use of customer
information, and we cannot assure you that we will not be subject to lawsuits or
compliance actions under such state or federal privacy requirements. To the
extent that a variety of inconsistent state privacy rules or requirements are
enacted, our compliance costs could substantially increase.

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

Under the Servicemembers Civil Relief Act, which in 2003 re-enacted the
Soldiers' and Sailors' Civil Relief Act of 1940, or the Civil Relief Act,
members of the military services on active duty receive certain protections and
benefits. Under the Civil Relief Act, a borrower who enters active military
service after the origination of his or her mortgage loan generally may not be
required to pay interest above an annual rate of 6%, and the lender is
restricted from exercising certain enforcement remedies, including foreclosure,
during the period of the borrower's active duty status. The Civil Relief Act
also applies to a borrower who was on reserve status and is called to active
duty after origination of the mortgage loan. Considering the large number of
U.S. Armed Forces personnel on active duty and likely to be on active duty in
the future, compliance with the Civil Relief Act could reduce our cash flow and
the interest payments collected from those borrowers, and in the event of
default or delay, prevent us from exercising the remedies for default that
otherwise would be available to us.

Risks Related to Our Securities

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

Thomas J. Axon, our Chairman, President and CEO, beneficially owns more
than 43% of our outstanding common stock. As a result, Mr. Axon will be able to
influence significantly the actions that require stockholder approval,
including:

o the election of our directors; and

o the approval of mergers, sales of assets or other corporate
transactions or matters submitted for stockholder approval.

Furthermore, the members of the board of directors as a group (including
Mr. Axon) beneficially own a substantial majority of our outstanding common
stock. As a result, our other stockholders may have little or no influence over
matters submitted for stockholder approval. In addition, Mr. Axon's influence
and/or that of our current board members could preclude any unsolicited
acquisition of us and consequently materially adversely affect the price of our
common stock.

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

Several provisions of our organizational documents, Delaware law and our
credit facility may deter or prevent a takeover attempt, including a takeover
attempt in which the potential purchaser offers to pay a per share price greater
than the current market price of our common stock.

Our classified board of directors will make it more difficult for a person
seeking to obtain control of us to do so. Also, our supermajority voting
requirements may discourage or deter a person from attempting to obtain control
of us by making it more difficult to amend the provisions of our certificate of
incorporation to eliminate an anti-takeover effect or the protections they
afford minority stockholders, and will make it more difficult for a stockholder
or stockholder group to put pressure on our board of directors to amend our
certificate of incorporation to facilitate a takeover attempt. In addition,
under the terms of our certificate of incorporation, our board of directors has
the authority, without further action by the stockholders, to issue shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. The ability to issue shares of preferred
stock could tend to discourage takeover or acquisition proposals not supported
by our current board of directors.

Section 203 of the Delaware General Corporation Law, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder (such as the owner of 15% or more of
our outstanding common stock) for a period of three years following the date
that the stockholder became an interested stockholder. The preceding provisions
of our organizational documents, as well as Section 203 of the Delaware General
Corporation Law, could discourage potential acquisition proposals, delay or
prevent a change of control and prevent changes in our management, even if such
events would be in the best interests of our stockholders.

In addition, our controlling shareholder ceasing to possess, directly or
indirectly, the power to direct our management and policies through his
ownership of our voting stock constitutes an event of default under our master
credit facility, which, without a waiver from our principal lender, would cause
our indebtedness to become immediately payable and could result in our
insolvency if we are unable to repay our debt.

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

Because of the nature of our business, our quarterly operating results may
fluctuate, which may adversely affect the market price of our common stock. Our
results may fluctuate as a result of any of the following:

o the timing and amount of collections on loans in our portfolio;

o the rate of delinquency, default, foreclosure and prepayment on the
loans we hold and service;

o changes in interest rates;

o deviations in the amount or timing of collections on loans purchased
from our expectations when we purchased such loans;

o our inability to identify and acquire additional mortgage loan
portfolios or to originate loans;

o a decline in the estimated value of real property securing mortgage
loans;

o increases in operating expenses associated with the growth of our
operations;

o general economic and market conditions;

o the effects of state and federal tax, monetary and fiscal policies;
and

o our inability to obtain additional financing to fund our growth.

Many of these factors are beyond our control, and we cannot predict their
potential effects on the price of our common stock. We cannot assure you that
the market price of our common stock will not fluctuate or decline significantly
in the future.

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

The market price of our common stock may experience fluctuations that are
unrelated to our operating performance. In particular, our stock price may be
affected by general market movements as well as developments specifically
related to the consumer finance industry and the financial services sector.
These could include, among other things, interest rate movements, quarterly
variations or changes in financial estimates by securities analysts,
governmental or regulatory actions or investigations of us or our lenders, or a
significant reduction in the price of publicly traded securities of another
participant in the consumer finance industry. This volatility may make it
difficult for us to access the capital markets through additional secondary
offerings of our common stock, regardless of our financial performance, and such
difficulty may preclude us from being able to take advantage of certain business
opportunities or meet our obligations.

Future sales of our common stock may depress our stock price.

Sales of a substantial number of shares of our common stock in the public
market could cause a decrease in the market price of our common stock. In
addition to the portion of our outstanding common stock that is freely tradable,
we may issue additional shares in connection with our business and may grant
equity-based awards to our employees, officers, directors and consultants. If a
significant portion of these shares were sold in the public market, the market
value of our common stock could be adversely affected.

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

The Sarbanes-Oxley Act of 2002 and the related rules and regulations
promulgated by the Securities and Exchange Commission and the national
securities exchanges have increased the scope, complexity and cost of corporate
governance, reporting and disclosure practices for public companies, including
ourselves. These rules and regulations could also make it more difficult for us
to attract and retain qualified executive officers and members of our board of
directors, particularly to serve on our audit committee. Our common stock was
listed on The Nasdaq National Market on July 19, 2005. Accordingly, we must
comply with Nasdaq's qualitative and quantitative requirements, which will
require additional cost and effort on our part.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

On March 4, 2005, we entered into a sublease agreement with Lehman
Brothers Holdings Inc. to sublease approximately 33,866 square feet of space on
the 25th floor at 101 Hudson Street, Jersey City, New Jersey for use as
executive and administrative offices. Pursuant to the sublease, in 2005 we paid
Lehman Brothers Holdings Inc. rent of approximately $63,500 per month. The term
of the sublease is through December 30, 2010.

On July 27, 2005, we entered into a lease agreement with 101 Hudson
Leasing Associates to lease approximately 6,856 square feet of space on the 37th
floor at 101 Hudson Street, Jersey City, New Jersey for use as administrative
offices. Pursuant to the lease, in 2005 we paid 101 Hudson Leasing Associates
rent of approximately $16,570 per month. The term of the lease is through
December 30, 2010. After December 30, 2010, we will lease both the 25th floor
space and the 37th floor space directly from 101 Hudson Leasing Associates. The
term of this combined lease will be through December 30, 2013 for approximately
$114,808 per month.

Our Tribeca subsidiary currently maintains its corporate headquarters on
the 6th floor at Six Harrison Street, New York, New York, where we own a 6,600
square foot condominium unit. In addition, we lease approximately 228 square
feet of office space in Trevose, Pennsylvania under a lease agreement with a
term expiring in 2007. We have also leased two offices for Tribeca, one of which
is in Marlton, New Jersey (approximately 2,426 square feet) under a lease
agreement with a term expiring in July 2007 and the other of which is in
Trevose, Pennsylvania (approximately 1,000 square feet) under a lease agreement
with a term expiring in 2006.

ITEM 3. LEGAL PROCEEDINGS

We are involved in routine litigation matters incidental to our business
related to the enforcement of our rights under mortgage loans we hold, none of
which is individually material. In addition, because we originate and service
mortgage loans throughout the country, we must comply with various state and
federal lending laws and we are routinely subject to investigation and inquiry
by regulatory agencies, some of which arise from complaints filed by borrowers,
none of which is individually material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Market Information. Our common stock has traded on The Nasdaq National
Market under the symbol "FCMC" since July 19, 2005. Prior to such date, our
common stock was quoted on the Over-The-Counter Bulletin Board ("OTCBB") under
the symbol "FCSC."

The following table sets forth the bid prices for the common stock on the
OTCBB and the sales prices for the common stock on The Nasdaq National Market,
as applicable, for the periods indicated. Trading during these periods was
limited and sporadic; therefore, the following quotes may not accurately reflect
the true market value of the securities. Prices prior to July 19, 2005 reflect
inter-dealer prices without retail markup or markdown or commissions and may not
represent actual transactions, while prices from July 19, 2005 forward are as
reported by The Nasdaq National Market.

High Low
---- ---
Year Ended December 31, 2003:
- ----------------------------
First Quarter.............. $ 1.75 $ 1.07
Second Quarter............. 5.25 1.15
Third Quarter.............. 3.25 2.75
Fourth Quarter............. 3.20 2.96
Year Ended December 31, 2004:
- ----------------------------
First Quarter.............. 4.10 2.97
Second Quarter............. 4.10 3.35
Third Quarter.............. 6.50 3.33
Fourth Quarter............. 13.00 6.41
Year Ended December 31, 2005:
- ----------------------------
First Quarter.............. 13.75 8.65
Second Quarter............. 14.00 9.00
Third Quarter.............. 12.95 9.50
Fourth Quarter............. 10.40 7.35

Holders. As of March 23, 2006, there were approximately 446 record holders
of the Company's common stock.

Dividend Policy. We have not paid cash dividends on our common stock in
recent years and do not expect to pay a cash dividend in the near future. We
currently intend to retain future earnings to finance our operations and expand
our business. Any future determination to pay cash dividends will be at the
discretion of the board of directors and will depend upon a complete review and
analysis of all relevant factors, including our financial condition, operating
results, capital requirements and any other factors the board of directors deems
relevant. In addition, our agreements with our lenders may, from time to time,
restrict our ability to pay dividends.

Recent Sales of Unregistered Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below as of and for the years ended
December 31, 2005, 2004, and 2003 have been derived from the Company's audited
consolidated financial statements. This information as of and for the years
ended December 31, 2004, 2003, 2002 and 2001 has been amended to reflect the
restatement described in Note 2 to the Consolidated Financial Statements and
should be read in conjunction with Item 1. "Business" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as the audited financial statements and notes thereto included in Item 8.
"Financial Statements."

2004 2003 2002 2001
2005 (Restated)(1) (Restated)(1) (Restated) (2) (Restated)(2)
------------- ------------- ------------- ------------- -------------
Statement of Income Data
- ------------------------------------------------------------------------------------------------------------------------

Interest income ........................ $ 99,046,543 $ 59,481,422 $ 42,699,710 $ 36,728,735 $ 28,824,624
Purchase discount earned ............... 11,214,721 9,234,896 5,154,601 3,841,927 3,986,498
Total revenues ......................... 121,399,214 77,191,058 55,661,265 45,827,176 37,899,177

Interest expense ....................... 68,329,965 33,166,815 21,601,651 19,127,713 20,754,281
Amortization of deferred financing costs 4,105,218 2,761,476 1,979,208 1,264,112 1,058,443
Collection, general and administrative . 28,700,133 21,752,591 16,989,446 12,607,617 11,018,468
Total expenses ......................... 106,957,738 61,881,105 44,239,420 34,390,469 35,244,666

Income before provision for income taxes 14,441,476 15,309,953 11,421,845 11,436,707 2,654,511
Net income ............................. $ 7,868,775 $ 8,366,608 $ 5,639,075 $ 6,258,207 $ 2,499,911

Earnings per share, basic .............. $ 1.19 $ 1.41 $ 0.95 $ 1.06 $ 0.42
Earnings per share, diluted ............ $ 1.09 $ 1.25 $ 0.86 $ 1.01 $ 0.42
Book value per share ................... $ 6.31 $ 4.31 $ 2.94 $ 1.99 $ 0.93

2004 2003 2002 2001
2005 (Restated)(1) (Restated)(1) (Restated) (2) (Restated)(2)
--------------- ------------- ------------- -------------- --------------
Balance Sheet Data
- ------------------------------------------------------------------------------------------------------------------------------

Notes receivable, principal ............ $ 934,657,413 $ 811,885,856 $ 465,553,870 $ 435,259,394 $ 331,643,076
Purchase discount ...................... (17,809,940) (32,293,669) (25,678,165) (22,974,310) (22,248,344)
Allowance for loan losses .............. (67,276,155) (89,628,299) (46,247,230) (45,841,651) (33,490,456)
Net notes receivable ................... 849,571,318 689,963,888 393,628,475 366,443,433 275,904,276

Originated loans held for sale ......... 12,844,882 16,851,041 27,372,779 22,869,947 28,203,047
Originated loans held for investment,
net .................................... 372,315,935 110,496,274 9,536,669 -- --
Other real estate owned ................ 19,936,274 20,626,156 13,981,665 9,353,884 3,819,673
Total assets ........................... 1,328,240,589 883,592,242 474,059,988 423,195,069 333,343,778
Notes payable, net of debt discount(3) . 1,203,880,994 805,586,997 426,356,304 395,266,144 313,943,808
Total stockholders' equity ............. 47,594,168 26,145,833 17,408,959 11,769,884 5,511,676

Selected Performance Ratios
--------------- ------------- ------------- -------------- --------------
Return on average assets(4) ............ 0.71% 1.23% 1.26% 1.65% 0.75%
Return on average equity(5) ............ 21.34% 38.42% 38.65% 72.43% 48.95%
Total revenue/average assets(6) ........ 10.97% 11.36% 12.40% 12.11% 11.41%
Interest expense/average assets(7) ..... 6.55% 5.29% 5.25% 5.39% 6.55%
Collection, general and administrative
expenses as a percentage of average
assets(8) ............................ 2.59% 3.20% 3.78% 3.33% 3.31%
Efficiency ratio(9) .................... 58.61% 52.72% 52.96% 49.57% 68.50%

Balance Sheet Ratios
--------------- ------------- ------------- -------------- --------------
Equity to assets ....................... 3.58% 2.96% 3.67% 2.78% 1.65%
Allowance for loan losses/total notes
receivable and loans held for
investment and sale .................. 5.17% 9.88% 9.70% 10.53% 9.92%

Selected Performance Data
--------------- ------------- ------------- -------------- --------------
Loans acquired, at purchase price ...... $ 468,324,936 $ 544,288,354 $ 213,638,801 $ 184,090,904 $ 162,340,435
Loan originations ...................... $ 427,260,472 $ 200,301,285 $ 97,431,553 $ 70,444,721 $ 39,198,200

- ------------------
(1) See Note 2 of the Consolidated Financial Statements for the effects
of this restatement.
(2) Amounts as restated not subject to audit.
(3) Debt discount was $3,002,767, $2,131,041 and $1,091,540 for 2005,
2004 and 2003, respectively.
(4) Computed by dividing net income by average total assets for the
period using beginning and ending period balances.
(5) Computed by dividing net income by average equity for the period
using beginning and ending period balances.
(6) Computed by dividing total revenue by average total assets for the
period using beginning and ending period balances.
(7) Computed by dividing interest expense, inclusive of amortization of
deferred financing costs, by average total assets for the period
using beginning and ending period balances.
(8) Computed by dividing collection, general and administrative expenses
by average total assets for the period using beginning and ending
period balances.
(9) Computed by dividing collection, general and administrative expenses
by total revenues less interest expense and amortization of deferred
financing costs.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements. We have based these
forward-looking statements on our current plans, expectations and beliefs about
future events. In light of the risks, uncertainties and assumptions discussed
under Item 1A. "Risk Factors" of this Annual Report on Form 10-K and other
factors discussed in this section, there are risks that our actual experience
will differ materially from the expectations and beliefs reflected in the
forward-looking statements in this section ant throughout this report. For more
information regarding what constitutes a forward-looking statement, please refer
to Item 1A.
"Risk Factors."

Restatement

As discussed in Note 2 of the Consolidated Financial Statements included
in this Annual Report on Form 10-K, Franklin Credit Management Corporation is
restating its historical consolidated financial statements for 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.
The accompanying Management's Discussion and Analysis reflects the effects of
the restatement. Consequently, reliance should not be placed upon the financial
statements for the aforementioned fiscal periods or related reports of
independent registered public accounting firm that have been included in the
Company's previous filings with the Securities and Exchange Commission or
included in previous announcements.

Effects of Restatement on Previously Reported Periods

As a result of the restatement of the Company's financial statements for
the fiscal years and quarterly periods described above, the following Statements
of Income items were revised: Gain on sale of originated loans held for sale;
Prepayment penalties and other income; Interest expense; and Collection, general
and administrative expenses.

For the years ended December 31, 2004 and 2003, (i) Gain on sale of
originated loans held for sale decreased $2.25 million and $1.91 million,
respectively; (ii) Prepayment penalties and other income decreased $1.05 million
in 2004 with no change in 2003; (iii) Interest expense increased $371,000 and
decreased $71,000, respectively; (iv) Collection, general and administrative
expense decreased $1.57 million and $875,000, respectively, and (v) total
revenues declined $3.29 million and $1.91 million, respectively, and total
expenses declined $1.20 million and $947,000, respectively. As a result, net
income decreased $1.14 million and $1.05 million in 2004 and 2003, respectively.

The restatement impacted our Consolidated Balance Sheet as of December 31,
2004 as follows: (i) Cash and cash equivalents decreased by $14.4 million and an
equal amount was classified as Restricted cash; (ii) Other assets decreased $7.4
million (elimination of deferred acquisition costs and success fees under prior
accounting); (iii) Deferred tax asset decreased $500,000 (tax effects of the
adjustments); (iv) Accounts payable and accrued expenses decreased $3.3 million
(elimination of success fee liability under prior accounting); (v) Debt discount
of $2.1 million was added to the face of the balance sheet, netted against notes
payable (relating to success fees); (vi) Success fee liability of $4.0 million
was added to the face of the balance sheet (estimated net present value of
success fees payable); (vii) Deferred tax liability decreased $3.1 million; and
(viii) Retained earnings and total stockholders' equity each decreased $3.4
million (cumulative effect of net income adjustments).

General

The following discussion of our operations and financial condition should
be read in conjunction with our financial statements and notes thereto included
elsewhere in this Form 10-K. In these discussions, most percentages and dollar
amounts have been rounded to aid presentation. As a result, all such figures are
approximations.

Overview

The following management's discussion and analysis of financial condition
and results of operations is based on the amounts reported in the Company's
consolidated financial statements. These financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America. In preparing the financial statements, management is required to make
various judgments, estimates and assumptions that affect the reported amounts.
Changes in these estimates and assumptions could have a material effect on the
Company's consolidated financial statements.

Executive Level Summary

Net income totaled $7.9 million for 2005, $8.4 million for 2004 and $5.6
million for 2003. Earnings per common share for 2005 was $1.09 on a diluted
basis and $1.19 on a basic basis, compared to $1.25 and $1.41 for 2004 and $0.86
and $0.95 for 2003. Our revenues for 2005 increased by 57.3% to $121.4 million,
from 2004 revenues of $77.2 million, while interest expense (inclusive of
amortization of deferred financing costs) increased 101.6% to $72.4 million. Net
income decreased 6.0% to $7.9 million in 2005, from net income of $8.4 million
in 2004. During 2005, we closed acquisitions of S&D assets with an aggregate
face amount of $505.7 million, comprised of approximately $397.5 million of bulk
acquisitions and $108.2 million of flow acquisitions, and originated over $427
million of subprime loans. We grew the size of our total portfolio of aggregate
net notes receivable, loans held for sale, loans held for investment and OREO at
the end of 2005 to $1.25 billion from $837.9 million at the end of 2004. Our
total debt outstanding, including notes payable (senior debt) and financing
agreements, grew to $1.26 billion at the end of 2005 from $845.1 million at the
end of 2004. Our average cost of funds during 2005 increased to 6.63% from 5.09%
during 2004. Stockholders' equity increased 82% to $47.6 million at the end of
2005, and amounted to 3.58% of year-end assets.

Application of Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results
of operations is based on the amounts reported in our consolidated financial
statements, which are prepared in accordance with accounting principles
generally accepted in the United States of America, or GAAP. In preparing the
consolidated financial statements, management is required to make various
judgments, estimates and assumptions that affect the financial statements and
disclosures. Changes in these estimates and assumptions could have a material
effect on our consolidated financial statements. The following is a summary of
the accounting policies believed by management to be those that require
subjective and complex judgment that could potentially affect reported results
of operations. Management believes that the estimates and judgments used in
preparing these consolidated financial statements were the most appropriate at
that time.

Notes Receivable and Income Recognition - The notes receivable portfolio
consists primarily of secured real estate mortgage loans purchased from
financial institutions, mortgage and finance companies. Such notes receivable
are performing, non-performing or sub-performing at the time of purchase and are
generally purchased at a discount from the principal balance remaining. Notes
receivable are stated at the amount of unpaid principal, reduced by purchase
discount and allowance for loan losses. Notes purchased after December 31, 2004
that meet the requirements of AICPA Statement of Position (SOP) No. 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP
03-3") are stated net of purchase discount. Impaired notes receivable 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. The Company periodically
evaluates the collectibility of both interest and principal of its notes
receivable to determine whether they are impaired. A note receivable is
considered 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 principal amount
outstanding using the accrual 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 borrower's financial condition is such that collection of interest is
doubtful. When interest accrual is discontinued, all unpaid accrued interest is
reversed to interest income. 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 non-accrual note is
restored to an accrual status when it is no longer delinquent and collectibility
of interest and principal is no longer in doubt and past due interest is
recognized at that time.

Discounts on Acquired Loans - Effective January 1, 2005, as a result of
the adoption of SOP 03-3 the Company was required to change its accounting for
loans acquired subsequent to December 31, 2004 that have evidence of
deterioration of credit quality since origination and for which it is probable,
at the time of our acquisition, that the Company will be unable to collect all
contractually required payments. For these loans, the excess of the undiscounted
contractual cash flows over the undiscounted cash flows estimated by us at the
time of acquisition is not accreted into income (nonaccretable discount). The
amount representing the excess of cash flows estimated by us at acquisition over
the purchase price is accreted into interest income over the life of the loan
(accretable discount).

The nonaccretable discount is not accreted into income. If cash flows
cannot be reasonably estimated for any loan, and collection is not probable, the
cost recovery method of accounting is used. Under the cost recovery method, any
amounts received are applied against the recorded amount of the loan.

Subsequent to acquisition, if cash flow projections improve, and it is
determined that the amount and timing of the cash flows related to the
nonaccretable discount are reasonably estimable and collection is probable, the
corresponding decrease in the nonaccretable discount is transferred to the
accretable discount and is accreted into interest income over the remaining life
of the loan on the interest method. If cash flow projections deteriorate
subsequent to acquisition, the decline is accounted for through the allowance
for loan losses.

There is judgment involved in estimating the amount of the loan's future
cash flows. The amount and timing of actual cash flows could differ materially
from management's estimates, which could materially affect our financial
condition and results of operations. Depending on the timing of an acquisition,
the intial allocation discount will be made primarily to nonaccretable discount
until the Company has boarded all loans onto its servicing system; at that time,
any cash flows expected to be collected over the purchase price will be
transferred to accretable discount. Generally, the allocation will be finalized
no later than ninety days from the date of purchase.

For loans not addressed by SOP 03-3 that are acquired subsequent to
December 31, 2004, the discount, which represents the excess of the amount of
reasonably estimable and probable discounted future cash collections over the
purchase price, is accreted into purchase discount using the interest method
over the term of the loans. This is consistent with the method the Company
utilizes for its accounting for loans purchased prior to January 1, 2005, except
that for these loans an allowance allocation was also made at the time of
acquisition.

Allowance for Loan Losses - The Company performs reviews of its loan
portfolio upon purchase, at loan boarding, and on a frequent basis thereafter to
segment impaired loans under ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan. A loan is considered impaired when it is probable that we
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the note agreement. An allowance for loan losses is
estimated based on our impairment analysis. Management's judgment in determining
the adequacy of the allowance for loan losses is based on the evaluation of
individual loans within the portfolios, the known and inherent risk
characteristics and size of the 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. In connection
with the determination of the allowance for loan losses, management obtains
independent appraisals for the underlying collateral when considered necessary.
Management believes that the allowance for loan losses is adequate. The
allowance for loan losses is a material estimate, which could change
significantly in the near term.

Effective January 1, 2005, and as a result of the adoption of SOP 03-3,
additions to the valuation allowances relating to newly acquired loans reflect
only those losses incurred by us subsequent to acquisition. The Company no
longer increases the allowances through allocations from purchase discount for
loans that meet the requirements of SOP 03-3. Additionally, general risk
allocations are no longer applied to loans purchased subsequent to December 31,
2004. Consequently, the allowance for loan losses has declined since the
adoption of SOP 03-3, and it is anticipated that the allowance will continue to
decline as credits for loan losses may continue to be recorded if loans pay off
and allowances related to these loans are not required or additions due to loan
impairment are not required.

Originated Loans Held for Sale - The loans held for sale consists
primarily of secured real estate first and second mortgages originated by the
Company. Such loans held for sale are performing and are carried at lower of
cost or market. The gain/loss on sale is recorded as the difference between the
carrying amount of the loan and the proceeds from sale on a loan-by-loan basis.
The Company records a sale upon settlement and when the title transfers to the
seller.

Originated Loans Held for Investment - Originated loans held for
investment consists primarily of secured real estate first and second mortgages
originated by the Company. Such loans are performing and are carried at the
amortized cost of the loan. In general, interest on originated loans held for
investment is calculated based on contractual interest rates applied to daily
balances of the principal amount outstanding using the accrual method. Accrual
of interest including impaired loans is discontinued when management believes,
after considering economic and business conditions and collection efforts that
the borrower's 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 non-accrual loan is restored to an accrual
status when the collectibility of interest and principal is no longer in doubt
and past due interest is recognized at that time. Loan origination and
commitment fees and certain direct loan origination costs are deferred and the
net amount amortized over the estimated life of the related loans as a yield
adjustment.

Other Real Estate Owned - Other real estate owned ("OREO") consists of
properties acquired through, or in lieu of, foreclosure or other proceedings and
are held for sale and carried at the lower of cost or fair value less estimated
costs to sell. Any write-down to fair value, less cost to sell, at the time of
acquisition is charged to purchase discount or earnings if purchase discount is
not sufficient to cover the write-down. Subsequent write-downs are charged to
operations based upon management's continuing assessment of the fair value of
the underlying collateral. Property is evaluated periodically 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 sell. Revenue and expenses from the operation of OREO and changes in the
valuation allowance are included in operations. Direct costs relating to the
development and improvement of the property are capitalized, subject to the
limit of fair value of the collateral, while costs related to holding the
property are expensed. Gains or losses are included in operations upon disposal.

Derivatives - We have adopted as of October 1, 2003 the accounting
required by Statement 133 Implementation Issue No. B36 ("B36") for the
bifurcation of an embedded derivative related to success fees currently and
potentially payable to our principal lender following the repayment of senior
debt (notes payable). The effect of adopting B36 was recorded as a cumulative
effect of accounting change in 2003. B36 requires the success fee to be
bifurcated from the notes payable and recorded as an embedded derivative at fair
value each reporting period. Fair value has been determined by discounting the
estimated future success fee payments at an appropriate discount rate.

As notes payable are issued, the fair value of the embedded derivative
related to success fees is recorded as a liability with an offset to debt
discount. The debt discount is amortized to interest expense over the estimated
repayment of the related notes payable.

Results of Operations

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Overview. Net income totaled $7.9 million for the twelve months of 2005,
compared with $8.4 million for the twelve months of 2004, a decrease of 6.0%.
Revenues increased by 57.3% to $121.4 million for the twelve months ended
December 31, 2005, from $77.2 million during 2004. Earnings per common share for
the twelve months ended December 31, 2005 was $1.09 on a diluted basis and $1.19
on a basic basis, compared to $1.25 and $1.41 for 2004, respectively. Net income
per common share for the twelve months ended December 31, 2005 was affected
somewhat by the increase in the number of shares outstanding as a result of the
Company's stock offering, which was completed in August. During 2005, we
acquired S&D loans with an aggregate face amount of $505.7 million and we
originated $427.3 million of non-prime loans. We increased the size of our total
portfolio of net notes receivable, loans held for sale, loans held for
investment and OREO at the end of 2005 to $1.25 billion from $837.9 million at
the end of 2004. Our total debt outstanding, therefore, grew to $1.26 billion at
December 31, 2005 from $845.1 million at December 31, 2004. As a result of the
increase in the size of our total debt, and due to the rise in short-term
interest rates since mid-2004 and its impact on our interest-sensitive
borrowings, interest expense (inclusive of deferred financing costs and
amortization of estimated success fees payable) increased $36.5 million, or
101.6% during 2005 compared with the same period in 2004. Our average cost of
funds during the twelve months ended December 31, 2005 increased to 6.63% from
5.09% during the twelve months ended December 31, 2004. At December 31, 2005,
the weighted average cost of borrowed funds was 7.26%. Stockholders' equity
increased 82% to $47.6 million at year-end 2005 due to the Company's common
stock offering and the retention of net income.

Revenues. Revenues increased by $44.2 million or 57%, to $121.4 million
during 2005, from $77.2 million during 2004. Revenues include interest income,
purchase discount earned, prepayment penalties and other income and gains on
sales of notes receivable, loans held for sale and OREO.

Interest income increased by $39.6 million or 67%, to $99.0 million during
2005 from $59.5 million during 2004. The increase in interest income reflected
the significant increase in the portfolio of gross notes receivable and loans
held for investment during the twelve months ended December 31, 2005 compared to
the twelve months ended December 31, 2004.

Purchase discount earned increased by $2.0 million, or 21%, to $11.2
million during 2005 from $9.2 million during 2004. This increase resulted
primarily from increased principal payments due both to the growth in our
portfolio of notes receivable and increased prepayments during the year, which
accelerated income recognition of the associated purchase discount compared with
the twelve months ended December 31, 2004. We received $270.9 million of
principal payments from notes receivable during 2005 compared with $209.2
million of principal payments during 2004.

Gain on sale of notes receivable decreased by $390,000, or 23%, to $1.3
million during the twelve months ended December 31, 2005, from $1.7 million
during the twelve months ended December 31, 2004. We sold a total of $13.6
million of performing notes receivable and a small net balance of the Company's
credit card receivables portfolio during the twelve months of 2005, as compared
to a total of $21.0 million of predominantly performing loans during the same
period last year.

Gain on sale of originated loans held for sale decreased by $167,000, or
12% to $1.3 million during the twelve months ended December 31, 2005, from $1.4
million during the year 2004. This decrease reflected a 32% decrease in the
principal amount of originated loans sold during the twelve months ended
December 31, 2005, to $60.7 million compared with $89.9 million during the
twelve months ended 2004. The average gain on loans sold was 2.10% and 1.61%,
respectively, during the twelve months ended December 31, 2005 and 2004. During
the first part of 2004, our policy was to realize the gains associated with loan
origination activities by selling substantially all of our originated loans into
the secondary market. In mid-2004, we began to retain for portfolio most of the
adjustable-rate loans that we originate.

Gain on sale of OREO increased by $1.2 million, or 224%, to $1.8 million
during the twelve months ended December 31, 2005, from $542,000 during the
twelve months ended December 31, 2004. We sold 487 OREO properties in the
aggregate amount of $30.7 million during the twelve months of 2005, as compared
to 290 OREO properties in the aggregate amount of $20.3 million during the
twelve months of 2004. The increase in the number of properties sold reflected
the growth in our OREO inventory due to both an increase in foreclosures as our
notes receivable portfolio grew and the purchase of loans during the past two
years that were already in the foreclosure process.

Prepayment penalties and other income (late charges and other servicing
fees) increased by $2.0 million or 42%, to $6.8 million during 2005 from $4.8
million during the corresponding period last year. This increase was primarily
due to an increase in prepayment penalties received, as a result of accelerated
loan pay offs during the twelve months ended December 31, 2005, as compared with
the corresponding period in 2004. This was primarily attributable to the
increased size of both our portfolio of purchased loans and loans held for
investment, and continued low mortgage interest rates. Increased late charges
resulting primarily from the growth in the size of our loan portfolios also
contributed to the increase.

Operating Expenses. Operating expenses increased by $45.1 million or 73%
to $107.0 million during 2005 from $61.9 million during 2004. Total operating
expenses include interest expense, collection, general and administrative
expenses, provisions for loan losses, amortization of deferred financing costs
and depreciation expense.

Interest expense increased by $35.2 million, or 106%, to $68.3 million
during the twelve months ended December 31, 2005, from $33.2 million during the
year 2004. This increase was the result of the increase in total debt, which was
$1.26 billion as of December 31, 2005 as compared with $845.1 million as of
December 31, 2004, which was used to fund the growth in total assets during the
2005 period. In addition, our average cost of funds during 2005 increased to
6.63% from 5.09% during 2004, reflecting the rise in short-term interest rates
and its effect on our interest-rate sensitive borrowings.

Collection, general and administrative expenses increased by $6.9 million,
or 32%, to $28.7 million during 2005, from $21.8 million during 2004.
Collection, general and administrative expenses as a percentage of average
assets decreased from 3.20% during the twelve months ended December 31, 2004 to
2.59% during the twelve months ended December 31, 2005, reflecting the increase
in total assets. Personnel expenses increased by $2.5 million, or 25%, and
reflected an increase in the number of employees in certain areas in order to
meet the demands of the Company's significant asset growth, combined with
expenses arising from restricted stock granted to certain members of senior
management and severance for certain departed members of senior management. We
ended 2005 with 216 employees as compared to 166 at the end of 2004. Legal fees
relating to increased activity with respect to foreclosures increased by $1.8
million, or 75%, to $4.1 million from $2.4 million during the same period last
year. This increase reflected increases in foreclosure activity as a result of a
larger total portfolio of notes receivable and certain loans purchased in
various stages of delinquency and foreclosure. Office expenses increased by $1.3
million, or 112%, to $2.6 million during the year, from $1.2 million during the
twelve months of 2004. This increase was primarily the result of $1.0 million of
increased occupancy costs incurred during the twelve months of 2005 due, for the
most part, to lease termination and other expenses incurred in connection with
the relocation of administrative and operating functions to our new office
facility in New Jersey. Certain costs directly related to successful loan
acquisitions, previously deferred and amortized over the estimated life of the
acquired assets, decreased by $322,000, or 14%, to $1.9 million during 2005 from
$2.2 million during 2004. All other general and administrative expenses,
including insurance, various professional fees and licenses, maintenance and
support for our computer systems, increased by $1.6 million, which is
attributable to the growth of our business and the move to our new office
facility.

The provision for loan losses increased by $1.0 million, or 28%, to $4.7
million during 2005, from $3.7 million during 2004. This increase was primarily
due to reserve increases for the growing portfolio of loans originated by the
Company's Tribeca subsidiary, including an increase in Tribeca loan
delinquencies, and specific portfolios of notes receivable acquired during 2004.

Amortization of deferred financing costs increased by $1.3 million, or
49%, to $4.1 million during 2005 from $2.8 million during 2004. This increase
resulted primarily from the growth in notes payable (senior debt) to fund the
expansion of the portfolio of loans acquired and originated, and the increased
pace of loan portfolio prepayments during 2005 that caused a corresponding
increase in the pay down of senior debt.

Depreciation expenses increased by $582,000, or 118%, to $1.1 million in
2005, principally due to leasehold improvements related to the Company's new
office facility in New Jersey and the addition and upgrading of computer
hardware and software.

Our pre-tax income decreased by $868,000, or 6%, to $14.4 million during
2005 from $15.3 million during 2004 for the reasons set forth above.

During 2005, the Company had a provision for income taxes of $6.6 million
as compared to a provision of $6.9 million in 2004. Our effective tax rates for
2005 and 2004 were 46% and 45%, respectively.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Overview. Net income totaled $8.4 million for 2004, compared with $6.2
million for 2003 (before the cumulative net of tax reduction of $529,000 for an
accounting change), an increase of 36%. Earnings per common share for 2004 were
$1.25 on a diluted basis and $1.41 on a basic basis, compared to $0.86 and
$0.95, respectively, for 2003. Our revenues for 2004 increased by 39% to $77.2
million, from 2003 revenues of $55.7 million. During 2004, we closed
acquisitions of S&D loans with an aggregate face amount of $626 million,
comprised of approximately $548 million of bulk acquisitions, including
acquisitions of $310 million and $100 million, which were the two largest bulk
acquisitions in our history, and $78 million of flow acquisitions. In addition,
we originated $200.3 million of non-prime loans. We increased the size of our
total portfolio of net notes receivable, loans held for sale, loans held for
investment and OREO at the end of 2004 to $837.9 million from $444.5 million at
the end of 2003. Our total debt outstanding, therefore, grew to $845.1 million
at the end of 2004 from $449.7 million at the end of 2003. Our average cost of
funds during 2004 increased to 5.09% from 4.96% during 2003.

Revenues. Revenues increased by $21.6 million or 39%, to $77.2 million
during 2004, from $55.7 million during 2003.

Interest income increased by $16.8 million, or 39%, to $59.5 million
during 2004 from $42.7 million during 2003. The increase in interest income
reflected a 37% increase in the average balances of gross notes receivable,
loans held for investment and loans held for sale for the year 2004 compared to
the year 2003, which reflected growth in the volume of loan purchases and loan
originations.

Purchase discount earned increased by $4.1 million, or 79%, to $9.2
million during 2004 from $5.2 million during 2003. This increase resulted
primarily from a 74% increase in gross notes receivable and increased
prepayments of notes receivable during 2004, which accelerated recognition of
the associated purchase discount. We received $209.2 million of principal
payments from the notes receivable portfolio in 2004 compared with $156.9
million of principal payments in 2003.

Gains on sale of notes receivable increased by $583,000, or 52%, to $1.7
million during 2004 from $1.1 million during 2003. We sold a total of $21.0
million of notes receivable during 2004, of which $19.8 million was performing,
as compared to a total of $19.4 million during 2003, of which $15.1 million was
performing.

Gain on sale of originated loans increased by $113,000, or 8%, to $1.4
million during 2004 from $1.3 million during 2003. This increase reflected a 14%
increase in the principal amount of the loans sold during 2004 to $89.9 million
from $79.1 million during 2003. The average gain on loans sold was 1.61% and
1.68% for 2004 and 2003, respectively. During 2003 and for the first half of
2004, the Company's policy was to realize the gains associated with its loan
origination activities by selling all of its originated loans into the secondary
market. In mid-2004, we began to retain for portfolio most of the
adjustable-rate loans (two-year fixed/28-year adjustable-rate loans) originated
by Tribeca.

Gain on sale of OREO decreased by $485,000, or 47%, to $542,000 during
2004 from $1.0 million during 2003. We sold 290 OREO properties in the aggregate
amount of $20.3 million during 2004 as compared to 231 OREO properties in the
aggregate amount of $15.4 million during 2003. This decrease was due to the sale
of generally lower-value properties in 2004 and increased costs associated with
restoring the properties to appropriate condition for sale.

Prepayment penalties and other income increased by $0.5 million, or 11%,
to $4.8 million during 2004 from $4.3 million during 2003. The increase
reflected increases in prepayments during 2004, resulting from the low interest
rate environment and the growth in the size of our portfolio, and an increase in
late charges resulting primarily from the growth in the size of our portfolios.

Operating Expenses. Operating expenses increased by $17.7 million or 40%
to $61.9 million during 2004 from $44.2 million during 2003.

Interest expense increased by $11.6 million, or 54%, to $33.2 million
during 2004 from $21.6 million during 2003. This increase reflected an increase
in the balance of total debt outstanding and, to a lesser extent, increases in
the cost of funds during 2004, resulting from increases in the index rates on
which our borrowing costs are set. Borrowings outstanding under our credit
facilities increased by 88%, or $395.4 million, to $845.1 million as of the end
of 2004 compared with $449.7 million as of the end of 2003. The average cost of
funds was 5.09% during 2004 and 4.96% during 2003.

Collection, general and administrative expenses increased by $4.8 million,
or 28%, to $21.8 million during 2004 from $17.0 million during 2003. Personnel
expenses increased by $2.8 million, or 42%, and reflected the growth in the size
of our staff to 166 at the end of 2004 from 127 at the end of 2003 in all areas
to meet the demands from the growth in our business, a settlement entered into
with a former chief executive officer and an increased bonus accrual due to
higher net income. Professional fees increased by $846,000 or 83% to $1.9
million and reflected recruiting fees, higher audit and tax fees as well as
various other consulting projects. Certain costs directly related to successful
loan acquisitions, previously deferred and amortized over the estimated life of
the acquired assets, increased by $800,000, or 60%, to $2.2 million during 2004
from $1.4 million during 2003. While the amount of collection, general and
administrative expenses increased year to year, the ratio as a percentage of
average assets improved from 3.78% during 2003 to 3.20% during 2004.

The provision for loan losses increased by $541,000, or 17%, to $3.7
million during 2004 from $3.2 million during 2003. This increase was primarily
due to an increase in impaired loans with respect to certain portfolios of notes
receivable that did not have additional purchase discount that could be added to
the allowance for loan losses. Provisions for loan losses are incurred as loans
within the loan pool become impaired and there is no unamortized discount
remaining associated with that loan pool. Provision for loan losses, expressed
as a percentage of the principal amounts of notes receivable held at the end of
the year, were approximately 0.46% and 0.68% for 2004 and 2003, respectively.

Amortization of deferred financing costs increased by $782,000 or 40%, to
$2.8 million during 2004 from $2.0 million during 2003. This increase resulted
primarily from the growth in both the portfolio of notes receivable and loans
held for investment and the increased pace of prepayments during 2004, which
caused a corresponding increase in the pay down of notes payable (senior debt)
under our master credit facility and term loan agreements.

Our pre-tax income increased by $3.9 million, or 34%, to $15.3 million
during 2004 from $11.4 million during 2003 for the reasons set forth above.

During 2004, we had a provision for income taxes of $6.9 million as
compared to a provision of $5.3 million in 2003. Our effective tax rates for
2004 and 2003 were 45% and 46%, respectively.

Liquidity and Capital Resources

General

During 2005, we purchased 12,311 loans, consisting primarily of first and
second mortgages, with an aggregate face value of $505.7 million at an aggregate
purchase price of $468.3 million, or 92.6% of face value. All acquisitions
acquired on or after July 1, 2005 were funded through borrowings under our
master credit facility in the amount equal to the purchase price plus a 0.75%
loan origination fee, while acquisitions acquired prior to July 1, 2005 were
funded with a 1% loan origination fee.

During 2005, we originated $427.3 million of loans through our origination
subsidiary, Tribeca. Originations are initially funded through borrowings under
our warehouse facility, and loans originated for portfolio are subsequently
funded with term debt after transfer to portfolio. In the first quarter of 2006,
Tribeca and certain of its subsidiaries entered into master credit and security
agreements with each of our principal lender and BOS (USA) Inc., an affiliate of
Bank of Scotland, the proceeds of which were used to refinance and consolidate
certain term loans with our principal lender.

Commencing July 1, 2005, our principal lender agreed to reduce the
interest rate charged on all new borrowings (both new term loans and warehouse
loans) by 0.50%, or 50 basis points. In addition, origination fees charged on
new borrowings after June 30, 2005 were reduced by between 0.25% and 0.50%, or
between 25 and 50 basis points, depending on the borrowing facility. See "-
Borrowings."

We have one principal source of external funding to meet our liquidity
requirements, in addition to the cash flow provided from borrower payments of
interest and principal on mortgage loans. See "- Borrowings." In addition, we
have the ability to sell loans in the secondary market. We sell pools of
acquired mortgage loans from time to time and we sell loans that we originate
specifically for sale into the secondary market on a regular basis.

As a result of the growth of the loan portfolios and our strengthened
balance sheet, management has begun to explore potential additional sources of
funding for financing portfolio acquisitions and loan originations. During the
latter part of 2005, we began to evaluate the feasibility of securitizing
certain acquired or originated loans in order to seek a lower cost funding
alternative and possibly to reduce somewhat the short-term interest sensitivity
of our liabilities.

Short-term Investments. The Company's short-term investment portfolio
includes U.S. treasury bills and investment-grade commercial paper. The
Company's investment policy is structured to provide an adequate level of
liquidity in order to meet normal working capital needs and expansion of the
loan portfolio. At December 31, 2005, the Company had short-term investments of
$16.95 million, consisting of investment-grade commercial paper and U.S.
treasury bills.

Cost of Funds. As of December 31, 2005, we had total borrowings of $1.26
billion, of which $1.21 billion was under our term loan facilities and an
aggregate of $57.3 million was under our warehouse facility. Substantially all
of the debt under our term loan facilities was incurred in connection with the
purchase and origination of, and is secured by, our acquired notes, originated
loans held for investment and OREO portfolios. At December 31, 2005,
approximately $11.0 million of our term debt accrues interest at a rate of prime
plus a margin of 0% to 1.75%, $451.7 million accrues interest at the FHLB 30-day
LIBOR advance rate plus 2.5%, $18.5 million accrues interest at the FHLB 30-day
LIBOR advance rate plus 2.75%, $467.9 million accrues interest at the FHLB
30-day LIBOR advance rate plus 3.0%, $256.2 million accrues interest at the FHLB
30-day LIBOR advance rate plus 3.25%, $410,000 accrues interest at the FHLB
30-day LIBOR advance rate plus 3.375% and $908,000 accrues interest at the FHLB
30-day LIBOR advance rate plus 3.875%. Our warehouse facility is utilized to
fund Tribeca's originations of loans pending sale to others or to be held for
investment. At December 31, 2005, the weighted average interest rate on senior
debt under our master credit facility was 7.28%. At December 31, 2004, the
weighted average interest rate on senior debt was 5.73%.

Cash Flow from Operating, Investing and Financing Activities

Liquidity represents our ability to obtain cost effective funding to meet
our financial obligations. Our liquidity position is affected by mortgage loan
purchase and origination volume, mortgage loan payments, including prepayments,
loan maturities and the amortization and maturity structure of borrowings under
our term loan facilities.

At December 31, 2005, we had cash and cash equivalents of $3.9 million
compared with $5.1 million at December 31, 2004. Restricted cash of $17.0
million and $14.5 million at December 31, 2005 and 2004, respectively, was
restricted under our credit agreements and lockbox facility with our primary
lead lending bank, Sky Bank.

Substantially all of our assets are invested in our portfolios of notes
receivable, loans held for investment, OREO and loans held for sale. Primary
sources of our cash flow for operating and investing activities are borrowings
under our debt facilities, collections of interest and principal on notes
receivable and loans held for investment and proceeds from sales of notes and
OREO properties. Primary uses of cash include purchases of notes receivable,
origination of loans and for operating expenses. We rely significantly upon our
lender and the other banks that participate in the loans made to us by our
lender to provide the funds necessary for the purchase of notes receivable
portfolios and the origination of loans. While we have historically been able to
finance these purchases and originations, we have not had committed loan
facilities in significant excess of the amount we currently have outstanding
under our credit facilities.

Net cash provided by operating activities was $3.8 million during 2005,
compared with net cash used of $7.1 million during 2004. The decrease in cash
used in operating activities during 2005 was due primarily to a decrease in the
volume of loans originated for sale as a result of our shift in strategy in the
latter part of 2004 to hold for our portfolio a significant portion of
originated loans.

Net cash used in investing activities was $428.2 million in the twelve
months ended December 31, 2005, compared to $383.0 million of cash used in the
twelve months ended December 31, 2004. The increase in cash used during the
twelve months ended December 31, 2005 was primarily due to an increase in the
origination of loans held for investment of $274.4 million, which was partially
offset by a decrease of $77.9 million in purchases of notes receivable
(purchased notes receivable in 2004 included the Company's two largest
acquisitions aggregating $410 million), increased principal collections of notes
receivable and loans held for investment of $156.0 million and an increase in
sales of OREO of $11.6 million during the twelve months ended December 31, 2005.

Net cash provided by financing activities increased to approximately
$423.2 million during the twelve months ended December 31, 2005, from $391.3
million used in financing activities during the twelve months ended December 31,
2004. The increase resulted primarily from an increase in new borrowings of
$397.0 million used to fund the growth in loan acquisitions and originations,
which was almost totally offset by increased repayments of outstanding notes
payable of $376.5 million (the result of increased prepayments of both notes
receivable and loans held for investment) and $12.6 million of additional funds
provided by our common stock offering.

Offering of Common Stock

In early August 2005, we completed the public offering of 1,265,000 of
shares of our common stock at a public offering price of $11.50 per share
(including an exercise in full of the underwriter's over allotment option to
purchase 165,000 shares) pursuant to a registration statement that was declared
effective by the Securities and Exchange Commission on July 19, 2005. The
offering resulted in net proceeds to us and the addition to equity of
approximately $12.6 million. As a result of the additional equity raised, in
combination with retained earnings, total stockholders' equity was $47.6 million
at December 31, 2005 compared with $26.1 million at December 31, 2004. In
conjunction with the public offering, the Company's common stock ceased to be
quoted on the Over-the-Counter Bulletin Board under the symbol "FCSC" and
commenced trading on The Nasdaq National Market under the symbol "FCMC."

Borrowings

As of December 31, 2005, the Company owed an aggregate of $1.26 billion
under several credit facilities with our lender.

Senior Debt Facility

General. On October 13, 2004, the Company, and its finance subsidiaries,
entered into a Master Credit and Security Agreement with Sky Bank, an Ohio
banking corporation, which we refer to as our lender. Under this master credit
facility, we request loans to finance the purchase of residential mortgage loans
or refinance existing outstanding loans. The facility does not include a
commitment to additional lendings, which are therefore subject to our lender's
discretion as well as any regulatory limitations to which our lender is subject.
The facility terminates on October 13, 2006.

Interest Rates and Fees. Interest on the loans is payable monthly at a
floating rate equal to the highest Federal Home Loan Bank of Cincinnati 30-day
advance rate as published daily by Bloomberg under the symbol FHL5LBRI, or "the
30-day advance rate," plus the applicable margin as follows:

For Loans Funded
--------------------------------------------------
Prior to July 1, 2005 On or After July 1, 2005
------------------------ ------------------------

If the 30-day advance rate is the applicable margin is the applicable margin is
Less than 2.26%................ 350 basis points 300 basis points
2.26 to 4.50%.................. 325 basis points 275 basis points
Greater than 4.50%............. 300 basis points 250 basis points

Effective December 1, 2005, Sky Bank agreed to temporarily reduce the
applicable margin for the margin tier in effect (2.26 to 4.50%) by 25 basis
points on a substantial portion of our term loans outstanding, until the 30-day
advance rate exceeds 4.50%.

In addition, upon each closing of a subsidiary loan after June 30, 2005,
we are required to pay an origination fee equal to 0.75% of the amount of the
subsidiary loan unless otherwise agreed to by our lender and our finance
subsidiary. For loans funded prior to July 1, 2005, the origination fee paid was
1% of the amount of the subsidiary loan unless otherwise agreed to by our lender
and the subsidiary. Upon repayment of subsidiary loans, our lender is generally
entitled to receive a fee (referred to as a success fee) equal to the lesser of
(i) 0.50% or with respect to certain subsidiaries whose loans were originated
before 1996, 1% of the original principal balance of the subsidiary loan or (ii)
50% of the remaining cash flows of the pledged mortgage loans related to such
subsidiary loan as and when received by the relevant subsidiary after the
repayment of the subsidiary loan. In connection with certain subsidiary loans,
we and our lender have agreed to specified minimum fees and fee waivers.

Principal; Prepayments; Termination of Commitments. The unpaid principal
balance of each loan is amortized over a period of twenty years, but matures
three years after the date the loan was made. Historically, our lender has
agreed to extend the maturities of such loans for additional three-year terms
upon their maturity. We are required to make monthly payments of the principal
on each of our outstanding loans.

In the event there is a material and adverse breach of the representations
and warranties with respect to a pledged mortgage loan that is not cured within
30 days after notice by our lender, we will be required to repay the loan with
respect to such pledged mortgage loan in an amount equal to the price at which
such mortgage loan could readily be sold (as determined by our lender).

Covenants; Events of Default. The master credit facility contains
affirmative, negative and financial covenants customary for financings of this
type, including, among other things, a covenant that we and our subsidiaries
together maintain a minimum net worth of at least $10 million. The facility
contains events of default customary for facilities of this type (with customary
grace and cure periods, as applicable).

Security. Our obligations under the master credit facility are secured by
a first priority lien on loans acquired by us that are financed by proceeds of
loans made to us under the facility. In addition, pursuant to a lockbox
arrangement, our lender is entitled to receive all sums payable to us in respect
of any of the collateral.

Warehouse Facility

On October 18, 2005, our Tribeca subsidiary entered into a warehousing
credit and security agreement with our lender, which replaced the facility as
amended on April 7, 2004. The agreement provides for an increased commitment to
$60 million effective October 18, 2005.

Interest on advances is payable monthly at a rate per annum equal to the
greater of (i) a floating rate equal to the Wall Street Journal Prime Rate minus
50 basis points or (ii) 5%.

The warehouse facility is secured by a lien on all of the mortgage loans
delivered to our lender or in respect of which an advance has been made as well
as by all mortgage insurance and commitments issued by insurers to insure or
guarantee pledged mortgage loans. Tribeca also assigns all of its rights under
third-party purchase commitments covering pledged mortgages and the proceeds of
such commitments and its rights with respect to investors in the pledged
mortgages to the extent such rights are related to pledged mortgages. In
addition, we have provided a guaranty of Tribeca's obligations under the
warehouse facility, which is secured by a lien on substantially all of our
personal property. As of December 31, 2005, Tribeca had approximately $3.7
million available under this facility.

Tribeca Term Loans

As of December 31, 2005, Tribeca, through its subsidiaries, had borrowed
an aggregate of $322.3 million in term loans refinancing outstanding advances
under the warehouse facility. Each of the term loans is made pursuant and
subject to the term loan and security between Tribeca and our lender and a term
note. Interest on the loans is payable monthly at a floating rate equal to the
highest Federal Home Loan Bank of Cincinnati 30-day advance rate published by
Bloomberg under the symbol FHL5LBRI. The interest rate on Tribeca's term loans
is based on the same rate and margin matrix as loans made under the Master
Credit Facility. In addition, upon the closing of each term loan, the applicable
subsidiary-borrower pays an origination fee of approximately 0.50% of the amount
of the loan, and pays certain other fees at the termination of the applicable
term loan. The origination fee was 1% of the amount of the loan for loans funded
prior to July 1, 2005. The unpaid balance of each term loan is amortized over a
period of 20 years, but matures three years after the loan was made. Each term
loan is subject to mandatory payment under certain circumstances. Each
subsidiary-borrower is required to make monthly payments of the principal of its
outstanding loan. Each term loan is secured by a lien on certain promissory
notes and hypothecation agreements, as well as all monies, securities and other
property held by, received by or in transit to our lender. The term loan
agreements contain affirmative and negative covenants and events of default
customary for financings of this type.

On February 28, 2006, Tribeca and certain of its subsidiaries entered into
a Master Credit and Security Agreement (the "Sky Loan") with its lender Sky
Bank, pursuant to which certain Tribeca subsidiaries may borrow funds to finance
their acquisition of loans Tribeca previously financed under its warehouse line
of credit with Sky and consolidate and refinance prior term loans made by Sky to
such subsidiaries. The facility does not include a commitment for a specified
number of lendings, which are therefore subject to Sky's discretion, as well as
any regulatory limitations to which Sky is subject. The facility terminates on
February 28, 2008. Interest on the loans under the facility is payable monthly
at a floating rate equal to the Federal Home Loan Bank of Cincinnati 30-day
advance rate ("FHLBC Rate") plus an applicable margin as follows:

For Loans Funded
--------------------------------------------------
Prior to July 1, 2005 On or After July 1, 2005
------------------------ ------------------------

In addition, upon each closing of a subsidiary loan, Sky is entitled to
receive an origination fee equal to 0.50% of the amount of such loan. Upon
repayment of subsidiary loans, Sky is generally entitled to receive a fee equal
to the lesser of (a) 50% of the remaining payments which are subsequently paid
under the remaining pledged mortgage loans related to a satisfied subsidiary
loan or (b) 0.50% of the original principal amount of the relevant subsidiary
loan.

The unpaid principal balance of each loan will be amortized over a period
of 20 years, but matures three years after the date the loan was made. Tribeca's
subsidiaries are required to make monthly amortization payments and payments of
interest on each of their outstanding loans.

The facility contains affirmative, negative and financial covenants
customary for financings of this type, including, among other things, covenants
that require Tribeca and its subsidiaries, together, to maintain a minimum net
worth of at least $3,500,000 and rolling four-quarter pre-tax net income of
$750,000. The facility contains events of default customary for facilities of
this type.

Tribeca's and the subsidiary borrowers' obligations under the facility are
secured by a first priority lien on loans acquired by Tribeca or such subsidiary
that are financed or refinanced by proceeds of loans made to Tribeca or
subsidiary borrowers under the facility. The collateral securing each loan
cross-collateralizes all other loans made under the facility. In addition,
pursuant to a lockbox arrangement, Sky is entitled to receive substantially all
sums payable to Tribeca and any subsidiary borrower in respect of any of the
collateral.

On February 28, 2006, upon execution and delivery of the Sky Loan, various
outstanding term loan and security agreements between certain of Tribeca's
subsidiaries and Sky with respect to approximately $379,000,000 in indebtedness
terminated and the loans outstanding thereunder are now under the Sky Loan.

On March 24, 2006, Tribeca and one of Tribeca's subsidiaries (the "Tribeca
Subsidiary Borrower") entered into a $100,000,000 Master Credit and Security
Agreement (the "BOS Loan") with BOS (USA) Inc., an affiliate of Bank of
Scotland. On March 26, 2006, $98.2 million of proceeds of the BOS Loan were used
to consolidate and refinance prior term loans made to certain Tribeca
subsidiaries. Interest on the BOS Loan is payable monthly at a floating rate
equal to the FHLBC Rate plus an applicable margin as follows:

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

Upon repayment of the BOS Loan, BOS is entitled to receive a fee equal to
the lesser of (a) 50% of the remaining payments which are subsequently paid
under the remaining pledged mortgage loans related to the BOS Loan or (b) 0.50%
of the original principal amount of the BOS Loan.

The unpaid principal balance of the BOS Loan will be amortized over a
period of 20 years, but matures on March 24, 2009. The Tribeca Subsidiary
Borrower is required to make monthly amortization payments and payments of
interest on the BOS Loan.

Tribeca's and the Tribeca Subsidiary Borrower's obligations under the
facility are secured by (i) a first priority lien on loans acquired by the
Tribeca Subsidiary Borrower that are refinanced by the proceeds of the BOS Loan
and (ii) a second priority lien on collateral securing loans made to Tribeca or
its subsidiaries under the Sky Loan described above. In addition, pursuant to a
lockbox arrangement, BOS is entitled to receive substantially all sums payable
to Tribeca and the Tribeca Subsidiary Borrower in respect of any of the primary
collateral under the facility. Tribeca's BOS Loan and the Sky Loan are
cross-collateralized.

Financing Activities and Contractual Obligations

Below is a schedule of the Company's contractual obligations and
commitments at December 31, 2005:

Minimum Contractual Obligations
Weighted Average (excluding interest)
Interest Rate ----------------------------------------------------------------------------
As of 12/31/05 Total Less Than 1 yr 1 - 3 yrs 3 - 5 yrs Thereafter
---------------- -------------- -------------- -------------- ------------- -------------
Contractual Obligations

Notes Payable ................... 7.28% $1,206,883,761 $ 105,166,968 $ 984,686,138 $ 115,590,781 $ 1,439,874
Warehouse Line .................. 6.75% 57,284,085 57,284,085 -- -- --
Operating Leases
Rent Obligations ................ -- 9,402,780 986,208 2,074,016 2,209,480 4,133,076
Capital Lease Obligations ....... -- 1,383,167 361,329 619,124 402,714 --
Employment Agreements ............. -- 1,080,000 1,059,167 20,833 -- --
Total Contractual Cash Obligations $1,276,033,793 $ 164,857,757 $ 987,400,111 $ 118,202,975 $ 5,572,950

Interest rates on our borrowings are indexed to the monthly Federal Home
Loan Bank of Cincinnati 30-day LIBOR advance rate or Prime, as more fully
described above, and accordingly will increase or decrease over time. Minimum
contractual obligations are based on minimum required principal payments,
including balloon maturities of loans under the master credit facility, the
warehouse facility and the term loans. Actual payments will vary depending on
actual cash collections and loan sales. Historically, our lender has extended
the maturities and balloon payments, although there is no assurance that it will
continue to do so.

Safe Harbor Statement

Statements contained herein that are not historical fact may be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are subject to a variety of risks and uncertainties. There are
a number of important factors that could cause actual results to differ
materially from those projected or suggested in forward-looking statements made
by the Company. These factors include, but are not limited to: (i) unanticipated
changes in the U.S. economy, including changes in business conditions such as
interest rates, and changes in the level of growth in the finance and housing
markets; (ii) the status of relations between the Company and its sole Senior
Debt Lender and the Senior Debt Lender's willingness to extend additional credit
to the Company; (iii) the availability for purchases of additional portfolios;
(iv) the availability of non-prime borrowers for the origination of additional
loans; and (v) other risks detailed from time to time in the Company's SEC
reports. Additional factors that would cause actual results to differ materially
from those projected or suggested or suggested in any forward-looking statements
are contained in the Company's filings with the Securities and Exchange
Commission, including, but not limited to, those factors discussed herein under
the caption "Real Estate Risk," which the Company urges investors to consider.
The Company undertakes no obligation to publicly release the revisions to such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrences of unanticipated events,
except as other wise required by securities and other applicable laws. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various types of market risk in the normal course of
business, including the impact of interest rate changes and changes in corporate
tax rates. A material change in these rates could adversely affect our operating
results and cash flows.

Interest Rate Risk

Interest rate fluctuations can adversely affect our operating results and
present a variety of risks, including the risk of a mismatch between the
repricing of interest-earning assets and borrowings, variances in the yield
curve and changing prepayment rates on notes receivable, loans held for
investment and loans held for sale.

Interest rates are highly sensitive to many factors, including
governmental monetary policies and domestic and international economic and
political conditions. Conditions such as inflation, recession, unemployment,
money supply and other factors beyond our control may also affect interest
rates. Fluctuations in market interest rates are neither predictable nor
controllable and may have a material adverse effect on our business, financial
condition and results of operations.

The Company's operating results will depend in large part on differences
between the interest earned on its assets and the interest paid on its
borrowings. Most of the Company's assets, consisting primarily of mortgage notes
receivable, generate fixed returns and have remaining contractual maturities in
excess of five years, while the majority of originated loans held for investment
generate fixed returns for the first two years and six-month adjustable returns
thereafter. We fund the origination and acquisition of these assets with
borrowings, which have interest rates that are based on the monthly Federal Home
Loan Bank of Cincinnati ("FHLB") 30-day advance rate. In most cases, the
interest income from our assets will respond more slowly to interest rate
fluctuations than the cost of our borrowings, creating a mismatch between
interest earned on our interest-yielding assets and the interest paid on our
borrowings. Consequently, changes in interest rates, particularly short-term
interest rates, will significantly impact our net interest income and,
therefore, net income. Our borrowings bear interest at rates that fluctuate with
the FHLB Bank of Cincinnati 30-day advance rate or, to a lesser extent, the
prime rate. Based on approximately $1.26 billion of borrowings under term loan
and warehouse facilities outstanding at December 31, 2005, a 1% instantaneous
and sustained increase in both FHLB and prime rates could increase quarterly
interest expense by as much as approximately $3.2 million, pre-tax, which would
negatively impact our quarterly after-tax net income. Due to our
liability-sensitive balance sheet, increases in these rates will decrease both
net income and the market value of our net assets.

The value of our assets may be affected by prepayment rates on
investments. Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic and other factors beyond our
control. Consequently, such prepayment rates cannot be predicted with certainty.
When we originate and purchase mortgage loans, we expect that such mortgage
loans will have a measure of protection from prepayment in the form of
prepayment lockout periods or prepayment penalties. In periods of declining
mortgage interest rates, prepayments on mortgages generally increase. If general
interest rates decline as well, the proceeds of such prepayments received during
such periods are likely to be reinvested by us in assets yielding less than the
yields on the investments that were prepaid. In addition, the market value of
mortgage investments may, because of the risk of prepayment, benefit less from
declining interest rates than other fixed-income securities. Conversely, in
periods of rising interest rates, prepayments on mortgages generally decrease,
in which case we would not have the prepayment proceeds available to invest in
assets with higher yields. Under certain interest rate and prepayment scenarios
we may fail to recoup fully our cost of acquisition of certain investments.

Real Estate Risk

Residential property values are subject to volatility and may be affected
adversely by a number of factors, including, but not limited to, national,
regional and local economic conditions, which may be adversely affected by
industry slowdowns and other factors; local real estate conditions (such as the
supply of housing or the rapid increase in home values). Decreases in property
values reduce the value of the collateral and the potential proceeds available
to a borrower to repay our mortgage loans, which could cause us to suffer losses
on the ultimate disposition of foreclosed properties.

We purchase and originate principally fixed and adjustable rate
residential mortgage loans, which are secured primarily by the underlying
single-family properties. Because the vast majority of our loans are to
non-prime borrowers, delinquencies and foreclosures are substantially higher
than those of prime mortgage loans, and if not serviced actively and effectively
could result in an increase in losses on dispositions of properties acquired
through foreclosure. In addition, a decline in real estate values would reduce
the value of the residential properties securing our loans, which could lead to
an increase in borrower defaults, reductions in interest income and increased
losses on the disposition of foreclosed properties.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this Item are included herein,
beginning on page F-2 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company has restated its previously issued financial statements for
the years 2004 and 2003, for the first three quarters in 2005 and the quarterly
periods in 2004. These restatements and resulting revisions relate principally
to the accounting treatment of certain fees and costs related to the successful
acquisition of pools of residential mortgage loans and the accounting treatment
of success fees that are both currently and potentially payable to the Company's
primary lending bank following repayment of existing term debt.

The Company has identified material weaknesses as defined by the Public
Company Accounting Oversight Board (United States) with respect to the
accounting and reporting matters discussed above.

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") as of the end of the period covered by this Annual
Report. Based on such evaluation, and as a result of the material weaknesses,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2005 and prior restated periods, the Company's
disclosure controls and procedures were not effective.

Changes in Internal Controls over Financial Reporting

There has been no change in the Company's internal control over financial
reporting during the quarter ended December 31, 2005 that has materially
affected, or is reasonably likely to materially affect, such internal control
over financial reporting.

The Company is in the process of reviewing and remedying its internal
controls over financial reporting. In connection with this report, under the
direction of the Company's Chief Financial Officer, management is further
assessing its controls over accounting policy and financial reporting matters,
and is in the process of implementing appropriate improvements.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required under this Item is contained in the Company's
definitive proxy statement, which will be filed within 120 days of December 31,
2005, the registrant's most recent fiscal year, and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. The following documents are filed as part of Form 10-K:

(1) Financial Statements.

The financial statements required by Item 8 are included herein,
beginning on page F-2 of this report.

(2) Financial Statement Schedules.

All financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and
therefore have been omitted.

B. Exhibits.

Exhibit
Number
3.1 Fifth Amended and Restated Certificate of Incorporation. Incorporated
by reference to Appendix A to the Registrant's Definitive Information
Statement on Schedule 14C, filed with the Securities and Exchange
Commission (the "Commission") on January 20, 2005.

3.2 Amended and Restated By-laws. Incorporated by reference to Appendix B
to the Registrant's Definitive Information Statement on Schedule 14C,
filed with the Commission on January 20, 2005.

10.1 Master Credit and Security Agreement, dated as of October 13, 2004,
between the Registrant and Sky Bank (the "Master Credit Agreement").
Incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 (File No. 333-125681), filed with
the Commission on June 9, 2005 (the "Registration Statement").

10.2 Amendment to the Master Credit Agreement, dated as of December 30,
2004 between the Registrant and Sky Bank. Incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, filed with the Commission on
April 8, 2005 (the "2004 10-K").

10.3 Warehousing Credit and Security Agreement, dated as of September 30,
2003, between Tribeca Lending Corp. and Sky Bank (the "Warehouse
Credit Agreement"). Incorporated by reference to Exhibit 10.3 to the
2004 10-K.

10.4 Letter, dated as of March 24, 2005, from Sky Bank to Tribeca Lending
Corp. Incorporated by reference to Exhibit 10.4 to the 2004 10-K.

10.5 Second Amendment to the Warehouse Credit Agreement, effective as of
May 19, 2005, between Tribeca Lending Corp. and Sky Bank.
Incorporated by reference to Exhibit 10.5 to the Registration
Statement.

10.6 Form of Term Loan and Security Agreement between subsidiaries of
Tribeca Lending Corp. and Sky Bank. Incorporated by reference to
Exhibit 10.5 to the 2004 10-K.

10.7 Agreement, dated March 20, 1997, between the Registrant and Sky Bank
(f/k/a The Citizens Banking Registrant) (the "1997 Agreement").
Incorporated by reference to Exhibit 10(e) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997,
filed with the Commission on May 14, 1998.

10.8 Modification to 1997 Agreement, dated March 19, 2003, between the
Registrant and Sky Bank. Incorporated by reference to Exhibit 10.8 to
the Registration Statement.

10.9 1996 Stock Incentive Plan, as amended. Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8
(File No. 333-122677), filed with the Commission on February 10,
2005.

10.10 Mortgage Loan Purchase and Sale Agreement, dated as of September 24,
2004, between the Registrant and Master Financial, Inc. Incorporated
by reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K, filed with the Commission on October 20, 2004.

10.11 Mortgage Loan Purchase and Sale Agreement, dated as of June 30, 2004,
between the Registrant and Bank One, Inc. Incorporated by reference
to Exhibit 2.1 to the Registrant's Current Report on Form 8-K/A,
filed with the Commission on July 16, 2004.

10.12 Registration Rights Agreement, effective as of October 1, 2004,
between the Registrant and Jeffrey R. Johnson. Incorporated by
reference to Exhibit 10.10 to the 2004 10-K.

10.13 Restricted Stock Grant Agreement, dated as of October 4, 2004,
between the Registrant and Jeffrey R. Johnson. Incorporated by
reference to Exhibit 10.11 to the 2004 10-K.

10.14 Sublease Agreement, dated as of March 4, 2005, between the Registrant
and Lehman Brothers Holdings Inc. Incorporated by reference to
Exhibit 10.12 to the 2004 10-K.

10.15 Employment Agreement, effective as of March 28, 2005, between the
Registrant and Paul D. Colasono. Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2005, filed with the Commission on
May 16, 2005 (the "First Quarter 10-Q").

10.16 Restricted Stock Grant Agreement, dated as of April 13, 2005, between
the Registrant and Paul D. Colasono. Incorporated by reference to
Exhibit 10.2 to the First Quarter 10-Q.

10.17 Employment Agreement, dated as of June 7, 2005, between the
Registrant and Joseph Caiazzo. Incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K, filed with the
Commission on June 9, 2005.

10.18 Warrant Agreement, dated as of April 24, 1997, between the Registrant
and Steven W. Lefkowitz. Incorporated by reference to Exhibit 10.19
to Amendment No. 1 to the Registration Statement, filed with the
Commission on June 29, 2005.

10.19 Letter, dated as of July 19, 2005, from Sky Bank to the Registrant.
Incorporated by reference to Exhibit 10.20 to Amendment No. 2 to the
Registration Statement, filed with the Commission on July 19, 2005
("Amendment No. 2").

10.20 Letter, dated as of July 19, 2005, from Sky Bank to Tribeca Lending
Corp. Incorporated by reference to Exhibit 10.21 to Amendment No. 2.

10.21 Underwriting Agreement, dated July 19, 2005, between the Registrant
and Ryan Beck & Co., Inc. Incorporated by reference to Exhibit 10.3
to the Registrant's Current Report on Form 8-K, filed with the
Commission on July 20, 2005.

10.22 Lease, dated July 27, 2005, between the Registrant and 101 Hudson
Leasing Associates. Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K, filed with the Commission on
July 29, 2005.

10.23* Separation Agreement, dated as of January 13, 2006, between the
Registrant and Jeffrey R. Johnson.

10.24* Master Credit and Security Agreement, dated as of February 28, 2006,
among Tribeca Lending Corp., Sky Bank and those subsidiaries of
Tribeca Lending Corp. listed on the signature page to the agreement.

10.25* Master Credit and Security Agreement, dated as of March 24, 2006,
among Tribeca Lending Corp., BOS (USA) Inc. and those subsidiaries of
Tribeca Lending Corp. listed on the signature page to the agreement.
21.1* Subsidiaries of the Registrant.

23.1 Consent of Deloitte & Touche LLP

31.1* Rule 13a-14(a) Certification of Chief Executive Officer of the
Registrant in accordance with Section 302 of the Sarbanes-Oxley Act
of 2002.

31.2* Rule 13a-14(a) Certification of Chief Financial Officer of the
Registrant in accordance with Section 302 of the Sarbanes-Oxley Act
of 2002.

32.1* Certification of Chief Executive Officer of the Registrant in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

32.2* Certification of Chief Financial Officer of the Registrant in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

- ------------------
* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

April 24, 2006 FRANKLIN CREDIT MANAGEMENT
CORPORATION

By: /s/ THOMAS J. AXON
-------------------
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacity and on the dates indicated.

Signature Title Date

/s/ THOMAS J. AXON
Thomas J. Axon President, Chief Executive Officer and Chairman of the Board April 24, 2006
(Principal Executive Officer)

/s/ PAUL D. COLASONO
Paul D. Colasono Executive Vice President and Chief Financial Officer April 24, 2006
(Principal Financial Officer)

/s/ KIMBERLEY SHAW
Kimberley Shaw Vice President and Treasurer April 24, 2006
(Controller)

/s/ MICHAEL BERTASH
Michael Bertash Director April 24, 2006

/s/ ROBERT CHISTE
Robert Chiste Director April 24, 2006

/s/ FRANK EVANS
Frank Evans Director April 24, 2006

/s/ A. GORDON JARDIN
A. Gordon Jardin Director April 24, 2006

/s/ STEVEN LEFKOWITZ
Steven Lefkowitz Director April 24, 2006

/s/ ALLAN R. LYONS
Allan R. Lyons Director April 24, 2006

/s/ WILLIAM F. SULLIVAN
William F. Sullivan Director April 24, 2006

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------

Page

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Balance Sheets at December 31, 2005 and 2004 (Restated)...................F-2

Consolidated Statements of Income for the years ended December 31, 2005, 2004
(Restated) and 2003 (Restated).....................................................F-3

Consolidated Statements of Stockholders' Equity for the years ended December 31,
2005, 2004 (Restated) and 2003 (Restated)..........................................F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2005,
2004 (Restated) and 2003 (Restated) ...............................................F-5

Notes to Consolidated Financial Statements...............................................F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Franklin Credit Management Corporation
Jersey City, New Jersey

We have audited the accompanying consolidated balance sheets of Franklin Credit
Management Corporation and subsidiaries (the "Company") as of December 31, 2005
and 2004, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Franklin Credit Management
Corporation and subsidiaries as of December 31, 2005 and 2004, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 2, the accompanying 2004 and 2003 consolidated financial
statements have been restated.

Also as discussed in Note 2, in connection with the restatement of its
consolidated financial statements the Company changed its method of accounting
for embedded derivatives in notes payable as required by accounting guidance
which became effective October 1, 2003, and recorded the impact as a cumulative
effect of accounting change.

As discussed in Note 3, the Company changed its method of accounting for certain
purchased notes receivable as of January 1, 2005.

/s/ Deloitte & Touche LLP

New York, New York
April 21, 2006

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004

2004
(As Restated,
2005 See Note 2)
--------------- ---------------

ASSETS
Cash and cash equivalents ................... $ 3,886,506 $ 5,127,732
Restricted cash ............................. 17,008,649 14,520,539
Short-term investments ...................... 16,954,019 --
Notes Receivable:
Principal .................................. 934,657,413 811,885,856
Purchase discount .......................... (17,809,940) (32,293,669)
Allowance for loan losses .................. (67,276,155) (89,628,299)
--------------- ---------------
Net notes receivable .................... 849,571,318 689,963,888

Originated loans held for sale .............. 12,844,882 16,851,041
Originated loans held for investment, net ... 372,315,935 110,496,274
Accrued interest receivable ................. 13,341,964 8,506,252
Other real estate owned ..................... 19,936,274 20,626,156
Deferred financing costs, net ............... 10,008,473 7,600,942
Other receivables ........................... 7,309,505 5,366,500
Building, furniture and equipment, net ...... 4,029,481 1,290,442
Deferred tax asset .......................... -- 44,720
Other assets ................................ 1,033,583 3,197,756
--------------- ---------------
Total assets ................................ $ 1,328,240,589 $ 883,592,242
=============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Notes payable, net of debt discount of
$3,002,767 in 2005 and
$2,131,041 in 2004 ....................... $ 1,203,880,994 $ 805,586,997
Financing agreements ....................... 57,284,085 39,540,205
Accounts payable and accrued expenses ...... 12,971,954 8,294,573
Success fee liability ...................... 5,721,918 4,024,634
Deferred tax liability ..................... 787,470 --
--------------- ---------------
Total liabilities ....................... 1,280,646,421 857,446,409
--------------- ---------------

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $.01 par value; authorized
3,000,000; issued - none ................. -- --
Common stock and additional paid-in capital,
$.01 par value, 22,000,000 authorized
shares; issued and outstanding: 7,539,295
in 2005 and 6,062,295 in 2004 ............ 21,292,252 8,514,401
Retained earnings .......................... 26,599,207 18,730,432
Unearned compensation ...................... (297,291) (1,099,000)
--------------- ---------------
Total stockholders' equity .............. 47,594,168 26,145,833
--------------- ---------------
Total liabilities and stockholders' equity .. $ 1,328,240,589 $ 883,592,242
=============== ===============

See Notes to Consolidated Financial Statements.

F-2

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2004 2003
(As Restated, (As Restated,
2005 See Note 2) See Note 2)
------------ ------------ ------------

REVENUES:
Interest income .......................... $ 99,046,543 $ 59,481,422 $ 42,699,710
Purchase discount earned ................. 11,214,721 9,234,896 5,154,601
Gain on sale of notes receivable ......... 1,310,887 1,701,113 1,118,239
Gain on sale of loans held for sale ...... 1,276,566 1,444,037 1,331,322
Gain on sale of other real estate owned .. 1,758,351 542,202 1,027,130
Prepayment penalties and other income .... 6,792,146 4,787,388 4,330,263
------------ ------------ ------------
Total revenues ......................... 121,399,214 77,191,058 55,661,265
------------ ------------ ------------

OPERATING EXPENSES:
Interest expense ......................... 68,329,965 33,166,815 21,601,651
Collection, general and administrative ... 28,700,133 21,752,591 16,989,446
Provision for loan losses ................ 4,745,126 3,705,333 3,164,103
Amortization of deferred financing costs . 4,105,218 2,761,476 1,979,208
Depreciation ............................. 1,077,296 494,890 505,012
------------ ------------ ------------
Total expenses ......................... 106,957,738 61,881,105 44,239,420
------------ ------------ ------------

INCOME BEFORE PROVISION FOR INCOME TAXES .. 14,441,476 15,309,953 11,421,845
PROVISION FOR INCOME TAXES ................ 6,572,701 6,943,345 5,253,950
------------ ------------ ------------
INCOME BEFORE ACCOUNTING CHANGE ........... 7,868,775 8,366,608 6,167,895
------------ ------------ ------------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF INCOME TAXES OF $450,600 ......... -- -- (528,820)
------------ ------------ ------------
NET INCOME ................................ $ 7,868,775 $ 8,366,608 $ 5,639,075
============ ============ ============

EARNINGS PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE:
Basic .................................... $ 1.19 $ 1.41 $ 1.04
------------ ------------ ------------
Diluted .................................. $ 1.09 $ 1.25 $ 0.95
------------ ------------ ------------

EARNINGS PER SHARE FROM CUMULATIVE EFFECT
OF ACCOUNTING CHANGE:
Basic .................................... $ -- $ -- $ (0.09)
------------ ------------ ------------
Diluted .................................. $ -- $ -- $ (0.08)
------------ ------------ ------------

NET INCOME PER COMMON SHARE:
Basic .................................... $ 1.19 $ 1.41 $ 0.95
------------ ------------ ------------
Diluted .................................. $ 1.09 $ 1.25 $ 0.86
------------ ------------ ------------

WEIGHTED AVERAGE NUMBER OF SHARES
Outstanding, basic ....................... 6,629,108 5,926,878 5,916,527
Diluted potential common shares .......... 574,664 767,844 605,472
Outstanding, diluted ..................... 7,203,772 6,694,722 6,521,999
============ ============ ============

See Notes to Consolidated Financial Statements.

F-3

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

Common Stock and
Additional Paid-in
Capital
----------------------------
Retained Unearned
Shares Amount Earnings Compensation Total
------------ ------------ ------------ ------------ ------------

BALANCE, JANUARY 1, 2003
(AS PREVIOUSLY REPORTED) 5,916,527 $ 7,045,135 $ 5,948,714 $ -- $ 12,993,849

Prior period adjustment . -- -- (1,223,965) -- (1,223,965)
------------ ------------ ------------ ------------ ------------

BALANCE, JANUARY 1, 2003
(RESTATED) ............. 5,916,527 7,045,135 4,724,749 -- 11,769,884

Net income (Restated) ... -- -- 5,639,075 -- 5,639,075
------------ ------------ ------------ ------------ ------------

BALANCE, DECEMBER 31, 2003
(RESTATED) ............. 5,916,527 7,045,135 10,363,824 -- 17,408,959
------------ ------------ ------------ ------------ ------------

Issuance of common and
restricted stock ........ 120,768 1,230,006 -- (1,099,000) 131,006
Exercise of options ..... 25,000 18,750 -- -- 18,750
Issuance of in-the-money
stock options ........... -- 220,510 -- -- 220,510
Net income (Restated) ... -- -- 8,366,608 -- 8,366,608
------------ ------------ ------------ ------------ ------------

BALANCE, DECEMBER 31, 2004
(RESTATED) ............. 6,062,295 8,514,401 18,730,432 (1,099,000) 26,145,833
------------ ------------ ------------ ------------ ------------

Stock offering, net ..... 1,265,000 12,592,616 -- -- 12,592,616
Exercise of options ..... 221,000 224,785 -- -- 224,785
Restricted stock activity (9,000) (39,550) -- 801,709 762,159
Net income .............. -- -- 7,868,775 -- 7,868,775
------------ ------------ ------------ ------------ ------------

BALANCE, DECEMBER 31, 2005 7,539,295 $ 21,292,25 $ 26,599,207 $ (297,291) $ 47,594,168
============ ============ ============ ============= ============

See Notes to Consolidated Financial Statements.

F-4

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2004 2003
(As Restated, (As Restated,
2005 See Note 2) See Note 2)
------------- ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 7,868,775 $ 8,366,608 $ 5,639,075
Adjustments to reconcile income to net cash provided by/(used in)
operating activities:
Gain on sale of notes receivable ............................................ (1,310,887) (1,701,113) (1,118,239)
Gain on sale of other real estate owned ..................................... (1,758,351) (542,202) (1,027,130)
Gain on sale of originated loans held for sale .............................. (1,276,566) (1,444,037) (1,331,322)
Depreciation ................................................................ 1,077,296 494,890 505,012
Amortization of deferred costs and fees on originated loans ................. 157,317 -- --
Amortization of deferred financing costs .................................... 4,105,218 2,761,476 1,979,208
Amortization of debt discount and success fees .............................. 825,558 767,820 146,353
Cumulative effect of change in accounting for embedded derivative ........... -- -- 979,420
Non-cash compensation ....................................................... 762,159 240,110 --
Proceeds from the sale of and principal collections on loans held for sale .. 58,096,014 102,331,140 82,141,543
Origination of loans held for sale .......................................... (58,281,668) (108,432,590) (97,143,554)
Deferred tax provision ...................................................... 832,190 1,279,282 (757,386)
Purchase discount earned .................................................... (11,214,721) (9,234,896) (5,154,601)
Provision for loan losses ................................................... 4,745,126 3,705,333 3,164,103
Changes in operating assets and liabilities:
Accrued interest receivable ............................................. (4,835,712) (4,173,833) (174,804)
Other receivables ....................................................... (1,943,005) (2,472,765) (634,192)
Other assets ............................................................ 2,164,174 (2,591,484) (42,199)
Accounts payable and accrued expenses ................................... 3,760,491 3,532,463 943,554
------------- ------------- -------------
Net cash provided by/(used in) operating activities .................. 3,773,407 (7,113,798) (11,800,761)
------------- ------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ................................................... (2,488,110) (3,650,322) (10,676,214)
Purchase of notes receivable .................................................. (468,324,936) (546,269,608) (213,638,801)
Principal collections on notes receivable ..................................... 271,674,377 209,206,383 156,924,859
Principal collections on loans held for investment ............................ 102,176,991 8,693,192 --
Origination of loans held for investment ...................................... (367,253,790) (92,818,695) --
Investment in short-term securities ........................................... (16,954,019) -- (203,771)
Proceeds from sale of other real estate owned ................................. 32,343,836 20,856,448 16,407,503
Proceeds from sale of loans held for investment ............................... 8,375,669 1,233,122 --
Proceeds from sale of notes receivable ........................................ 15,120,539 20,241,957 15,648,149
Purchase of building, furniture and fixtures .................................. (2,899,445) (527,585) (650,858)
------------- ------------- -------------
Net cash used in investing activities ................................ (428,228,888) (383,035,108) (36,189,133)
------------- ------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ................................................... 836,608,815 663,023,803 226,367,253
Principal payments of notes payable ........................................... (437,443,092) (282,753,609) (194,185,553)
Proceeds from financing agreements ............................................ 429,592,146 206,219,638 101,322,968
Principal payments of financing agreements .................................... (411,848,265) (189,994,734) (89,565,036)
Payment of deferred financing costs ........................................... (6,512,750) (5,309,462) (2,564,246)
Exercise of options ........................................................... 224,785 18,500 --
Proceeds from issuance of common stock ........................................ 12,592,616 110,400 --
------------- ------------- -------------
Net cash provided by financing activities ............................ 423,214,255 391,314,536 41,375,386
------------- ------------- -------------

NET CHANGE IN CASH AND CASH EQUIVALENTS ....................................... (1,241,226) 1,165,630 (6,614,508)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................................. 5,127,732 3,962,102 10,576,610
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................ $ 3,886,506 $ 5,127,732 $ 3,962,102
============= ============= =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest .................................................... $ 64,743,849 $ 30,296,647 $ 21,204,660
============= ============= =============
Cash payments for taxes ....................................................... $ 3,628,439 $ 7,849,900 $ 5,713,700
============= ============= =============

NON-CASH INVESTING AND FINANCING ACTIVITY:
Transfer of loans from held for sale to loans held for investment ............. $ 5,278,073 $ 18,067,224 $ 13,721,717
============= ============= =============
Transfer from notes receivable to OREO ........................................ $ 48,239,717 $ 35,624,810 $ 28,269,241
============= ============= =============
Capital lease ................................................................. $ 916,890 $ -- $ --
============= ============= =============

See Notes to Consolidated Financial Statements.

F-5

FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
- --------------------------------------------------------------------------------

1. ORGANIZATION AND BUSINESS

As used herein references to the "Company," "FCMC," "we," "our" and "us"
refer to Franklin Credit Management Corporation, collectively with its
subsidiaries.

In August 2005, we completed the public offering of 1,265,000 of shares of
our common stock at a public offering price of $11.50 per share (including an
exercise in full of the underwriter's over allotment option to purchase 165,000
shares). The offering resulted in net proceeds to us and the addition to equity
of approximately $12.6 million. In conjunction with the public offering, the
Company's common stock ceased to be quoted on the Over-the-Counter Bulletin
Board under the symbol "FCSC" and commenced trading on The Nasdaq National
Market under the symbol "FCMC."

2. RESTATEMENT

The Company has restated its previously issued financial statements for
the years 2004 and 2003, for the first three quarters in 2005 and the quarterly
periods in 2004. These restatements and resulting revisions relate principally
to the accounting treatment of certain fees and costs related to the successful
acquisition of pools of residential mortgage loans (the "acquisition fees") and
the accounting treatment of success fees that are both currently and potentially
payable to the Company's primary lending bank following repayment of existing
term debt (the "success fees").

The acquisition fees and costs had previously been deferred and amortized
over the estimated life of the acquired assets. The restated financial
statements reflect the expensing of such fees and costs directly related to
successful investments in purchased pools of residential mortgage loans under
Statement of Financial Accounting Standards ("SFAS") No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases. The restatement affects the timing of
recognition of these costs but not the fundamental economics of the investment
in these pools of loans or the Company's business. Specifically, they do not
impact the Company's cash operations of the business, operations, investment
decisions or compliance with borrowing agreements with the Company's lenders.
All other costs related to the Company's loan purchase activities were expensed
in the period incurred.

F-6

The Company had previously expensed the actual amounts paid for success
fees to its principal lender following repayment of existing term debt. The
restated financial statements reflect as of October 1, 2003, the adoption of the
accounting required by SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, Implementation Issue No. B36 ("B36") for the bifurcation of
an embedded derivative related to success fees currently and potentially payable
to our principal lender following the repayment of notes payable. The effect of
adopting B36 was recorded as a cumulative effect of accounting change in 2003 in
the amount of $528,820, net of tax. B36 requires the success fee to be
bifurcated from the notes payable and recorded as an embedded derivative at fair
value each reporting period.

In addition, the Company restated (for the periods referred to above)
previously reported "Cash and cash equivalents" to classify the restricted
portion separately on the balance sheet with related adjustments to the
statements of cash flows in accordance with SFAS No. 95, Statement of Cash
Flows, and restated the presentation of deferred origination costs for loans
sold by reclassifying these costs from "Collection, general and administrative"
expenses to "Gain on sale of originated loans held for sale." Neither
restatement had an impact on previously reported net income. The Company's
restated financial statements also include certain other adjustments.

The net after-tax effects of the restatement on the Company's consolidated
net income for the fiscal years 2004 and 2003 follow.

(As Previously Acquisition Costs Success Fees Net Income
Reported) (SFAS No. 91) (SFAS No. 133) Other (Restated)
-------------- ----------------- ------------- --------- ------------

2003..... $ 6,685,457 $ (556,175) $ (607,823) $ 117,616 $ 5,639,075

2004..... $ 9,506,310 $ (931,440) $ (417,155) $ 208,893 $ 8,366,608

F-7

The significant effects of the restatement on the Company's consolidated
financial statements for the fiscal years 2004 and 2003 follow.

Restated Balance Sheet Information as of December 31, 2004

December 31, 2004
-----------------------------
As Previously
Reported Restated
------------- -------------
ASSETS:
Cash and cash equivalents ..................... $ 19,519,659 $ 5,127,732
Restricted cash ............................... 128,612 14,520,539
Deferred tax asset ............................ 583,644 44,720
Other assets .................................. 10,577,344 3,197,756
Total assets .................................. 891,510,754 883,592,242

LIABILITIES:
Notes payable, net of debt discount of
$2,131,041 .................................... 807,718,038 805,586,997
Accounts payable and accrued expenses ......... 11,572,764 8,294,573
Success fee liability ......................... -- 4,024,634
Deferred tax liability ........................ 3,123,865 0
Total liabilities ............................. 861,954,872 857,446,409

STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital ... 7,415,401 8,514,401
Unearned compensation ......................... -- (1,099,000)
Retained earnings ............................. 22,140,181 18,730,432
Total stockholders' equity .................... 29,555,882 26,145,833

Total liabilities and stockholders' equity .... 891,510,754 883,592,242

F-8

Restated Statement of Income Information for Years Ended December 31, 2004 and
2003

YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2004 2003
--------------------------- ---------------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
------------ ------------ ------------ ------------

REVENUES:
Gain on sale of loans held for sale .. $ 3,689,616 $ 1,444,037 $ 3,236,616 $ 1,331,322
Prepayment penalties and other income 5,835,766 4,787,388 4,330,263 4,330,263
Total revenues ....................... 80,485,015 77,191,058 57,566,559 55,661,265

OPERATING EXPENSES:
Interest expense ..................... 32,795,347 33,166,815 21,672,993 21,601,651
Collection, general and administrative 23,321,659 21,752,591 17,864,786 16,989,446
Total expenses ....................... 63,078,075 61,881,105 45,186,102 44,239,420

INCOME BEFORE PROVISION FOR INCOME TAXES 17,406,310 15,309,953 12,380,457 11,421,845
PROVISION FOR INCOME TAXES ............. 7,900,000 6,943,345 5,695,000 5,253,950
INCOME BEFORE ACCOUNTING CHANGE ........ 9,506,310 8,366,608 6,685,457 6,167,895
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF INCOME TAXES OF $450,600 .... -- -- -- (528,820)
NET INCOME ............................. 9,506,310 8,366,608 6,685,457 5,639,075

EARNINGS PER SHARE:
Basic ................................ $ 1.60 $ 1.41 $ 1.13 $ .95

Diluted .............................. $ 1.43 $ 1.25 $ 1.02 $ .86
Weighted average shares-basic ........ 5,941,462 5,926,878 5,916,527 5,916,527

Weighted average shares-diluted ...... 6,648,381 6,694,723 6,536,639 6,521,999

F-9

Restated Statement of Cash Flows Information for Years Ended December 31, 2004 and 2003

2004 2003
----------------------------- -----------------------------
As Previously As Previously
Reported Restated Reported Restated
------------- ------------- ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 9,506,310 $ 8,366,608 $ 6,685,457 $ 5,639,075
Adjustments to reconcile income to net
cash provided by/(used in) operating
activities:
Gain on sale of originated loans held for sale -- (1,444,037) -- (1,331,322)
Amortization of debt discount and success fees -- 767,820 -- 146,353
Proceeds from the sale of and principal
collections on loans held for sale ........... 100,887,103 102,331,140 80,810,231 82,141,543
Deferred income taxes ......................... 1,910,530 1,279,282 234,343 (757,386)
Changes in operating assets and liabilities:
Other assets ............................... (6,655,110) (2,591,484) (1,087,834) (42,199)
Accounts payable and accrued expenses ...... 6,592,959 3,532,463 1,161,249 943,554
Net cash provided by/(used in)
operating activities ................. (7,113,798) (7,113,798) (11,800,761) (11,800,761)

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ..................... 284,831 (3,650,322) (219,440) (10,676,214)
Loan fees ....................................... (5,309,462) -- (2,564,246) --
Net cash used in investing activities ... (384,409,417) (383,035,108) (28,296,605) (36,189,133)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred financing costs ............. -- (5,309,462) -- (2,564,246)
Net cash provided by financing activities 396,623,998 391,314,536 43,939,632 41,375,386

NET CHANGE IN CASH AND CASH EQUIVALENTS ......... 5,100,783 1,165,630 3,842,266 (6,614,508)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .... 14,418,876 3,962,102 10,576,610 10,576,610
CASH AND CASH EQUIVALENTS, END OF YEAR .......... 19,519,659 5,127,732 14,418,876 3,962,102

F-10

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - 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.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The most significant estimates of the Company are allowance for loan
losses and success fee liability. The Company's estimates and assumptions
primarily arise from risks and uncertainties associated with interest rate
volatility and credit exposure. Although management is not currently aware of
any factors that would significantly change its estimates and assumptions in the
near term, future changes in market trends and conditions may occur which could
cause actual results to differ materially.

Operating Segments -SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, requires companies to report financial and
descriptive information about their reportable operating segments, including
segment profit or loss, certain specific revenue and expense items, and segment
assets. The Company has two reportable operating segments: (i) portfolio asset
acquisition and resolution; and (ii) mortgage banking. The portfolio asset
acquisition and resolution segment acquires performing, reperforming or
nonperforming notes receivable and promissory notes from financial institutions
and mortgage and finance companies, and services and collects such notes
receivable through enforcement of terms of the original note, modification of
original note terms and, if necessary, liquidation of the underlying collateral.
The mortgage-banking segment originates or purchases, subprime residential
mortgage loans from individuals whose credit histories, income and other factors
cause them to be classified as subprime borrowers. (See Note 11).

Earnings Per Share - Basic earnings per share is calculated by dividing
net income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding, including the dilutive
effect, if any, of stock options outstanding, warrants and restricted stock
calculated under the treasury stock method. The effects of warrants, restricted
stock units and stock options are excluded from the computation of diluted
earnings per common share in periods in which the effect would be antidilutive.
Dilutive potential common shares are calculated using the treasury stock method.
At December 31, 2005, 97,500 options were not included in the computation of
earnings per share because they were antidilutive.

Cash and Cash Equivalents - Cash and cash equivalents includes cash and
certain investments with original maturities of three months or less, with the
exception of restricted cash, which is reported separately on the Company's
balance sheets. The Company maintains accounts at banks, which at times may
exceed federally insured limits. The Company has not experienced any losses from
such concentrations.

Restricted Cash - Restricted cash includes interest and principal
collections received on the Company's portfolio of notes receivable and loans,
substantially all of which is required to pay down current debt obligations with
its lending banks.

F-11

Short-term Investments - The Company's short-term investments include U.S.
treasury bills and investment-grade commercial paper. The Company's short-term
investment policy is structured to provide an adequate level of liquidity in
order to meet normal working capital needs and expansion of the loan portfolio.
All short-term investments are classified as available for sale and recorded at
fair value.

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 performing, non-performing or sub-performing at the time of purchase and are
generally purchased at a discount from the principal balance remaining. Notes
receivable are stated at the amount of unpaid principal, reduced by purchase
discount and allowance for loan losses. Notes purchased after December 31, 2004
that meet the requirements of AICPA Statement of Position (SOP) No. 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP
03-3") are stated net of purchase discount. Impaired notes receivable 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. The Company periodically
evaluates the collectibility of both interest and principal of its notes
receivable to determine whether they are impaired. A note receivable is
considered 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 principal amount
outstanding using the accrual 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 borrower's financial condition is such that collection of interest is
doubtful. When interest accrual is discontinued, all unpaid accrued interest is
reversed against interest income. 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 non-accrual note is
restored to an accrual status when it is no longer delinquent and collectibility
of interest and principal is no longer in doubt and past due interest is
recognized at that time.

Discounts on Acquired Loans - Effective January 1, 2005, as a result of
the required adoption of SOP 03-3 the Company was required to change its
accounting for loans acquired subsequent to December 31, 2004, which have
evidence of deterioration of credit quality since origination and for which it
is probable, at the time of our acquisition, that the Company will be unable to
collect all contractually required payments. For these loans, the excess of the
undiscounted contractual cash flows over the undiscounted cash flows estimated
by us at the time of acquisition is not accreted into income (nonaccretable
discount). The amount representing the excess of cash flows estimated by us at
acquisition over the purchase price is accreted into purchase discount earned
over the life of the loan (accretable discount).

The nonaccretable discount is not accreted into income. If cash flows
cannot be reasonably estimated for any loan, and collection is not probable, the
cost recovery method of accounting may be used. Under the cost recovery method,
any amounts received are applied against the recorded amount of the loan.

F-12

There is judgment involved in estimating the amount of the loan's future
cash flows. The amount and timing of actual cash flows could differ materially
from management's estimates, which could materially affect our financial
condition and results of operations. Depending on the timing of an acquisition,
the initial allocation of discount will be made primarily to nonaccretable
discount until the Company has boarded all loans onto its servicing system; at
that time, any cash flows expected to be collected over the purchase price will
be transferred to accretable discount. Generally, the allocation will be
finalized no later than ninety days from the date of purchase.

For loans not addressed by SOP 03-3 that are acquired subsequent to
December 31, 2004, the discount, which represents the excess of the amount of
reasonably estimable and probable discounted future cash collections over the
purchase price, is accreted into purchase discount earned using the interest
method over the term of the loans. This is consistent with the method the
Company utilizes for its accounting for loans purchased prior to January 1,
2005, except that for these loans an allowance allocation was also made at the
time of acquisition.

Allowance for Loan Losses - The Company performs reviews of its loan
portfolio upon purchase, at loan boarding, and on a frequent basis thereafter to
segment impaired loans under SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. A loan is considered impaired when it is probable that we
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the note agreement. An allowance for loan losses is
estimated based on our impairment analysis. Management's judgment in determining
the adequacy of the allowance for loan losses is based on the evaluation of
individual loans within the portfolios, the known and inherent risk
characteristics and size of the 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. In connection
with the determination of the allowance for loan losses, management obtains
independent appraisals for the underlying collateral when considered necessary.
Management believes that the allowance for loan losses is adequate. The
allowance for loan losses is a material estimate, which could change
significantly in the near term. An allowance of $67,276,155 and $89,628,299 is
included in notes receivable at December 31, 2005 and 2004, respectively.

F-13

Originated Loans Held for Investment - Originated loans held for
investment consists primarily of secured real estate first and second mortgages
originated by the Company. Such loans are performing and are carried at the
amortized cost of the loan. In general, interest on originated loans held for
investment is calculated based on contractual interest rates applied to daily
balances of the principal amount outstanding using the accrual method. Accrual
of interest is discontinued when management believes, after considering economic
and business conditions and collection efforts that the borrower's 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
non-accrual loan is restored to an accrual status when the collectibility of
interest and principal is no longer in doubt and past due interest is recognized
at that time. Loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized over the estimated
life of the related loans as a yield adjustment.

Derivatives - We have adopted as of October 1, 2003 the accounting
required by Statement 133 Implementation Issue No. B36 ("B36") for the
bifurcation of an embedded derivative related to success fees currently and
potentially payable to our principal lender following the repayment of notes
payable. The effect of adopting B36 was recorded as a cumulative effect of
accounting change in 2003 in the amount of $528,820, net of tax. B36 requires
the success fee to be bifurcated from the notes payable and recorded as an
embedded derivative at fair value each reporting period. Fair value has been
determined by discounting the estimated future success fee payments at an
appropriate discount rate. See Note 6 for a description of success fees. The
Company does not hold any other derivative financial instruments.

Building, Furniture and Equipment - Building, furniture and equipment,
including leasehold improvements, is recorded at cost net of accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, which range from 3 to 40
years. Amortization of leasehold improvements is computed using the
straight-line method over the lives of the related leases or useful lives of the
related assets, whichever is shorter. Maintenance and repairs are expensed as
incurred.

F-14

Deferred Financing Costs - Deferred financing costs, which include
origination fees incurred in connection with obtaining term loan financing from
our banks, are deferred and are amortized over the term of the related loan.

Retirement Plan - The Company maintains a savings plan, which is intended
to qualify under Section 401(k) of the Internal Revenue Code. All employees are
eligible to be a participant in the plan. The plan provides for voluntary
contributions by participating employees in amounts up to 20% of their annual
compensation, subject to certain limitations. Currently, the Company matches 50%
of the first 3% of the employee's contribution. The Company contributed $109,882
and $65,147 in 2005 and 2004, respectively.

Income Taxes - Income taxes are accounted for under SFAS No. 109,
Accounting for Income Taxes, which requires an asset and liability approach in
accounting for income taxes. This method provides for deferred income tax assets
or liabilities based on the temporary difference between the income tax basis of
assets and liabilities and their carrying amount in the consolidated financial
statements. 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 of the changes.

Prepayments and Other Income - Prepayment and other income consists of
prepayment penalties, late charges, and other miscellaneous income. Such income
is recognized on a cash basis.

Fair Value of Financial Instruments - SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information of
financial instruments, whether or not recognized in the balance sheets, 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 non-financial assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts do not
represent the underlying value of the Company.

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

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

b. Short-term Investments - These investments mature monthly;
therefore, the carrying values reported in the consolidated balance
sheets are a reasonable estimate of fair value.

c. Notes Receivable - Fair value of the net note receivable portfolio
is estimated by discounting the estimated future cash flows using
the interest method. The fair value of notes receivable at December
31, 2005 and 2004 was equivalent to their carrying value of
$849,571,318 and $689,963,888, respectively.

F-15

d. Loans Held for Investment, Loans Held for Sale - The carrying values
reported in the consolidated balance sheets are a reasonable
estimate of fair value. The fair value of loans held for investment
at December 31, 2005 and 2004 was equivalent to their carrying value
of $372,315,935 and $110,496,274, respectively. The fair value of
loans held for sale at December 31, 2005 and 2004 was equivalent to
their carrying value of $12,844,852 and $16,851,041, respectively.

e. Short-term Borrowings - The interest rates on financing agreements
and other short-term borrowings reset on a monthly basis; therefore,
the carrying amounts of these liabilities approximate their fair
value. The fair value at December 31, 2005 and 2004 was $57,284,085
and $39,540,205, respectively.

f. Long-term Debt - The interest rate on the Company's long-term debt
(notes payable) is a variable rate that resets monthly; therefore,
the carrying value reported in the balance sheet approximates fair
value at $1,203,880,994 and $805,586,997 at December 31, 2005 and
2004, respectively.

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; therefore, net income was
the same as its comprehensive income for all periods presented.

Accounting for Stock-Based Compensation - We have adopted the disclosure
requirements of SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, effective December 2002. SFAS No. 148
amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation and also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the methods of accounting for stock based
employee compensation and the effect of the method used on reported results. As
permitted by SFAS No. 148 and SFAS No. 123, we continue to apply the accounting
provisions of Accounting Principles Board ("APB") Opinion Number 25, Accounting
for Stock Issued to Employees ("APB Opinion 25"), and related interpretations,
with regard to the measurement of compensation cost for options granted under
our Stock Option Plans. SFAS No. 123 and APB Opinion 25 require only that the
expense relating to employee stock options be disclosed in the footnotes to the
consolidated financial statements.

F-16

Our Stock Incentive Plan is accounted for under the recognition and
measurement principles of APB Opinion 25 and related interpretations. The
following table illustrates the effect on net income and earnings per share if
the fair value based method had been applied to all awards:

2005 2004 2003
------------- ------------- -------------

Net income - as reported ........................................... $ 7,868,775 $ 8,366,608 $ 5,639,075
Stock-based compensation expense, actual(1) ........................ 411,566 99,680 --
Stock-based compensation expense determined under fair value method,
net of related tax effects(2) .................................. (868,411) (153,042) (65,333)
------------- ------------- -------------
Net income - pro forma ............................................. $ 7,411,930 $ 8,313,246 $ 5,573,742
============= ============= =============

Earnings per share:
Basic - as reported ................................................ $ 1.19 $ 1.41 $ 0.95
Basic - pro forma .................................................. $ 1.12 $ 1.40 $ 0.94
Diluted - as reported .............................................. $ 1.09 $ 1.25 $ 0.86
Diluted - pro forma ................................................ $ 1.03 $ 1.25 $ 0.85

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

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2005, 2004 and 2003:

2005 2004 2003
------- ------- -------
Dividend yield............. 0% 0% 0%
Volatility................. 109% 83% 97%
Risk-free interest rate.... 3.85% 5% 5%
Weighted average expected
lives...................... 6 years 5 years 5 years

During 2005, 2004 and 2003, there were 106,500, 41,500 and 39,000 options
granted, respectively. The weighted average fair value per share of options
granted during 2005, 2004 and 2003 was $11.44, $5.10 and $2.41, respectively.

In December 2004, the FASB issued SFAS No. 123(R), a revision of SFAS No.
123. SFAS No. 123(R) requires that the compensation cost relating to share-based
payment transaction, including employee stock options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans, be recognized as an expense in our consolidated financial statements.
Under SFAS No. 123(R), the related compensation cost will be measured based on
the fair value of the award at the time of grant.

We are required to adopt SFAS No. 123(R) on January 1, 2006. We are
currently evaluating the prospective effect of SFAS No.123(R) on our results of
operations.

F-17

Recent Accounting Pronouncements

On February 16, 2006, the Financial Accounting Standards Board (FASB)
issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155), which
permits, but does not require, fair value accounting for any hybrid financial
instrument that contains an embedded derivative that would otherwise require
bifurcation in accordance with SFAS 133. The statement also subjects beneficial
interests issued by securitization vehicles to the requirements of SFAS 133. The
statement is effective as of January 1, 2007, with earlier adoption permitted.
Management is currently evaluating the effect of the statement, if any, on the
Corporation's results of operations and financial condition.

4. NOTES RECEIVABLE, LOANS HELD FOR INVESTMENT, LOANS HELD FOR SALE, PURCHASE
DISCOUNT AND ALLOWANCE FOR LOAN LOSSES

Notes receivable consist principally of residential one-to-four family
mortgage loans as of December 31, 2005 and 2004 secured as follows:

2005 2004
------------ ------------
Real estate secured.... $901,260,281 $777,719,050
Consumer unsecured..... 10,563,808 10,218,900
Mobile homes........... 18,748,377 16,413,026
Other.................. 4,084,947 7,534,880
------------ ------------
934,657,413 811,885,856

Less:
Purchase discount..... (17,809,940) (32,293,669)
Allowance for loan
losses................. (67,276,155) (89,628,299)
------------ ------------
Balance................ $849,571,318 $689,963,888
============ ============

Originated loans held for sale of $12,844,882 and $16,851,041 as of
December 31, 2005 and 2004, respectively, represent residential one-to-four
family (real estate secured) mortgage loans.

F-18

Originated loans held for investment represent residential one-to-four
family real estate mortgage loans as of December 31, 2005 and 2004 secured as
follows:

2005 2004
------------ ------------
Real estate secured... $374,308,419 $110,093,381
Consumer unsecured.... 75,408 58,050
Mobile homes.......... 84,219 84,707
374,468,046 110,236,138

Less:
Net deferred costs and
fees.................. (1,077,058) 591,010
Allowance for loan
losses................ (1,075,053) (330,874)
Balance............... $372,315,935 $110,496,274

The Company originated $374 million and $92 million in loans held for
investment during the years ended December 31, 2005 and 2004, respectively.

As of December 31, 2005, contractual maturities of notes receivable,
originated loans held for sale and originated loans held for investment, net of
the allowance for loan losses and nonaccretable discount, were as follows:

Notes Loans Held Loans Held
Year Ending December 31, Receivable for Sale for Investment
- ------------------------ ------------ ----------- --------------
2006................ $ 68,880,881 $ 100,345 $ 1,666,948
2007................ 53,828,818 107,990 1,799,836
2008................ 41,527,036 116,226 1,955,997
2009................ 34,571,783 125,101 2,131,983
2010................ 45,520,391 129,740 6,540,252
Thereafter.......... 634,412,967 12,265,480 358,220,919
$878,741,876 $12,844,882 $ 372,315,935

It is the Company's experience that a portion of the notes receivable
portfolio may be refinanced or repaid before contractual maturity dates. The
above tabulation, therefore, is not to be regarded as a forecast of future cash
collections. During the years ended December 31, 2005, 2004 and 2003, cash
collections of principal amounts totaled approximately $375,000,000,
$230,000,000 and $157,000,000, respectively, and the ratios of these cash
collections to average principal balances were approximately 30%, 32% and 33%,
respectively.

F-19

Changes in the allowance for loan losses on notes receivable for the years
ended December 31, 2005, 2004 and 2003 are as follows:

2005 2004 2003
------------ ------------ ------------

Balance, beginning ........................ $ 89,628,299 $ 46,247,230 $ 45,841,651

Allowance allocated on purchased portfolios -- 53,836,759 11,413,944
Net change in allowance ................... (26,029,871) (14,161,023) (14,172,468)
Provision for loan losses ................. 3,677,727 3,705,333 3,164,103
------------ ------------ ------------

Balance, ending ........................... $ 67,276,155 $ 89,628,299 $ 46,247,230
============ ============ ============

The net change in allowance presented above represents charge-offs,
recoveries, payoffs, transfers to OREO and subsequent increases in the allowance
for notes receivable.

Changes in the allowance for loan losses on loans held for sale and loans
held for investment for the years ended December 31, 2005, 2004 and 2003 are as
follows:

2005 2004 2003
----------- ----------- -----------

Balance, beginning ............. $ 330,874 $ 178,283 $ 268,966

Net change in allowance ........ (257,100) (182,939) (154,262)
Provision for loan losses ...... 1,004,388 335,530 63,579

Balance, ending ................ $ 1,078,162 $ 330 $ 178,283

At December 31, 2005, 2004 and 2003, principal amounts of notes receivable
included approximately $245,000,000, $307,000,000 and $126,000,000,
respectively, of notes for which there was no accrual of interest income. The
following information relates to impaired notes receivable, which include all
such notes receivable as of and for the years ended December 31, 2005, 2004 and
2003:

2005 2004 2003
------------ ------------ ------------

Total impaired notes receivable.......................... $244,986,933 $306,840,734 $126,341,722

Allowance for loan losses related to impaired
notes receivable..................................... $ 43,691,572 $ 68,858,866 $ 30,111,278

Average balance of impaired notes receivable
during the year...................................... $275,913,834 $216,591,228 $122,737,925

Interest income recognized............................... $ 18,467,499 $ 9,959,069 $ 2,196,003

In the normal course of business, the Company restructures or modifies
terms of notes receivable to enhance the collectibility of certain notes that
were impaired at the date of acquisition and were included in certain portfolio
purchases.

F-20

The following table sets forth certain information relating to the
activity in the accretable and nonaccretable discounts, which are shown as a
component of notes receivable principal on the balance sheet, in accordance with
SOP 03-3 for the periods indicated:

Year Ended
December 31, 2005
-----------------
Accretable Discount
Balance, beginning of period ........ $ --
New Acquisitions .................... 11,342,596
Accretion ........................... (1,587,094)
Transfers from nonaccretable ........ 1,912,245
Net reductions relating to loans sold (163,857)
Net reductions relating to loans
repurchased ......................... (54,782)
Other ............................... (88,491)
----------------
Balance, end of period .............. $ 11,360,617
================

Year Ended
December 31,
2005
Nonaccretable Discount
Balance, beginning of period ........ $ --
New Acquisitions .................... 26,671,609
Transfers to accretable ............. (1,912,245)
Net reductions relating to loans sold (71,047)
Net reductions relating to loans
repurchased ......................... (47,133)
Other, loans transferred to OREO .... (660,171)
----------------
Balance, end of period .............. $ 23,981,013
================

The Company purchased $436,347,807 of loans subject to SOP 03-3 during
2005. The outstanding balance of notes receivable subject to SOP 03-3 at
December 31, 2005 was $386,809,153.

5. BUILDING, FURNITURE AND EQUIPMENT

At December 31, 2005 and 2004, building, furniture and equipment consisted
of the following:

2005 2004
------------ ------------
Building and improvements.... $ 2,827,258 $ 1,234,202
Furniture and equipment...... 4,482,924 2,259,644
------------ ------------
7,310,182 3,493,846

Less accumulated depreciation (3,280,701) (2,203,404)
------------ ------------
$ 4,029,481 $ 1,290,442
============ ============

6. NOTES PAYABLE

Notes payable consists primarily of loans ("Subsidiary Loans") made to the
Company by Sky Bank, an Ohio banking corporation (the "Bank" or "Senior Debt
Lender") and its participant banks to acquire portfolios of notes receivable
("Pledged Collateral") and term loans made by the Senior Debt Lender to Tribeca
Lending Corporation ("Tribeca") to principally finance originated loans held for
investment (collectively with Subsidiary Loans, "Notes Payable").

F-21

Master Credit Facility

On October 13, 2004, the Company, and its finance subsidiaries, excluding
Tribeca, entered into a Master Credit and Security Agreement with Sky Bank,
which we refer to as our lender. Under this master credit facility, we request
loans to finance the purchase of residential mortgage loans or refinance
existing outstanding loans. The facility does not include a commitment to
additional lendings, which are therefore subject to our lender's discretion as
well as any regulatory limitations to which our lender is subject. The facility
terminates on October 13, 2006. As of December 31, 2005 and 2004, the amounts
outstanding under the master credit facility were $884.4 million and $724.9
million, respectively.

Interest on the loans is payable monthly at a floating rate equal to the
highest Federal Home Loan Bank of Cincinnati 30-day advance rate as published
daily by Bloomberg under the symbol FHL5LBRI, or "the 30-day advance rate," plus
the applicable margin as follows:

For Loans Funded
Prior to July 1, 2005 On or After July 1, 2005
------------------------ ------------------------

If the 30-day advance rate is the applicable margin is the applicable margin is
Less than 2.26%........................... 350 basis points 300 basis points
2.26 to 4.50%............................. 325 basis points 275 basis points
Greater than 4.50%........................ 300 basis points 250 basis points

In addition, upon each closing of a Subsidiary Loan after June 30, 2005,
we are required to pay an origination fee equal to 0.75% of the amount of the
Subsidiary Loan unless otherwise agreed to by our lender and the subsidiary. For
loans funded prior to July 1, 2005, the origination fee paid was 1% of the
amount of the Subsidiary Loan unless otherwise agreed to by our lender and the
subsidiary.

The unpaid principal balance of each loan is amortized over a period of
twenty years, but matures three years after the date the loan was made.
Historically, our lender has agreed to extend the maturities of such loans for
additional three-year terms upon their maturity. We are required to make monthly
payments of the principal on each of our outstanding loans.

Our obligations under the master credit facility are secured by a first
priority lien on notes receivable acquired by us that are financed by proceeds
of loans made to us under the facility. In addition, pursuant to a lockbox
arrangement, our lender is entitled to receive all sums payable to us in respect
of any of the collateral.

Term Loans

As of December 31, 2005 and 2004, Tribeca, through its subsidiaries, had
borrowed an aggregate of $322.3 million and $82.5 million, respectively, in term
loans used to refinance outstanding advances under the warehouse facility. Each
of the term loans is made pursuant and subject to a term loan and security
agreement, or term loan agreement, between Tribeca and our lender. Interest on
the loans is payable monthly at a floating rate equal to the highest Federal
Home Loan Bank of Cincinnati 30-day advance rate published by Bloomberg under
the symbol FHL5LBRI, plus the applicable margin. The interest rate on Tribeca's
term loans is based on the same rate and margin matrix as loans made under the
Master Credit Facility. In addition, upon the closing of each term loan, the
applicable subsidiary-borrower pays an origination fee of approximately 0.50% of
the amount of the loan, and pays certain other fees at the termination of the
applicable term loan. The origination fee was 1% of the amount of the loan for
loans funded prior to July 1, 2005. The unpaid balance of each term loan is
amortized over a period of 20 years, but matures three years after the loan was
made. Each term loan is subject to mandatory payment under certain
circumstances. Each subsidiary-borrower is required to make monthly payments of
the principal of its outstanding loan. Each term loan is secured by a lien on
certain promissory notes and hypothecation agreements, as well as all monies,
securities and other property held by, received by or in transit to our lender.
The term loan agreements contain affirmative and negative covenants and events
of default customary for financings of this type. At December 31, 2005, Tribeca
was in compliance with the covenants of its term loan agreements.

F-22

As part of the master credit facility and term loans, the Company is
required to pay the Senior Debt Lender a fee on each Subsidiary Loan contingent
on the successful payoff of the Subsidiary Loan ("Success Fee"). After payoff,
the Success Fee is based generally on the lesser of (i) up to 0.50%, or 50 basis
points, of the Subsidiary Loan's original principal balance (most of the success
fees are 0.50%) or (ii) 50% of the remaining cash flows from the Subsidiary
Loan's Pledged Collateral. On December 30, 2004, the Company executed an
amendment to the Credit Agreement ("Amendment"). As part of the Amendment, the
Company agreed that, in addition to any Success Fees previously paid the Senior
Debt Lender, and based on an analysis of the likelihood and timing of the
payment of the Success Fees due, an aggregate Success Fee of $2,952,830 would be
payable in accordance with the terms of the Credit Agreement for certain
Subsidiary Loans entered into with the Senior Debt Lender, prior to December 31,
2003. The Amendment also provides for a separate fee of approximately $198,000
from certain Tribeca originated loans which is to be paid over a 23-month period
that began in January 2005 and additionally states that no Success Fees would be
due on certain other Subsidiary Loans representing approximately $2.2 million of
potential Success Fees. At December 31, 2005 and 2004, the success fee liability
was $5.7 million and $4.0 million, respectively.

As of December 31, 2005 and 2004, the Company had Notes Payable, which
includes amounts due under the master credit facility and the term loans, with
an aggregate principal balance of $1,206,883,761 and $807,718,038, respectively.
All Notes Payable are secured by an interest in the notes receivable, payments
to be received under the notes receivable and the underlying collateral securing
the notes receivable. At December 31, 2005, approximately $10,985,542 of the
Notes Payable accrues interest at a rate of prime plus a margin of 0% to 1.75%,
$451,723,729 accrues interest at the FHLB 30-day LIBOR advance rate plus 2.5%,
$18,541,308 accrues interest at the FHLB 30-day LIBOR advance rate plus 2.75%,
$467,896,823 accrues interest at the FHLB 30-day LIBOR advance rate plus 3.0%,
$256,229,988 accrues interest at the FHLB 30-day LIBOR advance rate plus 3.25%,
$409,967 accrues interest at the FHLB 30-day LIBOR advance rate plus 3.375% and
$907,581 accrues interest at the FHLB 30-day LIBOR advance rate plus 3.875%. The
remaining $188,823 accrues interest at 8.93%.

At December 31, 2005 and 2004, the weighted average interest rate on the
Notes Payable was 7.28% and 5.73%, respectively. The above loans also require
additional monthly principal reductions based on cash collections received by
the Company.

Aggregate contractual maturities of all notes payable at December 31, 2005
are as follows:

2006.................... $ 105,166,968
2007.................... 424,262,568
2008.................... 560,423,570
2009.................... 115,507,114
2010.................... 83,667
Thereafter.............. 1,439,874
--------------
$1,206,883,761
==============

F-23

In the first quarter of 2006, Tribeca and certain of its subsidiaries
entered into master credit and security agreements with each of Sky Bank and BOS
(USA) Inc., an affiliate of Bank of Scotland. Proceeds from the BOS facility
were used to refinance and consolidate certain of Tribeca's and its
subsidiaries' term loans. For descriptions of the master credit and security
agreements, see Note 16 ("Subsequent Events.")

7. FINANCING AGREEMENTS

The Company and Tribeca have the following financing agreements:

Our Tribeca subsidiary entered into a warehousing credit and security
agreement with Sky Bank on October 18, 2005, which replaced the facility as
amended on April 7, 2004. The agreement provides for a commitment of $60 million
that expires on April 30, 2006. This warehouse financing agreement provides
Tribeca with the ability to borrow a maximum of $60 million at a rate equal to
Sky Bank's prime rate less 50 basis points, or a floor of 5%, if prime is lower
than 5%. This credit facility is to be utilized for the purpose of originating
mortgage loans. As of December 31, 2005 and 2004, $56.3 million and $39.0
million, respectively, were outstanding under the warehouse financing agreement.
The prime rate at December 31, 2005 and December 31, 2004 was 7.25% and 5.25%,
respectively.

The Company and Sky Bank have entered into a credit facility, which
provides the Company with the ability to borrow a maximum of $2,500,000 at a
rate equal to the Bank's prime rate plus 2% per annum. The credit facility may
be utilized to pay real estate taxes or to purchase the underlying collateral of
certain nonperforming real estate secured loans. Principal repayment of each
respective advance is due six months from the date of such advance and interest
is payable monthly. As of December 31, 2005 and 2004, $948,104 and $419,663,
respectively, were outstanding on this credit facility. The credit facility is
secured by a first priority security interest in the respective notes
receivable, any purchased real estate, payments received under the notes
receivable, and collateral securing the notes of certain loan portfolios.

The Company has entered into a line of credit with another bank, which
provides the Company with an unsecured line of credit to borrow a maximum of
$150,000 at a rate equal to such bank's prime rate plus 1% per annum. As of
December 31, 2005, and 2004, $74,736 and $86,736, respectively, are outstanding
on this line of credit. The prime rate at December 31, 2005 and December 31,
2004 was 7.25% and 5.25%, respectively.

F-24

8. INCOME TAXES

The components of the income tax provision for the years ended December
31, 2005, 2004 and 2003 are as follows:

2005 2004 2003
---------- ---------- ----------
Current provision:
Federal................... $4,473,969 $4,402,022 $4,504,771
State and local........... 1,266,561 1,227,285 1,406,486
---------- ---------- ----------
5,740,530 5,629,307 5,911,257
---------- ---------- ----------

Deferred provision:
Federal................... 633,188 999,812 (500,125)
State and local........... 199,003 314,226 (157,182)
---------- ---------- ----------
832,191 1,314,038 (657,307)
---------- ---------- ----------
Provision................... $6,572,721 $6,943,345 $5,253,950
========== ========== ==========

A reconciliation of the anticipated income tax expense (computed by
applying the Federal statutory income tax rate to income before income tax
expense) to the provision for income taxes in the accompanying consolidated
statements of income for the years ended December 31, 2005, 2004 and 2003 is as
follows:

2005 2004 2003
---------- ---------- ----------
Tax determined by applying
U.S. statutory rate to income $5,054,517 $5,358,484 $3,997,646
Increase in taxes resulting from:
State and local taxes,
net of Federal benefit .... 1,465,544 1,541,511 1,249,304
Meals and entertainment ....... 52,640 43,350 7,000
---------- ---------- ----------
$6,572,701 $6,943,345 $5,253,950
========== ========== ==========

The tax effects of temporary differences that give rise to
significant components of deferred tax assets and deferred tax liabilities at
December 31, 2005 and 2004 are presented below:

2005 2004
----------- -----------
Deferred liabilities:
Purchase discount ............... $ 2,635,956 $ 1,690,175
Deferred costs .................. 2,879,582 1,433,690
Restricted stock ................ 118,280 495,000
----------- -----------
Deferred tax liabilities . $ 5,633,818 $ 3,618,865
=========== ===========

Deferred tax assets:
Inventory, repossessed collateral $ 427,664 $ 583,644
Accrued expenses ................ 516,775 --
Acquisition costs ............... 2,774,275 2,257,681
Success fee ..................... 1,127,634 822,260
----------- -----------
Deferred tax assets ...... $ 4,846,348 $ 3,663,585
=========== ===========

Net deferred tax liability $ 787,470 $ (44,720)
=========== ===========

F-25

The Company has not recorded a valuation allowance, as the Company has
determined that it is more likely than not that all of the deferred tax assets
will be realized.

9. STOCK OPTION PLAN

During 1996, the Company adopted an incentive stock option plan for
certain officers and directors. Under the terms of the Plan, as amended, options
to purchase an aggregate of up to 1,600,000 shares of the Company's common stock
may be granted. Generally, each option has an exercise price at least equal to
the market price of the common stock at the time the option is granted. Options
become exercisable at various times after the date granted and unless otherwise
provided in the applicable option agreements, expire ten years after the date
granted.

On December 29, 2004, the Company granted 26,500 options to certain
members of the Board of Directors that represented vested options earned by the
directors in prior years. Compensation cost of $220,510 was recognized related
to the issuance of these options. No compensation costs was recognized for the
remaining options issued in 2005, 2004 and 2003, as the strike price of the
options equaled the value of the stock on the grant date. The majority of these
options have a ten-year life and vest over a period between two and three years.

Transactions in stock options for the years ended December 31, 2005, 2004
and 2003 under the plan are summarized as follows:

2005 2004 2003
------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
-------- -------- --------- -------- ------- --------

Outstanding options,
beginning............ 811,000 $ 1.04 1,017,500 $ 0.95 978,500 $ 0.90

Options granted...... 106,500 $ 13.57 41,500 $ 0.75 39,000 $ 2.25
Options cancelled.... (29,000) $ 5.34 (223,000) $ 0.75 - $ -
Options exercised.... (221,000) $ 1.02 (25,000) $ 0.75 - $ -

Outstanding options,
end.................. 667,500 $ 2.88 811,000 $ 1.04 1,017,500 $ 0.95

The Company has the following options outstanding at December 31, 2005:

Range of exercise price Number Number
of options: Outstanding Exercisable
- ----------------------- ----------- -----------
$0.75 412,500 412,500
$0.85 15,000 15,000
$1.04 6,000 6,000
$1.15 5,000 5,000
$1.56 92,500 92,500
$2.25 19,000 19,000
$3.55 15,000 15,000
$5.50 5,000 5,000
$12.85 21,000 21,000
$13.75 76,500 --
----------- -----------
TOTAL OPTIONS 667,500 591,000
=========== ===========

Weighted average
exercise price....... $ 2.88 $ 1.48
=========== ===========

F-26

The Company has the following warrants outstanding at December 31, 2005:

Range of exercise price Number
of warrants: Outstanding
----------------------- -----------
$5.00 10,000
$1.56 87,000
-----------
TOTAL WARRANTS 97,000
===========

Weighted Weighted Weighted
Average Average Average
Restricted Stock Shares Exercise Shares Exercise Shares Exercise
- ----------------------------------------- ------ -------- ------- -------- ------ --------

Outstanding unvested grants, beginning... 90,000 $ 11.00 -- $ -- -- $ --

Granted.................................. 31,000 $ 12.92 100,000 $ 11.00 -- $ --
Vested................................... 54,000 $ 11.14 10,000 $ 11.00 -- $ --
Canceled................................. 40,000 $ 11.00 -- $ -- -- $ --
------ -------- ------- -------- ------ --------

Outstanding unvested grants, end......... 27,000 $ 12.92 90,000 $ 11.00 -- $ --
====== ======== ======= ======== ====== ========

F-27

10. SEGMENTS

The Company has two reportable operating segments: (i) portfolio asset
acquisition and resolution; and (ii) mortgage banking. The portfolio asset
acquisition and resolution segment acquires performing, nonperforming,
nonconforming and sub-performing notes receivable and promissory notes from
financial institutions, mortgage and finance companies, and services and
collects such notes receivable through enforcement of original note terms,
modification of original note terms and, if necessary, liquidation of the
underlying collateral. The mortgage-banking segment originates or purchases for
sale and investment purposes residential mortgage loans to individuals whose
credit histories, income and other factors cause them to be classified as
subprime borrowers.

The Company's management evaluates the performance of each segment based
on profit or loss from operations before unusual and extraordinary items and
income taxes. The years 2004 and 2003 have been restated. (See Note 2).

PORTFOLIO ASSET ACQUISITION
AND RESOLUTION 2005 2004 2003
- ------------------------------------ ------------ ------------ ------------
REVENUES:
Interest income..................... $ 74,715,325 $ 52,889,964 $ 39,472,458
Purchase discount earned............ 10,754,979 8,637,055 4,912,686
Gain on sale of notes receivable.... 1,310,887 1,701,113 1,118,239
Gain on sale of other real estate
owned............................... 1,724,170 448,805 995,899
Other............................... 5,528,263 4,555,299 3,680,420
------------ ------------ ------------
Total revenues.................... 94,033,624 68,232,236 50,179,702
------------ ------------ ------------

OPERATING EXPENSES:
Interest expense.................... 51,602,872 29,901,749 20,005,884
Collection, general and administrative 25,824,139 20,111,439 14,779,193
Provision for loan losses........... 3,740,738 3,369,803 3,100,524
Amortization of deferred financing
costs............................... 2,982,031 2,426,825 1,851,339
Depreciation........................ 856,234 380,548 428,906
------------ ------------ ------------
Total operating expenses.......... 85,006,014 56,190,364 40,165,846
------------ ------------ ------------

INCOME BEFORE PROVISION
FOR INCOME TAXES.................. $ 9,027,610 $ 12,041,872 $ 10,013,856
============ ============ ============

F-28

MORTGAGE BANKING 2005 2004 2003
- -------------------------------------- -------------- ------------ ------------

REVENUES:
Interest income....................... $ 24,331,218 $ 6,591,458 $ 3,227,252
Purchase discount earned.............. 459,742 597,841 241,915
Gain on sale of loans held for sale... 1,276,566 1,444,037 1,331,322
Gain on sale of other real estate owned 34,181 93,397 31,231
Other................................. 1,263,883 232,089 649,843
-------------- ------------ ------------
Total revenues...................... 27,365,590 8,958,822 5,481,563
-------------- ------------ ------------

OPERATING EXPENSES:
Interest expense...................... 16,727,093 3,265,066 1,595,767
Collection, general and administrative 2,875,994 1,641,152 2,210,253
Provision for loan loss............... 1,004,388 335,530 63,579
Amortization of deferred financing costs 1,123,187 334,651 127,869
Depreciation.......................... 221,062 114,342 76,106
-------------- ------------ ------------
Total operating expenses............ 21,951,724 5,690,741 4,073,574
-------------- ------------ ------------

INCOME BEFORE PROVISION FOR INCOME TAXES $ 5,413,866 $ 3,268,081 $ 1,407,989
============== ============ ============

OTHER SELECTED SEGMENT RESULTS
CONSOLIDATED ASSETS:
Portfolio asset acquisition and
resolution............................ $ 924,564,871 $746,358,189 $425,812,313
Mortgage banking...................... 403,675,718 137,234,053 48,247,675
-------------- ------------ ------------
Consolidated assets................... $1,328,240,589 $883,592,242 $474,059,988
============== ============ ============

TOTAL ADDITIONS TO BUILDING, FURNITURE
AND FIXTURES:
Portfolio asset acquisition and
resolution............................ $ 3,291,282 $ 372,011 $ 503,221
Mortgage banking...................... 525,053 155,574 147,637
-------------- ------------ ------------
Consolidated additions to building,
furniture and fixtures................ $ 3,816,335 $ 527,585 $ 650,858
============== ============ ============

CONSOLIDATED REVENUE:
Portfolio asset acquisition and
resolution............................ $ 94,033,624 $ 68,232,236 $ 50,179,702
Mortgage banking...................... 27,365,590 8,958,822 5,481,563
-------------- ------------ ------------
Consolidated revenue.................. $ 121,399,214 $ 77,191,058 $ 55,661,265
============== ============ ============

CONSOLIDATED NET INCOME:
Portfolio asset acquisition and
resolution............................ $ 4,889,417 $ 6,601,844 $ 4,878,750
Mortgage banking...................... 2,979,358 1,764,764 760,325
-------------- ------------ ------------
Consolidated net income............... $ 7,868,775 $ 8,366,608 $ 5,639,075
============== ============ ============

F-29

11. CERTAIN CONCENTRATIONS

The following table summarizes percentages of total principal balances by
the geographic location of properties securing the loans in our portfolio
consisting of notes receivable, loans held for investment and loans held for
sale at December 31, 2005 and December 31, 2004:

December 31,
-------------------------
Location 2005 2004
-------- --------- --------
New York.................. 11.07% 7.46%
New Jersey................ 9.98% 5.16%
Florida................... 6.37% 7.39%
California................ 5.97% 7.41%
Ohio...................... 5.84% 9.08%
Pennsylvania.............. 4.83% 4.36%
Texas..................... 4.24% 4.14%
Georgia................... 3.12% 5.22%
Michigan.................. 2.87% 4.37%
Illinois.................. 2.63% 3.72%
All Others................ 43.08% 41.69%
100.00% 100.00%

Such real estate mortgage loans held are collateralized by real estate
with a concentration in these states. Accordingly, the collateral value of a
substantial portion of the Company's real estate mortgage loans held and real
estate acquired through foreclosure is susceptible to changes in market
conditions in these states. In the event of sustained adverse economic
conditions, it is possible that the Company could experience a negative impact
in its ability to collect on existing real estate mortgage loans held, or
liquidate foreclosed assets in these states, which could impact the Company's
related loan loss estimates.

Financing - Substantially all of the Company's existing debt and available
credit facilities are with one financial institution. The Company's purchases of
new portfolios and financing of its mortgage banking operations are contingent
upon the continued availability of these credit facilities.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases - During 2005, the Company entered into two operating
lease agreements for corporate office space, which contain provisions for future
rent increases, rent-free periods, or periods in which rent payments are reduced
(abated). The total amount of rental payments due over the lease term is being
charged to rent expense on the straight-line method over the term of the lease.
The difference between rent expense recorded and the amount paid is credited or
charged to "Accrued expenses," which is included in "Accounts payable and
accrued expenses" on the balance sheets. Rent expenses for 2005, 2004 and 2003
were $1,696,089 (inclusive of $718,041 of lease termination costs), $564,082 and
$484,068, respectively.

F-30

The combined future minimum lease payments as of December 31, 2005 are as
follows:

Year Ended Amount
---------- -------------
2006.................... $ 986,208
2007.................... 1,020,075
2008.................... 1,053,941
2009.................... 1,087,807
2010.................... 1,121,673
Thereafter.............. 4,133,076
-------------
$ 9,402,780
=============

Substantially all of the Company's office equipment is leased under
multiple operating leases. The combined future minimum lease payments as of
December 31, 2005 are as follows:

Year Ended Amount
---------- -------------
2006.................... $ 140,750
2007.................... 94,002
2008.................... 83,964
2009.................... 53,465
-------------
$ 372,181
=============

Capital Leases - The Company entered into a lease for office furniture for
its new corporate office in Jersey City under an agreement that is classified as
a capital lease. The cost of the furniture under this capital leases is included
on the balance sheets as "Building, furniture and equipment" and was $916,890 at
December 31, 2005. Accumulated amortization of the leased furniture at December
31, 2005 was $76,408. Amortization of assets under capital leases is included in
depreciation expense.

The combined future minimum lease payments required under the capital
lease as of December 31, 2005 are as follows:

Year Ended Amount
---------- -------------
2006.................... $ 220,579
2007.................... 220,579
2008.................... 220,579
2009.................... 220,579
2010.................... 128,671
-------------
1,010,987

Less amounts representing
interest................ (161,901)
-------------
$ 849,086
=============

Legal Actions - The Company is involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings and litigation currently pending
will not materially affect the Company's financial statements.

F-31

As of December 31, 2005 and December 31, 2004, the unpaid principal
balance of mortgage loans being serviced by the Company for others was
$1,338,596 and $2,040,525, respectively. Mortgage loans serviced for others are
not included on the Company's consolidated balance sheets.

13. RELATED PARTY TRANSACTIONS

The Company subleased approximately 2,500 square feet of office space on
the 5th floor at Six Harrison Street in New York, New York, from RMTS
Associates, LLC, of which Thomas J. Axon, the Company's Chairman, President and
CEO, owns 80%. Pursuant to the lease, the Company paid RMTS rent of
approximately $48,200 in 2005, $51,500 in 2004, and $50,500 in 2003. This lease
was terminated on August 31, 2005.

On May 12, 2005, the Company entered into a Termination Agreement (the
"Six Harrison Termination Agreement") by and among RMTS, LLC, a New York limited
liability company of which Mr. Axon owns 80% (the "Sublessor"), James Thomas
Realty, a New York limited liability corporation (the "Landlord") of which Mr.
Axon owns 90% and Frank B. Evans, Jr., a member of the Company's Board of
Directors, owns 10%, and the Company. Under the Six Harrison Termination
Agreement, the Landlord and the Sublessor agreed, in connection with the
Company's planned relocation of operations to Jersey City, New Jersey, to the
early termination of the Company's sublease for approximately 2,500 square feet
of office space at Six Harrison Street in New York, New York, which was due to
expire in August 2009, in consideration of the Company's payment of $125,000 to
the Landlord.

The Company leased approximately a total of 7,400 square feet of office
space at 185 Franklin Street in New York, New York from 185 Franklin Street
Development Associates, a limited partnership, of which 185 Franklin Street
Development Corp., which is wholly-owned by Mr. Axon, is the general partner.
Pursuant to the sublease, the Company paid 185 Franklin Street Development
Associates rent of $19,500 per month in 2005, 2004 and 2003. These leases were
also terminated on August 31, 2005.

On May 12, 2005, the Company entered into a Termination Agreement (the
"185 Franklin Termination Agreement") with 185 Franklin Street Development
Associates L.P., a New York limited partnership (the "185 Franklin Lessor"), the
general partner of which is owned by an entity that is owned by Mr. Axon.
Pursuant to the termination agreement, the 185 Franklin Lessor agreed, in
connection with the Company's planned relocation of operations to Jersey City,
New Jersey, to the early termination of the Company's leases for approximately
7,400 square feet of office space at 185 Franklin Street in New York, New York,
which were due to expire on dates ranging from February 2008 through October
2008, in consideration of the Company's payment of $462,859 to the 185 Franklin
Lessor.

At December 31, 2005 and 2004, respectively, the Company had an
outstanding receivable from an affiliate, RMTS Associates of $245,915 and
$53,776. This receivable represents various shared operating expenses that are
paid by the Company and then reimbursed by RMTS.

On February 13, 2006, Tribeca entered into a lease agreement with 18
Harrison Development Associates, an entity controlled by Thomas J. Axon, to
lease approximately 950 square feet on the 5th floor at 18 Harrison Street, New
York, New York for use as additional office space. The term of the lease is
through February 12, 2007, at approximately $4,880 per month, with an option to
extend the lease for an additional period of one year at a rate of approximately
$5,124 per month.

F-32

14. QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following tables set forth the effects of the restatements discussed
in Note 2 for the quarters in 2005 and 2004.

Consolidated Statements of Income

2005 Quarters
-------------------------------------------------------------------
Fourth Third Second
----------- -------------------------- --------------------------
As Previously As Previously
Reported Restated Reported Restated
------------- ----------- ------------ -----------

Revenues:
Interest income ........................ $27,627,833 $24,563,184 $24,563,184 $23,978,328 $23,978,328
Purchase discount earned ............... 2,948,606 3,146,839 3,146,839 2,867,795 2,867,795
Gain on sale of notes receivable ....... -- 644,985 644,985 665,902 665,902
Gain on sale of originated loans
held for sale ...................... 140,427 542,588 229,906 1,026,389 578,306
Gain on sale of other real estate owned 566,660 535,308 535,308 400,402 400,402
Prepayment penalties and other income .. 1,994,340 2,245,954 1,753,121 2,202,930 1,655,273
----------- ------------- ----------- ------------ -----------
Total revenues ..................... 33,277,866 31,678,858 30,873,343 31,141,746 30,146,006
----------- ------------- ----------- ------------ -----------

Operating Expenses:
Interest expense ....................... 20,552,831 18,018,930 18,283,805 16,281,776 16,313,059
Collection, general and administrative . 7,237,316 7,600,208 6,874,657 8,679,188 7,909,409
Provision for loan losses .............. 1,414,039 1,080,155 1,080,155 1,052,714 1,052,714
Amortization of deferred financing costs 1,166,408 1,233,089 1,233,089 1,012,734 1,012,734
Depreciation ........................... 297,299 365,170 365,170 209,353 209,353
Total expenses ..................... 30,667,893 28,297,552 27,836,876 27,235,765 26,497,269

Income before provision for income taxes 2,609,973 3,381,306 3,036,467 3,905,981 3,648,737
Provision for income taxes ............. 1,141,583 1,538,506 1,381,029 1,797,314 1,678,919
----------- ------------- ----------- ------------ -----------
Net income ............................. $ 1,468,390 $ 1,842,800 $ 1,655,438 $ 2,108,667 $ 1,969,818
=========== ============= =========== ============ ===========

Net income per common share:
Basic .................................. $ 0.20 $ 0.26 $ 0.23 $ 0.35 $ 0.33
----------- ------------- ----------- ------------ -----------
Diluted ................................ $ 0.18 $ 0.24 $ 0.22 $ 0.30 $ 0.29
----------- ------------- ----------- ------------ -----------

--------------------------
First
--------------------------
As Previously
Reported Restated
------------- ----------
Revenues:
Interest income ........................ $22,877,198 $22,877,198
Purchase discount earned ............... 2,251,481 2,251,481
Gain on sale of notes receivable ....... -- --
Gain on sale of originated loans
held for sale ...................... 663,704 327,927
Gain on sale of other real estate owned 255,981 255,981
Prepayment penalties and other income .. 1,842,916 1,389,412
------------ ----------
Total revenues ..................... 27,891,280 27,101,999
------------ ----------

Operating Expenses:
Interest expense ....................... 13,018,345 13,180,270
Collection, general and administrative . 7,089,544 6,678,751
Provision for loan losses .............. 1,198,218 1,198,218
Amortization of deferred financing costs 692,987 692,987
Depreciation ........................... 205,474 205,474
Total expenses ..................... 22,204,568 21,955,700

Income before provision for income taxes 5,686,712 5,146,299
Provision for income taxes ............. 2,615,888 2,371,170
------------ ----------
Net income ............................. $ 3,070,824 $ 2,775,129
============ ===========

Net income per common share:
Basic .................................. $ 0.51 $ 0.46
------------ ----------
Diluted ................................ $ 0.45 $ 0.42
------------ ----------

F-33

2004 Quarters
-------------------------------------------------------------------------------------
Fourth Third Second
-------------------------- --------------------------- --------------------------
As As As
Previously Previously Previously
Reported Restated Reported Restated Reported Restated
------------ ------------ ------------ ------------ ------------ ------------

Revenues:
Interest income .......................... $ 20,862,689 $ 20,862,689 $ 16,628,125 $ 16,628,125 $ 11,354,267 $ 11,354,267
Purchase discount earned ................. 3,195,894 3,195,894 2,969,825 2,969,825 1,727,781 1,727,781
Gain on sale of notes receivable ......... 626,372 626,372 229,840 229,840 -- --
Gain on sale of originated loans
held for sale ......................... 517,814 191,483 1,026,372 360,730 1,252,474 469,950
Gain (loss) on sale of other real estate
owned ................................. 314,651 314,651 (145,846) (145,846) 142,151 142,151
Prepayment penalties and other income .... 2,155,210 1,791,461 1,257,141 996,975 1,310,493 1,060,049
Total revenues ........................ 27,672,630 26,982,550 21,965,457 21,039,649 15,787,166 14,754,198

Operating Expenses:
Interest expense ......................... 12,061,839 12,126,971 9,939,303 9,902,796 5,481,129 5,675,790
Collection, general and administrative ... 7,153,905 7,558,586 5,974,354 5,406,744 5,747,221 4,854,587
Provision for loan losses ................ 1,268,570 1,268,570 728,504 728,504 812,383 812,383
Amortization of deferred financing costs . 1,023,434 1,023,434 584,916 584,916 560,226 560,226
Depreciation ............................. 126,676 126,676 118,590 118,590 136,242 136,242
Total expenses ........................ 21,634,424 22,104,237 17,345,667 16,741,550 12,737,201 12,039,228

Income before provision for income taxes . 6,038,206 4,878,313 4,619,790 4,298,099 3,049,965 2,714,970
Provision for income taxes ............... 2,723,996 2,199,863 2,102,004 1,955,504 1,409,000 1,249,727
Net income ............................... $ 3,314,210 $ 2,678,450 $ 2,517,786 $ 2,342,595 $ 1,640,965 $ 1,465,243

Net income per common share:
Basic .................................... $ 0.53 $ 0.45 $ 0.43 $ 0.40 $ 0.28 $ 0.25
Diluted .................................. $ 0.48 $ 0.40 $ 0.37 $ 0.35 $ 0.25 $ 0.22

--------------------------
First
--------------------------
As
Previously
Reported Restated
------------ ------------
Revenues:
Interest income .......................... $ 10,636,341 $ 10,636,341
Purchase discount earned ................. 1,341,397 1,341,396
Gain on sale of notes receivable ......... 844,902 844,901
Gain on sale of originated loans
held for sale ......................... 892,955 421,874
Gain (loss) on sale of other real estate
owned ................................. 231,246 231,246
Prepayment penalties and other income .... 1,112,924 938,903
Total revenues ........................ 15,059,765 14,414,661

Operating Expenses:
Interest expense ......................... 5,313,075 5,461,258
Collection, general and administrative ... 4,446,182 3,932,674
Provision for loan losses ................ 895,876 895,876
Amortization of deferred financing costs . 592,901 592,900
Depreciation ............................. 113,382 113,382
Total expenses ........................ 11,361,416 10,996,090

Income before provision for income taxes . 3,698,349 3,418,571
Provision for income taxes ............... 1,665,000 1,538,251
Net income ............................... $ 2,033,349 $ 1,880,320

Net income per common share:
Basic .................................... $ 0.34 $ 0.32
Diluted .................................. $ 0.30 $ 0.28

F-34

15. SUBSEQUENT EVENTS

On February 28, 2006, Tribeca and certain of its subsidiaries entered into
a Master Credit and Security Agreement (the "Credit Agreement") with the Lender,
pursuant to which certain Tribeca subsidiaries may borrow funds to finance their
acquisition of loans Tribeca previously financed under its warehouse line of
credit with the Lender and consolidate and refinance prior term loans made by
the Lender to such subsidiaries. The facility does not include a commitment for
a specified number of lendings, which are therefore subject to the Lender's
discretion, as well as any regulatory limitations to which the Lender is
subject. The facility terminates on February 28, 2008. Interest and payment
terms on the loans under the facility are substantially the same as those under
the Master Credit Facility (See Note 6.)

For Loans Funded
---------------------------------------------------
Prior to July 1, 2005 On or After July 1, 2005
------------------------ ------------------------

If the 30-day advance rate is the applicable margin is the applicable margin is
Less than 2.26%.............. 350 basis points 300 basis points
2.26 to 4.50%................ 325 basis points 275 basis points
Greater than 4.50%........... 300 basis points 250 basis points

F-35

On March 24, 2006, Tribeca and one of Tribeca's subsidiaries (the "Tribeca
Subsidiary Borrower") entered into a $100,000,000 Master Credit and Security
Agreement (the "BOS Loan") with BOS (USA) Inc., an affiliate of Bank of
Scotland. Proceeds of the BOS Loan in the amount of $98,168,441 were used to
consolidate and refinance prior term loans made to certain Tribeca subsidiaries.
Interest on the BOS Loan is payable monthly at a floating rate equal to the
FHLBC Rate plus an applicable margin as follows:

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

F-36