<PAGE>
 
================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
                                        
                                      OR

         [_] 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 1-10569

                             AUTOLEND GROUP, INC.
                             --------------------
            (Exact name of registrant as specified in its charter)
                                        
          Delaware                                       22-3137244
          --------                                       ----------
   (State or other jurisdiction                (IRS Employer Identification No.)
 of incorporation or organization)

 
          600 Central SW, Third Floor, Albuquerque, New Mexico  87102
          -----------------------------------------------------------
              (Address of principal executive offices) (Zip Code)
                                        
                                (505) 247-9429
                                --------------
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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    .
                                       ---      ---

Applicable only to Registrants involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court. Yes  X   No 
                ---     ---

Applicable only to corporate issuers:
The number of shares outstanding of the Registrant's common stock was 6,079,530
at October 26, 1998.

================================================================================
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                                        
                               TABLE OF CONTENTS
                                        
                                                                            Page
                                                                            ----

                        PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements................................................   4
 
  Consolidated Balance Sheets as of September 30, 1998, and March 31, 1998..   4
 
  Consolidated Statements of Operations for the three- and six-month 
    periods ended September 30, 1998, and 1997..............................   5
 
  Consolidated Statements of Cash Flows for the six-month period ended 
    September 30, 1998, and 1997............................................   6
 
  Notes to Consolidated Financial Statements................................   7
 
Item 2.  Management's Discussion and Analysis of Financial Condition
    and Results of Operations...............................................  19
 
Item 3. Quantitative and Qualitative Disclosure about Market Risk...........  22
 
                          PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings...................................................  23
                                                            
Item 2. Changes in Securities and Use of Proceeds...........................  23
                                                            
Item 3. Defaults Upon Senior Securities.....................................  23
                                                            
Item 4. Submission of Matters to a Vote of Security Holders.................  23
                                                            
Item 5. Other Information...................................................  23
                                                            
Item 6. Exhibits and Reports on Form 8-K....................................  24
 
SIGNATURES..................................................................  25

                                       2
<PAGE>
 
                          FORWARD-LOOKING INFORMATION


The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not historical
facts; they involve risks and uncertainties that could cause the Company's
results to differ materially from those in the forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of the Company's business include significant risk
factors inherent in the consummation of any plan in a Chapter 11 bankruptcy
case, e.g., the risk of liquidating assets at less than their projected value
and claims being allowed in an amount different from the amounts projected by
the Company; the consummation of certain pending settlements of litigation
affecting interests of the Company; the perceived difficulties from the
Company's bankruptcy which could adversely affect its existing and proposed
operations and other difficulties relating to its Chapter 11 bankruptcy; and the
risks relating to the operation of a gaming business, which forms a significant
part of the Company's Plan of Reorganization.  From time to time, AutoLend
Group, Inc., may publish or otherwise make available forward-looking statements.
All subsequent forward-looking statements, whether written or oral and whether
made by or on behalf of the Company, are also expressly qualified by these
cautionary statements.

                                       3
<PAGE>
         AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
                                 CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     SEPTEMBER 30, 1998      MARCH 31, 1998
                                                                                     ------------------    ------------------ 
                                                                                        (unaudited)            (audited)

<S>                                                                                  <C>                   <C>               
ASSETS:
  Cash and cash equivalents                                                          $        1,490,075    $          769,736
  Accounts receivable - matured policies                                                        878,740                    --
  Prepaid expenses                                                                                   --               167,381

  Installment contracts receivable-gross                                             $          218,773    $          461,592
  Collateral owned-gross                                                                             --                22,286
  Allowance for credit losses                                                                  (114,401)             (187,669)
                                                                                     ------------------    ------------------ 
    Installment contracts receivable-net                                             $          104,372    $          296,209

  ITB Option, less allowance of $200,000 at September 30, 1998, and March 31, 1998              425,000               425,000
  Escrow deposit                                                                              2,000,000             2,000,000
  Interest on escrow deposit                                                                    114,018                62,060
  Note receivable - NPD, Inc.                                                                 3,035,292             3,035,292
  Interest receivable on note receivable - NPD, Inc.                                            370,980               219,215
  Purchased insurance policies at estimated market value; face value of $875,920
    at September 30, 1998 and $1,879,420 at March 31, 1998                                      133,740               329,193
  Securities in IAP less allowance of $390,000 at March 31, 1998                                     --               250,000
  Fixed assets, less accumulated depreciation of $72,376 at September 30, 1998,
    and $68,614 at March 31, 1998                                                                24,764                39,611
  Other                                                                                          46,011                46,011
                                                                                     ------------------    ------------------ 
    Total assets                                                                     $        8,622,992    $        7,639,708
                                                                                     ==================    ==================

LIABILITIES:
  Liabilities subject to compromise:
    Accounts payable                                                                 $           97,079    $           55,276
    Accrued interest expense on debentures (pre-petition)                                     1,372,819             1,372,819
    Convertible subordinated debentures at face value                                         7,225,000             7,225,000
    Allowance for estimated legal fees and settlement costs                                   1,434,944             1,434,944
                                                                                     ------------------    ------------------ 
  Total liabilities subject to compromise                                                    10,129,842            10,088,039
                                                                                     ------------------    ------------------ 

  Liabilities not subject to compromise:
    Accounts payable                                                                             44,759                56,355
    Contingent liabilities - reorganization                                                     290,430                48,872
    Accrued liabilities                                                                          64,498                69,582
    Accrued interest expense on debentures (post-petition)                                      707,347               364,160
    Note payable - NPD, Inc.                                                                    425,000               425,000
    Accrued interest expense - NPD, Inc.                                                         46,917                25,667
                                                                                     ------------------    ------------------ 
  Total liabilities not subject to compromise                                                 1,578,951               989,636
                                                                                     ------------------    ------------------ 
    Total liabilities                                                                $       11,708,793    $       11,077,675
                                                                                     ------------------    ------------------ 

STOCKHOLDERS' DEFICIT:
  Preferred stock, $.002 par value. Authorized 5,000,000 shares;
    57,800 issued and outstanding at September 30, 1998, and March 31, 1998          $              116    $              116
  Common stock, $.002 par value. Authorized 40,000,000 shares;
    issued 6,079,530 shares at September 30, 1998, and March 31, 1998                            12,158                12,158
  Additional paid-in capital                                                                 20,459,946            20,459,946
  Unrealized holding loss                                                                      (200,000)             (590,000)
  Accumulated deficit                                                                       (23,358,021)          (23,320,187)
                                                                                     ------------------    ------------------ 
    Total stockholders' deficit                                                      $       (3,085,801)   $       (3,437,967)
                                                                                     ------------------    ------------------ 

  Total liabilities and stockholders' deficit                                        $        8,622,992    $        7,639,708
                                                                                     ==================    ==================
</TABLE>

See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements

                                       4
<PAGE>
         AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       THREE MONTH PERIOD ENDED        SIX MONTH PERIOD ENDED
                                                                             SEPTEMBER 30,                   SEPTEMBER 30,
                                                                     ------------    ------------    ------------    ------------ 
                                                                         1998            1997            1998            1997
                                                                     ------------    ------------    ------------    ------------ 

<S>                                                                  <C>             <C>             <C>             <C>         
Revenues:
  Finance charges on installment contracts                           $     35,006    $    193,981    $     77,311    $    410,594
  Revenues from matured insurance policies                                983,228              --         988,228              --
                                                                     ------------    ------------    ------------    ------------ 
     Gross revenues                                                     1,018,234         193,981       1,065,539         410,594
  Cost of matured insurance policies                                     (692,400)             --        (692,400)             --
                                                                     ------------    ------------    ------------    ------------ 
     Total net revenues                                              $    325,834    $    193,981    $    373,139    $    410,594

General and administrative expenses                                      (380,647)       (876,653)       (766,148)     (1,424,917)
Provision for credit gains (losses), net of recoveries                    117,000              --         219,000              --
                                                                     ------------    ------------    ------------    ------------ 
  Operating income (loss)                                            $     62,187    $   (682,672)   $   (174,009)   $ (1,014,323)
                                                                     ------------    ------------    ------------    ------------ 

Other income (expense):
  Interest income on cash and cash equivalents                       $     30,359    $     22,523    $     60,571    $    139,657
  NPD, Inc., note receivable interest income accrued                       75,882          67,229         151,764          67,229
  Debentures interest expense accrued                                    (171,593)       (187,823)       (343,187)       (538,727)
  NPD, Inc., note payable interest expense accrued                        (10,625)        (19,167)        (21,250)        (19,167)
  Other income (expense)                                                   41,518         (13,540)         41,518         (27,086)
  Write-off of fixed assets                                                    --              --          (4,570)             --
  Insurance policy write down recapture                                   495,683              --         495,683              --
  Debenture conversion charge                                                  --              --              --      (6,261,051)
                                                                     ------------    ------------    ------------    ------------ 
    Total net other income (expense)                                 $    461,224    $   (130,778)   $    380,529    $ (6,639,145)
                                                                     ------------    ------------    ------------    ------------ 

  Income (loss) before income taxes, reorganization costs,
    and extraordinary item                                           $    523,411    $   (813,450)   $    206,520    $ (7,653,468)
    Provision for income tax - federal                                         --         (40,000)             --         (40,000)
                                                                     ------------    ------------    ------------    ------------ 

  Income (loss) before reorganization costs and extraordinary item   $    523,411    $   (853,450)   $    206,520    $ (7,693,468)
    Reorganization costs incurred after Chapter 11 proceedings           (117,210)             --        (244,354)             --
                                                                     ------------    ------------    ------------    ------------ 

  Income (loss) before extraordinary item                            $    406,201    $   (853,450)   $    (37,834)   $ (7,693,468)

Extraordinary item:
  Gain on early extinguishment of debt                                         --       2,240,276              --       3,171,524
                                                                     ------------    ------------    ------------    ------------ 
Net income (loss)                                                    $    406,201    $  1,386,826    $    (37,834)   $ (4,521,944)
                                                                     ============    ============    ============    ============ 
Per Share:
  Operating income (loss)                                            $       0.01    $      (0.11)   $      (0.03)   $      (0.17)
  Total net other income (expense)                                           0.08           (0.02)           0.06           (1.10)
                                                                     ------------    ------------    ------------    ------------ 

   Income (loss) before income taxes, reorganization costs,
     and extraordinary item                                          $       0.09    $      (0.13)   $       0.03    $      (1.27)
     Provision for income tax - federal                                        --           (0.01)             --           (0.01)
                                                                     ------------    ------------    ------------    ------------ 
  Income (loss) before reorganization costs and extraordinary item   $       0.09    $      (0.14)   $       0.03    $      (1.28)
     Reorganization costs incurred after Chapter 11 proceedings             (0.02)             --           (0.04)             --
                                                                     ------------    ------------    ------------    ------------ 
  Income (loss) before extraordinary item                            $       0.07    $      (0.14)   $      (0.01)   $      (1.28)

Extraordinary item:
  Gain on early extinguishment of debt                                         --            0.37              --            0.53
                                                                     ------------    ------------    ------------    ------------ 
Net income (loss)                                                    $       0.07    $       0.23    $      (0.01)   $      (0.75)
                                                                     ============    ============    ============    ============ 

Weighted average number of common and common
  equivalent shares outstanding                                         6,079,530       6,079,530       6,079,530       5,999,252
                                                                     ============    ============    ============    ============ 
</TABLE>

See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements.

                                       5
<PAGE>
         AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     SIX MONTH PERIOD ENDED
                                                                                          SEPTEMBER 30,
                                                                                  ----------------------------

                                                                                      1998            1997
                                                                                  ------------    ------------

<S>                                                                               <C>             <C>          
Cash flow from operating activities:
   Net loss                                                                       $    (37,834)   $ (4,521,944)
   Adjustments to reconcile net loss to net cash flow from operating activities
      Amortization of intangible assets and debt issuance costs                             --          56,443
      Depreciation expense                                                              10,277          12,452
      Gain on early extinguishment of debt, net of amortization                             --      (3,171,524)
      Charge for debenture conversion, net of amortization                                  --       6,261,051
      Realized loss on sale of IAP securities                                           25,440
      Provision for credit (gains) losses, net of recoveries                          (219,000)             --
      Write-off of fixed assets                                                          4,570              --
      Recapture of insurance policy write down                                        (495,683)
   Changes in assets and liabilities:
      (Increase) decrease in assets:
         Accounts receivable matured policies                                         (878,740)
         Prepaid expenses                                                              167,381              --
         Installment contracts receivable                                              409,573       1,247,287
         Purchased insurance policies                                                  692,400
         Interest on escrow deposit                                                    (51,958)             --
         Interest receivable on note receivable - NPD, Inc.                           (151,765)        (67,229)
         Other assets                                                                       --        (245,407)
      Increase (decrease) in liabilities:
         Accounts payable and accrued liabilities                                      266,681      (1,003,411)
         Accrued interest expense                                                      364,437         537,016
                                                                                  ------------    ------------
   Cash provided (used) by operating activities                                   $    105,779    $   (895,266)
                                                                                  ------------    ------------

Cash flow from investing activities:
   IAP securities                                                                 $    614,560    $         --
   Funding of escrow                                                                        --      (2,000,000)
   Loan to NPD                                                                              --      (3,035,292)
   Purchase ITB stock option                                                                --        (200,000)
                                                                                  ------------    ------------
      Cash provided (used) by investing activities                                $    614,560    $ (5,235,292)
                                                                                  ------------    ------------

Cash flow from financing activities:
   Early extinguishment of debt                                                   $         --    $ (5,692,079)
                                                                                  ------------    ------------
      Cash provided (used) in financing activities                                          --      (5,692,079)
                                                                                  ------------    ------------

Net increase(decrease) in cash and cash equivalents                               $    720,339    $(11,822,637)
Cash and cash equivalents at beginning of period                                       769,736      12,399,932
                                                                                  ------------    ------------
Cash and cash equivalents at end of period                                        $  1,490,075    $    577,295
                                                                                  ============    ============
</TABLE>




See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements.

                                       6
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements of AutoLend
     Group, Inc., and its wholly owned subsidiaries (collectively, the "Company"
     or "AutoLend") have been prepared in accordance with generally accepted
     accounting principles for interim financial information in accordance with
     the instructions to Form 10-Q and Article 10 of Regulation S-X.
     Accordingly, they do not include all the information and footnotes required
     by generally accepted accounting principles for complete financial
     statements.  However, except as disclosed herein, there has been no
     material change in the information included in the Company's Annual Report
     on Form 10-K for the year ended March 31, 1998.  The statements should be
     read in conjunction with the consolidated financial statements contained in
     the Company's Annual Report on Form 10-K for the year ended March 31, 1998.
     The information furnished, in the opinion of management, reflects all
     adjustments (consisting of normal recurring accruals), considered necessary
     to present fairly the results of operations of the Company for the six-
     month period ended September 30, 1998.  The operating results for the six
     months ended September 30, 1998, are not necessarily indicative of results
     which may be expected for the year ending March 31, 1999.

     The financial statements have also been presented in conformity with the
     American Institute of Certified Public Accountants' Statement of Position
     90-7, "Financial Reporting By Entities in Reorganization Under the
     Bankruptcy Code," issued November 19, 1990 ("SOP 90-7").  The statement
     requires a segregation of liabilities subject to compromise by the
     Bankruptcy Court as of the bankruptcy filing date (September 22, 1997) and
     identification of all transactions and events that are directly associated
     with the reorganization of the Company.  (See Note 1.(c) below for
     description and status of the bankruptcy process.)  The Statement does not
     require that comparative balances be reclassified to conform to current
     year balances stated under SOP 90-7.  As such, prior year's balances are
     not reclassified.

     The Company's unaudited consolidated financial statements include the
     accounts of AutoLend Group, Inc., and its wholly owned subsidiaries,
     AutoLend Corporation, LB NM, Inc., and American Life Resources Group, Inc.
     No petition under the United States Bankruptcy Code has been filed for the
     subsidiaries.


     (b)  RECENT ACCOUNTING PRONOUNCEMENTS

     The Company adopted Statement of Financial Accounting Standards No. 130,
     Reporting Comprehensive Income ("SFAS 130").  SFAS 130 requires that all
     components of comprehensive income and total comprehensive income be
     reported on one of the following: a statement of income and comprehensive
     income, a statement of comprehensive income, or a statement of
     stockholders' equity.  Comprehensive income is comprised of net income and
     all changes to stockholders' equity, except those due to investments by
     owners (changes in paid in capital) and distributions to owners
     (dividends).  (See Note 11)

                                       7
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     The Company adopted Statement of Financial Accounting Standards No. 129,
     Disclosure of Information about Capital Structure ("SFAS 129").  SFAS 129
     establishes standards for disclosing information about an entity's capital
     structure.  SFAS 129 requires disclosure of the pertinent rights and
     privileges of various securities outstanding (stock options, warrants,
     preferred stock, debt and participation rights), including dividend and
     liquidation preferences, participant rights, call prices and dates,
     conversion or exercise prices and redemption requirements.  Adoption of
     SFAS 129 has no effect on the Company as it currently discloses the
     information specified.

     The Company adopted Statement of Financial Accounting Standards No. 131,
     Disclosure about Segments of a Business Enterprise ("SFAS 131").  SFAS 131
     establishes standards for the way that public enterprises report
     information about operating segments in annual financial statements and
     requires reporting of selected information about operating segments in
     interim financial statements issued to the public  It also establishes
     standards for disclosures regarding products and services, geographic areas
     and major customers.  SFAS 131 defines operating segments as components of
     an enterprise about which separate financial information is available that
     is evaluated regularly by the chief operating decision maker in deciding
     how to allocate resources and in assessing performance.  Adoption of SFAS
     129 has no effect on the Company's current disclosures.


     (c)  GOING CONCERN

     The accompanying unaudited consolidated financial statements have been
     prepared on a going-concern basis, which contemplates the realization of
     assets and the satisfaction of liabilities and commitments in the normal
     course of business.  As a result of the Company's inability to make
     repayment on, and resultant default against, its outstanding 9.5 %
     Convertible Subordinated Debentures (the "Debentures") (see Notes 2 and 7
     below), the Company filed for reorganization on September 22, 1997 (the
     "Voluntary Bankruptcy Proceeding") under Chapter 11 of the United States
     Bankruptcy Code in the United States Bankruptcy Court for the District of
     New Mexico (the "Bankruptcy Court").  The Company is presently operating
     its business as a debtor-in-possession under Chapter 11 and is subject to
     the jurisdiction and supervision of the Bankruptcy Court.  Under Chapter
     11, certain claims against the Company in existence before the filing of
     the petition for relief under the federal bankruptcy laws are stayed while
     the Company continues business operations as debtor-in-possession.  See
     last paragraph below in this Note 1.(c) for present status of the Voluntary
     Bankruptcy Proceeding.

     The Company maintains a residual portfolio of sub-prime consumer used-car
     loans ("Installment Contracts Receivable") through its wholly owned
     subsidiary, AutoLend Corporation.  The Company commenced purchasing these
     loans in May 1994, and while under prior management, ceased purchasing them
     in December 1995.  Loan loss provisions for this business from its
     inception through March 1997 totaled $13.9 million (which amount does not
     include salaries, rent, and other operating expenses associated with the
     car loan business).  The results of this business were the primary reasons
     the Company developed a negative net equity, which precluded the Company
     from being able to generate the necessary cash flow to service its debt
     obligations (under the terms of the Debentures), which in turn forced the
     Company to file for 

                                       8
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     bankruptcy. Financial results of this residual portfolio from April 1997 to
     the present have, in total, been marginally positive.

     The Company's two other wholly owned subsidiaries, LB NM, Inc., and
     American Life Resources Group, Inc., maintain a residual portfolio of life
     insurance policies purchased from persons with life-threatening illnesses,
     a business generically referred to as viatical settlements (the
     "Policies").  The Company ceased purchasing Policies in September 1994 and
     does not intend to recommence those activities.

     AutoLend IAP, Inc., a former wholly owned subsidiary ("IAP"), provided
     short-term financing to selected used-car dealers for purchases of used
     automobiles at certain regional auctions in the United States.  IAP was
     started in March 1995 and was unprofitable.  On September 18, 1996, when
     new management was installed, the Company sold IAP.

     Because the Company's liabilities have exceeded its assets since March
     1996, and the Company has been in the Voluntary Bankruptcy Proceeding since
     September 1997, there is substantial doubt about the Company's ability to
     continue as a going concern.  The Company's viability as a going concern
     depends upon the restructuring of its obligations and, ultimately, the
     attainment of profitability.  The Company has filed a Plan of
     Reorganization (the "Plan of Reorganization") and a Disclosure Statement
     (the "Disclosure Statement," and together with the Plan of Reorganization,
     the "Plan"), that contain the Company's proposal for resolving the
     bankruptcy (see Notes 2 and 3 below).  The Disclosure Statement was
     approved by the Bankruptcy Court on September 28, 1998, and the entire Plan
     was mailed to creditors and other interest holders on October 5, 1998.
     Ballots are due to be returned by December 4, 1998, and the final
     Confirmation Hearing is scheduled to take place on December 15 and 16,
     1998.  Although the Company intends to reorganize and emerge from Chapter
     11, it cannot assure that it will be able to do so.  If the Company is
     prevented from emerging from Chapter 11, it would most likely be
     liquidated, which would result in the elimination of its common stock,
     $.002 par value per share (the "Common Stock") and 14% cumulative
     convertible preferred stock, $.002 par value per share (the "Preferred
     Stock") and its Class A and B Warrants, and payments to creditors for
     amounts less than their claims.  Management believes that payments to
     creditors under such a liquidation scenario would likely be less than that
     as proposed under the Plan.

     
     (2)  VOLUNTARY BANKRUPTCY REORGANIZATION FILING

     At the end of March 1994, the Company's net equity was a positive $2.7
     million.  Shortly thereafter, the Company's prior management launched the
     sub-prime consumer car loan business.  By December 1995, net equity was
     down to $0.7 million, and cumulative losses (since March 1994) before the
     impact of the redemption of Debentures totaled $12.l million.  In late
     December 1995, Nunzio DeSantis, the Company's then-largest stockholder (who
     is now the Company's Chief Executive Officer, but was not at that time an
     officer, employee, or director), commenced legal actions against the then-
     current management.  This resulted in a Stipulation of Settlement that was
     approved, after due notice, by the Delaware Chancery Court, and installed
     new management for the Company effective mid-September 1996.  However, by
     about this time, net equity had already deteriorated to a negative $6.9
     million.  In the first six months after new 

                                       9
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     management took control, additional car-loan loss expenses and asset write-
     downs were made against the former operations of the Company, further
     deteriorating net equity, which reached a low point of a negative $11.9
     million in March 1997.

     New management took immediate and substantive steps to turn the Company
     around, including the Debenture Exchange Offer (see Note 7 below), the
     repurchase of some Debentures at a discount, the pursuit of a new business
     (see Note 4 below), and the cutting of overhead costs (which were reduced
     by 43% in new management's first year, resulting in reductions of
     approximately $3.3 million in general and administrative expenses for the
     twelve months ended September 1997, as compared to the prior twelve
     months).  These efforts resulted in the reduction of the net equity deficit
     to below a negative $3 million (which was an improvement of over $9 million
     from the low point), but the improvements were nonetheless not enough in
     the twelve months that new management had between taking control in
     September 1996 and the Debenture repayment due date of September 1997.

     In that twelve months between taking control in September 1996 and the
     Debenture repayment due date of September 1997, new management had
     successfully eliminated two-thirds of the Debenture debt that had been
     outstanding when new management took control in September 1996.  However on
     September 19, 1997, the remaining principal balance (plus all accrued
     interest) of the Debentures became due and payable, requiring a cash
     disbursement on that date of approximately $8.6 million, which was still in
     excess of the Company's capabilities.  Therefore, on September 22, 1997,
     the Company filed a voluntary petition for reorganization under Chapter 11
     of the U.S. Bankruptcy Code in the Bankruptcy Court.  Thus, in addition to
     its normal SEC reporting requirements, the Company also files required
     reports and disclosures with the Bankruptcy Court, including a monthly
     operating statement.  Also see Note 1 above.


     (3)  REORGANIZATION PLAN REGARDING FUTURE BUSINESS

     In conjunction with the Voluntary Bankruptcy Proceeding, the Company filed
     effective January 16, 1998, a Plan of Reorganization with the Bankruptcy
     Court proposing its plans for resolving the bankruptcy.  In conjunction
     with the Plan of Reorganization, the Company has also filed a detailed
     Disclosure Statement outlining its plans for new business.  The Plan has
     been amended and expanded in response to input from external parties in the
     bankruptcy process.

     The success of the Plan is highly dependent on the Company's acquisition
     and/or development of a new business (which consists primarily of acquiring
     and operating gaming devices and machines for certain non-profit
     organizations in New Mexico), and the resolution of the ITB/NPD
     transactions (see Notes 4, 5, and 6 below).  The Plan has been distributed
     to the Company's creditors for balloting, and a hearing to confirm the Plan
     of Reorganization is scheduled to be held by the Bankruptcy Court on
     December 15 and 16, 1998.

                                       10
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     (4)  THE PURSUIT OF A CONTROLLING INTEREST IN ITB

     In connection with the pursuit of a new business, shortly after new
     management assumed control (see Note 2 above), the Company entered into
     negotiations in October 1996 to directly purchase an approximately 25%
     equity interest (the "ITB Shares") in International Thoroughbred Breeders,
     Inc. ("ITB"), in a private sale from ITB's former chairman, Robert E.
     Brennan ("Brennan").  At that time, ITB was listed on the American Stock
     Exchange.  It owns and operates Garden State Park and Freehold Raceway in
     New Jersey, and owns the former El Rancho Casino property in Las Vegas,
     Nevada (also see Note 5 below).  ITB is much larger than the Company, and
     has a net equity of approximately $60 million, annual revenues of
     approximately $68 million, and approximately 625 employees subject to
     seasonal variations (according to ITB's most recent Form 10-Q and Form 10-
     K).

     However, because of the involuntary bankruptcy petition filed against the
     Company, which was dismissed effective April 7, 1997 (the "Involuntary
     Petition"), the Company was prevented from consummating the purchase.  As
     an alternative to the Company's acquisition of the ITB Shares, Nunzio
     DeSantis (the Company's Chairman and Chief Executive Officer) and Anthony
     Coelho (a Director of the Company) formed NPD, Inc. ("NPD") to purchase the
     ITB Shares.  In connection with its purchase, which was effective January
     15, 1997, NPD was granted the right to appoint a majority of the Directors
     of the Board of ITB.

     Concurrently with its formation, NPD had agreed to grant the Company the
     right to later purchase the ITB Shares from NPD at the same price NPD had
     agreed to pay for the ITB Shares.  As consideration, the Company agreed to
     make a loan to NPD to finance a portion of the cash purchase price to be
     paid by NPD to Brennan's bankruptcy estate at closing.  The Company further
     agreed that, following the dismissal of the Involuntary Petition, it would
     guarantee up to $2.0 million of NPD's obligation to pay the remaining
     portion of the purchase price due Brennan's bankruptcy estate for the ITB
     Shares, and to effectuate this, would deposit $2.0 million into a cash
     collateral escrow account (the "Escrow Deposit") to secure NPD's
     obligation.  However, the Bankruptcy Court before which the Involuntary
     Petition was pending enjoined the making of the agreed-upon loan by the
     Company to NPD and, as a result, the right was not granted to the Company.
     Nonetheless, following the dismissal of the Involuntary Petition, and in
     accordance with its agreement, the Company executed and delivered its
     guarantee as aforesaid, and made the Escrow Deposit. At September  30,
     1998, the funds held in the Escrow Deposit by a third party were invested
     in U.S. Treasury obligations.  This Escrow Deposit is now subject to recent
     settlement actions as described in Note 6 below.

     On July 10, 1997, a loan of $3.0 million was made by the Company to NPD
     (the "NPD Loan").  The NPD Loan accrues interest at 10% per annum, and is
     payable in full, together with all accrued interest, on July 9, 1999.  The
     NPD Loan is secured by a pledge by NPD of the ITB Shares  owned by it,
     subject to a prior lien and pledge by NPD to Brennan's estate of the ITB
     Shares as security for NPD's obligation to pay the balance of the purchase
     price due for the ITB Shares.  NPD used the proceeds of the NPD Loan to
     repay an earlier loan made by an unaffiliated third party, which repayment
     resulted in the cancellation of an option which NPD had previously granted
     to the unaffiliated third party to purchase the ITB Shares.  The NPD Loan
     is now subject to recent settlement actions as described in Note 6 below.

                                       11
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     (5)  THE ITB OPTION

     As a result of the Involuntary Petition filed against the Company, the
     Company was prevented from entering into a negotiated agreement which would
     have enabled it to purchase the ITB Shares; consequently, NPD was formed
     and consummated the purchase of the ITB Shares (see Note 4 above).  After
     the dismissal of the Involuntary Petition, in order to reinstate the
     Company approximately to the position it would have been in as purchaser of
     the ITB Shares, in June 1997 the Company's Board of Directors approved an
     agreement in principle with NPD to finally consummate an option purchase.

     Thus, in August 1997 the Company purchased from NPD an option to purchase
     the ITB Shares held by NPD (the "Option").  The Option granted to the
     Company is subject to an option granted by NPD to Mr. DeSantis to purchase
     50 percent of the ITB Shares owned by NPD at the date of exercise.
     Furthermore, both the option owned by the Company and the option owned by
     Mr. DeSantis are subject to a one-year option previously granted by NPD to
     an unaffiliated third party in January 1997.  This option gave this person
     the right to purchase 50 percent of the ITB Shares owned by NPD at the date
     of exercise.  The Option held by the Company states that it must purchase
     all of the ITB Shares owned by NPD at the date of exercise, which would be
     from one-fourth of the ITB Shares originally purchased by NPD at a minimum,
     to 100 percent of these shares if no other options are exercised.

     The Company paid $200,000 in cash for the Option at the closing date, and
     also executed a note (the "NPD Note Payable") which accrues interest at 10
     percent per annum and is payable in full, including accrued and unpaid
     interest, on July 9, 1999.  The principal amount of the note is $2.3
     million if the Company has the ability to acquire 100 percent of the ITB
     Shares, but is reduced proportionally (including accrued interest from the
     date of inception) by the percentage of the  ITB Shares unavailable to
     purchase under the terms of the Option.  Therefore, at September 30, 1998,
     only one-fourth of the purchase price, and the corresponding related debt,
     or $425,000, and one-fourth of the potential Option right, has been
     reflected on the Company's balance sheet.  However, the balance of the debt
     obligation represents a contingent obligation of the Company if the Company
     were to have the ability to acquire all ITB Shares originally held by NPD.
     The NPD Note Payable is now subject to recent settlement actions as
     described in Note 6 below.

     The Option stipulates that it may not be exercised by a company in
     bankruptcy.  The Option has been extended for an additional year by NPD (at
     no cost to the Company), and currently expires on August 29, 1999.  In the
     event that the Company was able to exercise the Option, the Company would
     purchase the ITB Shares from NPD at the same price paid by NPD, which was
     $4 per share.  However, it is highly unlikely that the Company would
     exercise the Option unless the "strike price" exceeded $4 per share, and
     other issues were resolved.  ITB common stock has been suspended from
     regular trading since October 13 1997, when it last traded at $3.50 per
     share.  On August 7, 1998, ITB was delisted by the American Stock Exchange.
     ITB stock is presently listed for trading on the NQB Pink Sheets, and has
     approximately three market makers, although no trading market has yet
     developed.  ITB is presently attempting to get its stock quoted on the OTC
     Bulletin Board.  It is unclear if the stock will resume widespread trading
     providing liquidity before the expiration of the Option, and therefore
     establish a relevant current market 

                                       12
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     price. Furthermore, any exercise of the Option would now be subject to
     recent settlement actions as described in Note 6 below.

     (6)  THE PENDING ITB SETTLEMENT

     On June 5, 1998, the Company, as debtor-in-possession, filed an adversary
     claim with the Bankruptcy Court against NPD:  AutoLend Group Inc. vs. NPD
     Inc., Adversary No. 98-1136M (the "NPD Claim").  The NPD Claim seeks, among
     other things, the return to the Company of the $2.0 million Escrow Deposit
     (plus interest), the immediate repayment to the Company by NPD of the $3.0
     million NPD Loan (plus interest), and the cancellation of the Option and
     corresponding cancellation of the Company's obligations under the NPD Note
     Payable and return of the $0.2 million cash down payment on the Option.
     This NPD Claim is now subject to recent settlement actions as described in
     the following two paragraphs.

     On July 2, 1998, all the members of ITB's Board of Directors, and various
     other parties (including NPD) involved in litigation over ITB, jointly
     executed and filed with the Court of Chancery in the State of Delaware (the
     "Chancery Court") a Stipulation and Agreement of Compromise, Settlement and
     Release, C.A. No. 15919, which was entered into subject to the Chancery
     Court's (and certain other creditors specified therein) approval
     (hereinafter, the "Delaware ITB Agreement").  The Delaware ITB Agreement
     addresses many issues outside the scope of the Company's concern; its
     provisions relevant to the Company include the return of the $2.0 million
     Escrow Deposit (plus interest) to the Company, the exchange of mutual
     releases, and the purchase by ITB from NPD of the ITB Shares with a
     combination of cash and ITB's assumption of NPD's note payable to the
     Brennan estate.  (According to NPD's financial statements obtained in the
     bankruptcy process, NPD at present has little or no cash, and its primary
     asset is the presently untradable block of ITB Shares.  Thus, the receipt
     of cash by NPD from ITB under the Delaware ITB Agreement would
     substantially facilitate the resolution of the NPD Claim).  The Delaware
     ITB Agreement also provides for additional contingent consideration which
     may be received by NPD in connection with the possible sale of ITB's Las
     Vegas, Nevada, real estate.  The Delaware ITB Agreement was contingent upon
     approval by various parties (including the Bankruptcy Court, the Chancery
     Court, and certain creditors named in the Delaware ITB Agreement), and
     further requires the Company to assume ITB's office lease in Albuquerque
     (where the Company presently subleases its offices), and cancels all
     options relating to the ITB Shares, including the Option purchased by the
     Company.  A hearing on the Delaware ITB Agreement was held on August 25,
     1998 and a Chancery Court order approving the Agreement was signed by the
     Judge October 6, 1998, which order has a 30-day appeal period.  The
     Delaware ITB Agreement is currently subject to the expiration of the 30-day
     appeal period, the execution of an agreement by ITB with the Brennan Estate
     bankruptcy trustee (which is in turn subject to the approval of the US
     Bankruptcy Court for the State of New Jersey, which has jurisdiction over
     the Brennan bankruptcy estate), and ITB's successful negotiation of an
     agreement with its current lender or the arrangement of alternative
     financing.

     On July 10, 1998, the Company, as a debtor-in-possession, filed with the
     Bankruptcy Court the Debtor's Motion to Approve Compromise (ITB
     Transaction), No. 11-97-15499-MA (the "ITB Settlement").  The ITB
     Settlement provides for, among other things, the Bankruptcy Court's
     approval of the Delaware ITB Agreement and, subject to the final approval
     of the Delaware ITB 

                                       13
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     Agreement by all necessary parties, the ITB Settlement provides for the
     resolution of the NPD Claim. Specifically, the ITB Settlement would result
     in the return of the $2.0 million Escrow Deposit (plus interest) to the
     Company, the cancellation of the Option and corresponding Company
     obligation under the NPD Note Payable, the prepayment to the Company by NPD
     of $2.3 million of the $3.0 million NPD Loan, and the contingent payment to
     the Company by NPD of a portion of the additional funds which may be
     received by NPD (or its affiliates) in connection with the possible sale of
     ITB's Las Vegas real estate (which contingent funds could, in combination
     with the $2.3 million, exceed the $3.0 million NPD Loan owed to the
     Company). Two objections to the ITB Settlement were filed. On September 10,
     1998, a slightly modified form of the motion was approved by the Bankruptcy
     Court.

     If all remaining requirements for the consummation of the Delaware ITB
     Agreement are received (including approval by certain creditors named in
     the Delaware ITB Agreement), the Company will receive $4.3 million plus
     interest (which is presently anticipated to be received in cash in December
     1998, although no assurance can be given to that date), and will have its
     obligation under the NPD Note Payable canceled, and will have the
     possibility of receipt of certain additional contingent consideration.
     There can be no assurances that such approvals from certain creditors named
     in the Delaware ITB Agreement can be obtained. If the Delaware ITB
     Agreement is not consummated, the Company's receipt of comparable amounts
     of cash cannot be assured, and whatever cash is ultimately received by the
     Company would almost certainly take significantly longer to receive.


     (7)  DEBENTURES AND EXCHANGE OFFER

     Following the substantial losses incurred in the consumer used-car finance
     business, and the decision by prior management to terminate that business,
     and the Company's deterioration to a position of negative net worth (after
     which point there was a change in management), the Company's viability as a
     going concern became dependent upon the restructuring of its obligations
     and asset base (and ultimately, reaching a point of profitability).  Since
     the entire utilization of the Company's assets would have been insufficient
     to repay the outstanding Debentures when they became due, an alternative
     resolution was sought which would be mutually acceptable to the Company and
     the Debenture holders.  Consequently, on October 22, 1996, the Company
     initiated its offer to exchange Common Stock and Preferred Stock for its
     outstanding Debentures (the "Exchange Offer").  After the dismissal of the
     Involuntary Petition, on April 8, 1997, the Exchange Offer expired, and the
     Company thereby issued an aggregate of 1.4 million shares of its Common
     Stock and 57,800 shares of its Preferred Stock in exchange for $7.2 million
     principal amount of Debentures.  In addition, accrued interest on the
     Debentures, totaling $1.1 million, was canceled.

     All outstanding principal became due on the remaining Debentures on
     September 19, 1997; however, this payment was not made (see Notes 1 and 2
     above).  The principal balance of the Debentures and interest accrued
     thereon at September 30, 1998, was $7.2 million and $2.1 million,
     respectively.

                                       14
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     (8)  PREFERRED STOCK

     In connection with the Exchange Offer (see Note 7 above), effective April
     8, 1997, the Company issued 57,800 shares of newly created Preferred Stock
     with a stated value of $100 per share.  Dividends are at an annual rate of
     14 percent on the stated value, payable quarterly, at the option of the
     Company in either cash, Common Stock, Preferred Stock, or a combination
     thereof.  Dividends must be paid on Preferred Stock before any dividends
     can be paid on Common Stock.

     At September 30, 1998, the Company had dividends in arrears on its
     Preferred Stock.  In the unlikely event the Company were to elect to pay
     cash dividends, the amount owed at September 30, 1998, would have been
     approximately $1.2 million in total, or $21 per share of Preferred Stock.
     However, in lieu thereof, the Company may choose to pay such dividends by
     issuing additional shares of Preferred Stock and/or Common Stock.


     (9)  NET OPERATING LOSS CARRYFORWARDS

     The Company has available at September 30, 1998, unused capital loss
     carryforwards and operating loss carryforwards that may provide future tax
     benefits, which expire as follows:

              Year of         Unused Capital Loss   Unused Net Operating Loss
            Expiration           Carryforwards            Carryforwards
          --------------      -------------------   -------------------------
               2001           $           524,000   $                       -
               2010                             -                     448,500
               2011                             -                      14,500
               2012                             -                  14,020,000
               2013                             -                   1,046,000
                              -------------------   -------------------------
          Total               $           524,000   $              15,529,000
                              ===================   =========================

     Capital loss carryforwards arise due to losses incurred on the disposal of
     capital assets, and may be used to offset future capital gains associated
     with the disposal of capital assets (but may not be used to offset ordinary
     income).  Net operating loss carryforwards are the result of prior (and
     current) years' operations, which had recorded a net loss in terms of
     income tax computations.  In general, operating loss carryforwards can be
     used to offset future operating profits, thus negating the necessity to pay
     corresponding future income taxes (until the loss carryforwards become used
     up or expire).  Any such future operating profits (which might realize
     these tax benefits) could be derived internally, or could be derived from
     acquiring additional assets, or from the purchase of another qualified
     business entity through the acquisition of its stock.  If there is a
     substantial change in ownership involved, then tax benefits could be
     reduced.  Other limiting factors may also apply.  Capital loss
     carryforwards and net operating loss carryforwards are collectively
     referred to herein as the "Loss Carryforwards."

     After consultation with its lawyers and accountants, the Company's
     management believes that, if the Plan of Reorganization is confirmed and
     approved in substantially its present form, the Loss Carryforwards would be
     reduced by between $1.4 million and $4.0 million in the bankruptcy 

                                       15
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     process, and the remainder would be intact and usable after bankruptcy. At
     a typical corporate statutory tax rate of 34%, these remaining losses can,
     in a valid situation, result in the cancellation of a requirement to pay
     from $3.7 million to $4.6 million in federal income taxes, either
     immediately in one year, or spread out over a number of years.

     Thus, management believes that, in a properly structured corporate
     transaction, the Loss Carryforwards represent a potentially realizable
     benefit to the Company, with a potential value of approximately the $4
     million in tax savings that they represent. Any such future value would be
     permanently destroyed if the Company's Bankruptcy Proceedings were
     converted to a Chapter 7 liquidation proceeding.


     (10) SECURITIES AND EARLY REDEMPTION OF IAP

     Before the commencement of the Voluntary Bankruptcy Proceedings (see Notes
     1 and 2 above), the Company's management had commenced negotiations with
     Auction Finance Group, Inc. ("AFG") regarding the possible early redemption
     of the Company's IAP securities.  AFG is operated by former management of
     the Company, which purchased the Company's former IAP subsidiary in
     September 1996.  In addition to receiving cash at closing for the full
     value of IAP's assets, the Company also received securities with a face
     value of $1.0 million.  The securities provide for a single cash payment at
     the end of three years (i.e., in September 1999) for the full face value
     plus accrued interest, or, failing the making of such payment, the
     conversion of the securities into common stock of IAP representing 51% of
     IAP's total common stock after such issuance.

     IAP was started in March 1995, was unprofitable while it was part of the
     Company, and according to AFG's representations (including audited
     financial statements), IAP remains unprofitable and has a negative net
     equity.  If IAP were unable to make the cash payment in September 1999, it
     would then be unlikely that a conversion of its IAP securities into a 51%
     ownership interest would yield the Company substantial value or cash.

     In light of the Company's need to maximize and expedite the receipt of cash
     for its creditors, the Company explored the possibility of an early
     redemption of its IAP securities by giving some discount as consideration
     for an immediate cash payment from AFG.  An amount of $600,000 plus some
     partial interest was offered by AFG, and on July 17, 1998, the Company,
     through its bankruptcy counsel, received a letter indicating that such
     funds were on deposit and ready, pending approval of the transaction by the
     Bankruptcy Court.  On the same day, the Company filed a motion with the
     Bankruptcy Court [the Debtor's Motion to Approve Compromise (IAP Note)] to
     approve the transaction.  On July 20, 1998, a Notice of Filing was filed
     with the Court.  On August 21, 1998, the Court approved the Motion.  On
     September 30, 1998 the IAP redemption was consummated, for which $614,560
     in cash was received by the Company.

     No securities were classified as trading or held-to-maturity at September
     30, 1998, or 1997.  Investments held as available-for-sale securities
     (maturing within one to five years) are summarized as follows at September
     30:

                                       16
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

<TABLE> 
<CAPTION> 
                                                         1998                         1997
                                              --------------------------   --------------------------
                                                              Corporate                    Corporate
                                              Stock Option       Debt      Stock Option       Debt
                                                 (ITB)       (IAP Stock)      (ITB)       (IAP Stock)
                                              ------------   -----------   ------------   -----------
<S>                                           <C>            <C>           <C>            <C> 
     Fair market value, beginning of period    $  425,000     $       -     $  425,000     $1,000,000
     Permanent impairment                               -             -              -       (200,000)
                                              ------------   -----------   ------------   -----------
     Fair market value, end of period          $  425,000     $       -     $  425,000     $  800,000
                                              ============   ===========   ============   ===========
</TABLE> 

     There was a $25,440 realized loss on the sale of securities during the six
     months ended September 30, 1998.


     (11) COMPREHENSIVE INCOME

     As referenced in Note 1(b) above, Statement of Financial Accounting
     Standards 130, Comprehensive Income (or "SFAS 130"), has recently become
     required to be set forth in the Company's consolidated financial
     statements.  A primary intent of SFAS 130 is to provide a supplemental
     examination of income, showing Net Income adjusted by those transactions
     and events which were not reflected in Net Income that occurred during the
     period, and that affected equity of the Company from non-owner sources.
     Typically, comprehensive income would include equity adjustments for
     unrealized gains and losses on available-for-sale securities, minimum
     pension liabilities adjustments, and foreign currency transaction
     adjustments.  On this basis, for the six months ended September 30, 1998
     and 1997, the Company's Comprehensive Income is the same as the net loss as
     reported by the consolidated statements of operations.


     (12) CONTINGENCIES

     Living Benefits, Inc.  On September 12, 1996, before present management
     took control, a complaint was filed against the Company in the United
     States District Court for the District of New Mexico by Living Benefits,
     Inc. (the "Plaintiff") [Living Benefits, Inc., a New Mexico corporation, v.
     AutoLend Group, Inc., a Delaware corporation (formerly known as CAPX
     Corporation) and LB NM, Inc., a Delaware corporation: Case No.  CIV 96 0993
     SC].  The complaint alleges that the Company is obligated to the Plaintiff
     for more than $1.6 million, with interest at 8.75 percent from June 30,
     1992, for "earn-out payments" allegedly owed under a contract between the
     Plaintiff and the Company dated March 14, 1992.  The Plaintiff is also
     seeking punitive damages for bad faith in an undisclosed amount and
     attorney's fees.  On June 11, 1997, an Offer of Judgment was made to the
     Plaintiff of $656,600 with costs accrued as of that date; the offer was
     rejected by the Plaintiff.  The Company had admitted that it was obligated
     to the Plaintiff for $656,542 pursuant to a settlement agreement entered
     into in June 1995, and which the Company alleges has since been breached by
     the Plaintiff.  On December 30, 1997, the Plaintiff filed a claim for
     approximately $1.7 million, plus legal fees and punitive damages, with 

                                       17
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     the Bankruptcy Court. On April 15, 1998, this suit was turned over to the
     jurisdiction of the Bankruptcy Court. A scheduling conference on September
     9, 1998, has established December 18, 1998, as the discovery completion
     deadline; and January 15, 1999, was established as the deadline for
     submission of exhibits and documentary evidence. The trial is scheduled for
     January 20, 1999. The Company has accrued an amount for purposes of
     financial conservatism, but disputes the notion that such an amount is
     owed. The Company disputes this claim and will defend against any claim by
     the Plaintiff as part of the Company's bankruptcy procedure. However, the
     Company is currently unable to predict with any degree of certainty the
     final resolution of this matter.

     ITB Settlement.  The Bankruptcy Court has approved a resolution of the ITB
     and NPD transactions.  However, this Motion is dependent upon external
     legal proceedings in Delaware involving ITB and various third parties.  If
     the terms of the Motion are ultimately consummated, then substantial cash
     will be brought back into the Company.  See Note 6 above.

                                       18
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.


     Results of Operations:  Six-month periods ended September 30, 1998, and
     1997

     In summary, the Company recorded a net loss of approximately $38,000 for
     the six month period ended September 30, 1998.  Contributing to the loss
     was approximately $0.3 million of non-cash accruals for various interest
     expenses, which would be resolved under the Company's proposed Plan of
     Reorganization.  As further explained below, general and administrative
     expenses (or overhead costs) have been reduced.  Additionally, these
     results do not include the return of principal with respect to the
     Installment Contracts Receivable portfolio.  The net result of the above is
     that total cash on hand increased over the six month period by
     approximately $0.7 million, to a total of approximately $1.5 million at
     September 30, 1998 (which total represents an increase of approximately
     $0.9 million, more than doubling the amount on hand in late September 1997,
     when the Company filed for bankruptcy).  Net equity increased during the
     six months by approximately $0.4 million.

     Revenues from Installment Contracts Receivable (consumer used-car loans)
     were approximately $77,000 during the six months ended September 30, 1998,
     which represented a $0.3 million decrease compared to the $0.4 million
     realized during the six months ended September 30, 1997.  This decrease is
     a result of the reduced size of the Company's portfolio of such loans; the
     Company ceased purchasing new loans in December 1995, and as loans are paid
     in full or written off, the portfolio decreases in size.  The substantial
     cost to collect these loans is not reflected in net revenue, but as general
     and administrative expenses.  Future revenues from this portfolio will, in
     general, decline from their present level of $35,000 per quarter.

     Net viatical revenues realized from Policies in the six months ended
     September 30, 1998, were $0.3 million, as compared to no such revenues in
     the six months ended September 30, 1997.  The Company generally ceased
     purchasing Policies after September 1994, and in May and July 1995, sold
     the majority of its portfolio.  Future net revenues from the remaining
     portfolio of eleven Policies will be irregular, depending primarily upon
     the timing of mortality of the insured.

     General and administrative expenses were $0.8 million during the six months
     ended September 30, 1998, which represented a reduction of $0.6 million, or
     46%, compared to the $1.4 million expended during the six months ended
     September 30, 1997.  This decrease resulted primarily from a $0.4 million
     reduction in overhead expenses, and a $0.2 million decrease in the cost of
     administering and collecting the portfolio of Installment Contracts
     Receivable (which is included in general and administrative expenses),
     which was partially offset by $0.2 million increase due to costs associated
     with post Chapter 11 reorganization costs.

     Provisions for credit losses in connection with the portfolio of
     Installment Contracts Receivable for the six months ended September 30,
     1998 represents a $0.2 million recovery of bad debt, as compared to no
     provisions for the six months ended September 30, 1997.  This improvement
     of $0.2 million was primarily the result of collections on old loans which
     had, in the past, been more than six months in arrears and had therefore
     been written off, in accordance with the Company's long-standing
     procedures.

                                       19
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     Operating losses for the six months ended September 30, 1998, were $0.2
     million, compared to $1.0 million reported for the six months ended
     September 30, 1997.  In total, the $0.8 million reduction in operating
     losses was primarily due to (as detailed above) the reduction in general
     and administrative expenses (exclusive of reorganization costs) of $0.6
     million and the recovery of bad debt of $0.2 million.

     Non-operating income for the six months ended September 30, 1998 totaled
     $0.4 million, compared to a non-operating loss of $6.6 million for the six
     months ended September 30, 1997.  The $0.4 million income for the present
     period was primarily due to a viatical policy write-down recapture of $0.5
     million, plus accrued interest income of $0.2 million, partially offset by
     $0.3 million in accrued interest expense.  The $7.0 million improvement of
     the present period over the prior period is primarily due to the non-
     recurring $6.3 million debenture conversion charge in the prior period, the
     $0.5 million viatical policy write-down recapture in the present period,
     and a $0.2 million reduction in accrued interest expense.

     In addition to the above, for the six months ended September 30, 1998, the
     Company incurred $0.2 million in reorganization costs related to the
     bankruptcy proceedings.  There were no such reorganization costs in the
     prior period.

     The net effect of all of the foregoing resulted in a net loss of $38,000,
     or $0.01 per share, for the six months ended September 30, 1998.  The net
     loss for the same period last year was $4.5 million, or $0.75 per share.
     The decrease in net loss of $4.5 million was attributable primarily to a
     combination of the following items.  During the six months ended September
     30 1997, the Company recorded a non-cash charge for Debenture conversion of
     $6.3 million offset by a $3.2 million gain on early extinguishment of debt
     in connection with Debentures repurchased.  During the six months ended
     September 30, 1998, operating losses were reduced by $0.8 million, interest
     expense decreased by $0.2 million and the Company realized a recapture on
     insurance policy write downs of $0.5 million as compared to the same period
     last year.


     Results of Operations:  Three-month periods ended September 30, 1998, and
     1997

     Revenues from Installment Contracts Receivable (consumer used-car loans)
     were approximately $35,000 during the three months ended September 30,
     1998, which represented a $0.2 million decrease compared to the $0.2
     million realized during the three months ended September 30, 1997.  This
     decrease is a result of the reduced size of the Company's portfolio of such
     loans.

     Net viatical revenues realized from Policies in the three months ended
     September 30, 1998, were $0.3 million, as compared to no such revenues in
     the three months ended September 30, 1997. Future net revenues from the
     remaining portfolio of eleven Policies will be irregular, depending
     primarily upon the timing of mortality of the insured.

     General and administrative expenses were $0.4 million during the three
     months ended September 30, 1998, which represented a reduction of $0.5
     million, or 55%, compared to the $0.9 million expended during the three
     months ended September 30, 1997.  This decrease resulted primarily from a
     $0.4 million reduction in overhead expenses, and a $0.1 million decrease in
     the cost of 

                                       20
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     administering and collecting the portfolio of Installment Contracts
     Receivable, which was partially offset by $0.1 million increase due to
     costs associated with post Chapter 11 reorganization costs.

     Provisions for credit losses in connection with the portfolio of
     Installment Contracts Receivable for the three months ended September 30,
     1998 represent a $0.1 million recovery of bad debt, as compared to no
     provisions for the three months ended September 30, 1997.  This improvement
     was primarily the result of collections on old loans which had, in the
     past, been more than six months in arrears and had therefore been written
     off, in accordance with the Company's long-standing procedures.

     Operating income for the three months ended September 30, 1998 was $62,000,
     compared to an operating loss of $0.7 million reported for the three months
     ended September 30, 1997.  In total, the $0.7 million improvement in
     operations was primarily due to (as detailed above) the reduction in
     general and administrative expenses (exclusive of reorganization costs) of
     $0.5 million, a $0.1 million recovery of bad debt, and a $0.1 million
     increase in net revenue.

     Non-operating income for the three months ended September 30, 1998 totaled
     $0.5 million, compared to a non-operating loss of $0.1 million for the
     three months ended September 30, 1997.  The $0.4 million income for the
     present period was primarily due to a viatical policy write-down recapture
     of $0.5 million, plus accrued interest income of $0.1 million, partially
     offset by $0.2 million in accrued interest expense.  The $0.6 million
     improvement of the present period over the prior period is primarily due to
     the non-recurring $0.5 million viatical policy write-down recapture in the
     present period.

     In addition to the above, for the three months ended September 30, 1998,
     the Company incurred $0.1 million in reorganization costs related to the
     bankruptcy proceedings.  There were no such reorganization costs in the
     prior period.

     The net effect of all of the foregoing resulted in net income of $0.4
     million, or $0.07 per share, for the three months ended September 30, 1998.
     The net income for the same period last year was $1.4 million, or $0.23 per
     share.  The decrease in net income of $1.0 million was attributable
     primarily to a combination of the following items.  During the three months
     ended September 30, 1997, the Company realized a $2.2 million gain on early
     extinguishment of debt which was not available in the same period this
     year.  Operating losses decreased by $0.7 million during the three months
     ended September 30, 1998 and the Company recorded a recapture on insurance
     policy write-downs of $0.5 million as compared to the same period last
     year.


     LIQUIDITY AND CAPITAL RESOURCES

     The Company's immediate viability as a going concern depends on the
     restructuring of its obligations, and, ultimately, the formation of a
     profitable line of business.  At September 30, 1998, the Company had cash
     and cash equivalents of approximately $1.5 million, and total liabilities
     exceeded total assets 1.4 to 1.  On September 22, 1997, the Company filed
     for voluntary bankruptcy reorganization (see Notes 1 and 2 to the Company's
     Consolidated 

                                       21
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     Financial Statements). The Company anticipates, but cannot assure, that it
     will emerge from Chapter 11 as a restructured, viable entity. If the
     Company is prevented from emerging, it would most likely be liquidated,
     which would result in the elimination of the Common Stock, Preferred Stock,
     and Class A and B Warrants, and in payments to debt holders of amounts less
     than their claims. Management believes that amounts which might be received
     by creditors under such a liquidation scenario would likely be less than as
     proposed under the bankruptcy reorganization Plan.

     Cash flows from operations was a positive $0.1 million for the six months
     ended September 30, 1998.  This compares to a negative cash flow from
     operations of $0.9 million for the six months ended September 30, 1997.
     The improvement of $1.0 million is primarily due to reduced cash
     expenditures for legal, professional, and consulting of $1.1 million,
     reduced cash expenditures for Directors' & Officers' liability insurance of
     $0.4 million, reduction in cash payroll of $0.3 million, and the receipt of
     $0.2 million in viatical policy payouts, all of which was partially offset
     by a reduction of $0.8 million in Installment Contracts Receivable
     receipts, and the expenditure of $0.2 million on reorganization under the
     bankruptcy.

     The portfolio of Installment Contracts Receivable at September 30, 1998 was
     $0.2 million (excluding receivables for which there was repossession of the
     underlying collateral or a charge-off, and before the effect of reserves).
     The portfolio consisted of 71 active used-car loans, of which approximately
     31% (on a dollar-weighted basis) are thirty days or more past due.  The
     Company commenced purchasing these Installment Contracts Receivable in May
     1994, and ceased purchases on December 22, 1995.  Future revenues from this
     portfolio will, in general, decline from their present level as the loans
     mature and the portfolio thus diminishes.

     The Company's portfolio of unmatured viatical insurance Policies consisted
     of 11 policies at September 30, 1998, having a combined face value of
     approximately $0.9 million and a net book value of approximately $0.1
     million.  The Company recognized $0.3 million in net revenue and a $0.5
     million recapture on insurance policy write-downs from 4 policies during
     the six months ended September 30, 1998.  The Company generally ceased
     purchasing new Policies as of September 1994.  Receipt of revenues from
     these Policies will be irregular, depending upon the timing of the
     mortality of the insured.

     Cash flows provided by investing activities was $0.6 million for the six
     months ended September 30, 1998, as a result of the IAP securities
     redemption. This compared to cash used by investing activities for the six
     months ended September 30, 1997 of $5.2 million, which was the result of
     funding the Escrow Deposit, the loan to NPD, and the purchase of the ITB
     Option in 1997.

     There were no cash flows from financing activities during the six months
     ended September 30, 1998, as compared to $5.7 million in cash used by
     financing activities during the six months ended September 30, 1997, which
     was the result of the redemption of Debentures during 1997.

     In summary, due to the foregoing factors, the Company's cash and cash
     equivalents increased by approximately $0.7 million during the six months
     ended September 30, 1998, to a total of $1.5 million.  This increase was
     largely due to the sale of the IAP securities, and the positive cash flow
     from operations.  In comparison, for the six months ended September 30,
     1997, there was a 

                                       22
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


     $11.8 million decrease in cash equivalents, largely due to the funding of
     the Escrow Deposit, the loan to NPD, the purchase of the ITB Option, the
     buyback of Debentures, and an operating deficit.



     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable

                                       23
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


                          PART II:  OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS.

     Rodman & Renshaw, Inc.  On September 24, 1997, Rodman & Renshaw, Inc., a
     Delaware corporation ("Rodman"), filed a complaint against several
     defendants, including the Company and its former subsidiary, AutoLend IAP,
     Inc., in the Supreme Court of the State of New York, County of New York.
     The Company believes that it was improperly included as one of the
     Defendants.  On September 17, 1998, Rodman executed a release, which
     included the Company, effectively dismissing the proceeding against the
     Company.

     AutoLend Group, Inc. v. Cozen & O'Connor.  On August 24, 1998, the Company
     filed Adversary No. 98-1199M, a complaint to recover certain payments made
     by the Company to Cozen & O'Connor, a Philadelphia-based law firm
     ("Cozen").  This complaint seeks the possible return of up to $564,000.

     AutoLend Group, Inc. v. Standard Capital.  On August 24, 1998, the Company
     filed Adversary No. 98-1198M, a complaint to recover certain payments made
     by the Company to Standard Capital Group, Inc., a California corporation
     ("Standard Capital").  This complaint seeks the possible return of up to
     $189,000.

     First National Bank of Clifton Forge v. AutoLend.  On August 6, 1998, a
     Motion for Judgment was filed in the Circuit Court of Alleghany County,
     State of Virginia, Case No. CL98-43.  The Motion seeks up to $54,000 in
     compensatory damages and up to $75,000 in punitive damages for alleged
     actions that took place between May 1995 and August 1997, involving car
     loans and the Company's former subsidiary, AutoLend IAP, Inc.  The Company
     learned of this Motion on September 1, 1998, and was unaware of the
     underlying issues up to that point in time, and is now investigating the
     situation.  The Company believes it has likely been improperly named as the
     defendant.

     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

     None

     ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     Not applicable.

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

     None.

                                       24
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES


     ITEM 5. OTHER INFORMATION.

     None.

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits.

          27 -- Financial Data Schedule

     (b)  Reports on Form 8-K.

          None

                                       25
<PAGE>
 
                    AUTOLEND GROUP, INC., AND SUBSIDIARIES

                                  SIGNATURES
                                        

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the following duly authorized persons.

AUTOLEND GROUP, INC.
(Registrant)

SIGNATURE                   TITLE                            DATE
---------                   -----                            ----



/s/ Nunzio P. DeSantis    Chairman of the Board,          October 27, 1998
-----------------------   Chief Executive Officer 
Nunzio P. DeSantis    



/s/ Jeffrey Ovington      Executive Vice President        October 27, 1998
-----------------------   (principal accounting and 
Jeffrey Ovington          financial officer)

                                       26