<PAGE>
 
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                   FORM 10-K

(Mark One)
[X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 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 0-26410
                        JAYHAWK ACCEPTANCE CORPORATION
            (Exact name of registrant as specified in its charter)

             TEXAS                                     75-2486444
   (State or other jurisdiction of                  (I.R.S. employer
    incorporation or organization)                 identification no.)

                                  BRYAN TOWER
                         2001 BRYAN STREET, SUITE 600
                              Dallas, Texas 75201
                   (Address of principal executive offices)

      Registrant's telephone number, including area code:  (214) 754-1000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

     Title of each class          Name of each exchange on which registered
     -------------------          -----------------------------------------
            None                                     None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                    Common Stock, par value $.01 per share

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 _______
                                         -------    

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained 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. [x]

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 subsequent to the distribution of securities under a plan
confirmed by a court.    Yes   X     No __________
                            -------       

As of April 12, 1999, the aggregate market value of the shares of the
registrant's common stock, $.01 par value ("Common Stock") (based upon the
average of the closing bid and asked prices of these shares on the OTC Bulletin
Board on such date), held by nonaffiliates was approximately $561,289.

At April 12, 1999, there were 27,785,326 shares of Common Stock outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE.

The registrant's definitive Proxy Statement pertaining to the 1999 Annual
Meeting of Shareholders (the "Proxy Statement"),  which will be filed within 120
days of the end of the Registrant's 1998 fiscal year pursuant to Regulation 14A,
is incorporated by reference into Part III.
 
================================================================================
                    See Exhibit Index Beginning on Page 48.
<PAGE>
 
                        JAYHAWK ACCEPTANCE CORPORATION
                                        
                                   INDEX TO
                          ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
<S>                                                                                                    <C> 
PART I ...............................................................................................   1
      Item 1.  Business...............................................................................   1
      Item 2.  Properties.............................................................................   5
      Item 3.  Legal Proceedings......................................................................   6
      Item 4.  Submission of Matters to a Vote of Security-holders....................................   6
PART II ..............................................................................................   7
      Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters..................   7
      Item 6.  Selected Financial Data................................................................   7
      Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..   8
      Item 8.  Financial Statements and Supplementary Data............................................  20
PART III .............................................................................................  41
      Item 10.  Directors and Executive Officers of the Registrant....................................  41
      Item 11.  Executive Compensation................................................................  41
      Item 12.  Security Ownership of Certain Beneficial Owners and Management........................  41
      Item 13.  Certain Relationships and Related Transactions........................................  41
PART IV ..............................................................................................  42
      Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................  42
</TABLE>
<PAGE>
 
                                    PART I
                                        
ITEM 1. BUSINESS
        --------

GENERAL

     Jayhawk Acceptance Corporation (the "Company") was founded in June 1993,
and its principal executive offices are located at Bryan Tower, 2001 Bryan
Street, Suite 600, Dallas, Texas.

     The Company is a specialized financial services company that, through
Jayhawk Medical Acceptance Corporation, its wholly owned subsidiary ("JMAC"),
has been principally engaged in offering an indirect financing source for
elective health care procedures since confirmation of its Plan of Reorganization
(the "Plan") under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy
Code") in October 1997.  See "--Background."  JMAC's elective health care
program involves the purchasing of retail installment sales contracts ("Medical
Contracts") originated by participating health care providers ("Providers") that
finance elective health care procedures performed by the Providers.  JMAC has
been engaged in the elective health care financing business since August 1996.
As of March 31, 1999, 626 Providers were enrolled in JMAC's elective health care
program and JMAC had purchased over 13,000 Medical Contracts and financed in
excess of $49 million of elective health care procedures.  JMAC incurred losses
of approximately $2.8 million in 1998.  See "Item 7.  Management's Discussion
and Analysis of Financial Condition and Results of Operations."

     Although JMAC's elective health care program was originally based on the
business model used by the Company in its automotive finance business, JMAC has
made significant changes to such model and expects that it will continue to
refine its elective health care business model.  Currently, JMAC offers
Providers two elective health care financing programs - the "Experience Program"
and the "Walk-Away Program."  In order to participate in either program, a
Provider enters into a provider agreement (a "Provider Agreement") with JMAC.
There is no enrollment fee associated with the Company's Walk-Away Program, but
each Provider participating in the Experience Program currently pays JMAC a non-
refundable enrollment fee (generally $1,500) at the time it executes a Provider
Agreement and an annual fee (generally $1,500) to continue participation in the
program.


     EXPERIENCE PROGRAM

     Under the Experience Program, upon its purchase of a Medical Contract, JMAC
pays the Provider an amount for the Medical Contract that generally approximates
58% to 68% of the principal amount of the Medical Contract (an "Acquisition
Payment").  This percentage is higher than what the Company paid automotive
dealers, in part, because the obligors under Medical Contracts are generally
"A," "B," and "C" credits as opposed to the "D credits" that typically
participated in the Company's automotive finance program.  Beginning in 1998,
once a Medical Contract is purchased under this program, eight percent of the
principal amount of the Medical Contract is paid on the Provider's behalf (in
lieu of to the Provider) to Jayhawk Medical Advertising Fund, a non-profit
corporation,  for use in informing the public of programs available from JMAC to
finance elective health care procedures and to promote the use of such programs.

     Each Medical Contract purchased under the Experience Program becomes part
of a pool of Medical Contracts purchased from Providers.  JMAC retains 100% of
the principal and interest collected on Medical Contracts included within a pool
until JMAC has eliminated its credit risk with respect to the Medical Contracts
included in that pool.  JMAC generally is obligated to make a payment (a "Pool
Distribution Payment") to Providers with respect to a pool, if and to the extent
that, at the end of any calendar quarter, the cumulative total of all principal
collections received by JMAC on all Medical Contracts in the pool exceeds the
sum (the "Pool Balance") of (i) the cumulative total of all Acquisition Payments
paid for all Medical Contracts in that pool, plus (ii) an amount equal to 20% of
the aggregate total of the amount financed by all Medical Contracts in the pool,
plus (iii) the cumulative total of all prior Pool Distribution Payments made
with respect to the pool.

     JMAC "closes" an existing pool on the last day of each calendar year and
establishes a "new" pool for the subsequent calendar year.  Since Providers are
entitled to Pool Distribution Payments with respect to a pool only 

                                    Page 1
<PAGE>
 
after JMAC recovers all Acquisition Payments paid in connection with Medical
Contracts included within the pool and receives an amount equal to 20% of the
aggregate total of the amount financed by all Medical Contracts in the pool, the
"closing" of a pool and inclusion of subsequently purchased Medical Contracts in
a "new" pool results in Providers receiving distributions with respect to pools
sooner than would otherwise be the case. Notwithstanding the establishment of
"new" pools, however, the Provider Agreement provides that if JMAC determines
that principal collections with respect to any pool are likely to be less than
the Pool Balance for such pool, JMAC may add all or a portion of the Pool
Balance for that pool to the Pool Balance for any other pool, which effectively
cross-collateralizes Medical Contracts within and among pools.

     As a result of the Experience Program business model, the performing
Medical Contracts within a pool effectively secure JMAC's recovery of
Acquisition Payments paid with respect to any non-performing Medical Contracts
within the pool. In addition, because the Acquisition Payment generally
approximates 58% to 68% of the principal amount of the Medical Contract, the
credit risk associated with JMAC's purchase of Medical Contracts is mitigated.
Furthermore, by tying the amount of any Pool Distribution Payment to the
performance of a pool of Medical Contracts, JMAC's program aims to align the
interests of the Providers and JMAC in maximizing the quality of, and therefore
the collections on, Medical Contracts included within a pool.  However, risk
does exist that Acquisition Payments made to a Provider may not be fully
recouped from the collections related to a pool since the default rate on any
individual pool could be so extreme that collections would not be sufficient to
recover all Acquisition Payments paid with respect to the Medical Contracts
included within such pool.  See "Item 7.  Management's Discussion and Analysis
of Financial Condition and Results of Operations."

     WALK-AWAY PROGRAM

     Under JMAC's Walk-Away Program, upon its purchase of a Medical Contract,
JMAC pays the Provider an Acquisition Payment that generally ranges from 50% to
90% of the principal amount of the Medical Contract, depending on the
creditworthiness of the obligor.  With respect to Medical Contracts purchased
under this program, Providers are not entitled to any Pool Distribution Payments
or other payments relating to the performance of the Medical Contract or a pool
of such contracts.

BACKGROUND

     From its inception through June 1997, the Company's principal business
involved serving automotive dealers ("Dealers") by providing an indirect
financing source to buyers of used vehicles with limited access to traditional
sources of consumer credit.  The Company purchased automobile installment sale
contracts ("Automotive Contracts" and, together with Medical Contracts,
"Contracts") from Dealers, secured by low-priced used vehicles that typically
were purchased by consumers with substandard credit histories--commonly referred
to as "D credits." The Company's automotive finance business used a business
model that is similar to the Experience Program used in its elective health care
finance business.

     In the fourth quarter of 1996, following a reevaluation of the overall
profitability and credit quality of its existing pools of Automotive Contracts,
the Company terminated its relationship with a number of its participating
Dealers and changed the basis on which it was willing to purchase Automotive
Contracts from others.  As a result of these actions and because a continuing
business relationship was an important factor in the Company's determination of
the recoverability of amounts paid to Dealers for Automotive Contracts, on
January 30, 1997, the Company announced a special charge in the fourth quarter
of 1996 to increase its allowance for credit losses.

     The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Furthermore, the Company's planned additional financing in January 1997 failed
to materialize.  The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of the failure to
consummate the additional financing.  On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding its subsidiaries) filed a voluntary petition
for reorganization (the "Chapter 11 Petition") under Chapter 11 of the
Bankruptcy Code (the "Chapter 11 Proceeding").  See "Item 3.  Legal
Proceedings", "Item 7.  Management's Discussion and Analysis of Financial
Condition and 

                                    Page 2
<PAGE>
 
Results of Operations--Chapter 11 Proceeding" and "--Liquidity and Capital
Resources," and Note 2 of the Notes to Consolidated Financial Statements of the
Company included herein.

     After filing the Chapter 11 Petition and prior to confirmation of the Plan,
the Company managed its business as a debtor-in-possession subject to the
supervision and control of the Federal Bankruptcy Court for the Northern
District of Texas (the "Bankruptcy Court").  In connection with the Chapter 11
Proceeding, among other things, the Company ultimately discontinued its
purchases of Automotive Contracts.  On October 10, 1997 the Bankruptcy Court
entered an order, effective October 21, 1997, confirming the Plan.  Since that
date, the Company has operated in accordance with the Plan.

OPERATIONS

     The Company is a specialized financial services company that, through JMAC,
its wholly owned subsidiary, is principally engaged in offering an indirect
financing source for elective health care procedures.  In addition to its
elective health care business, the Company continues servicing and collecting
its portfolio of Automotive Contracts acquired prior to confirmation of the
Plan.  See "--Background" and "Item 7.  Management's Discussion and Analysis of
Financial Condition and Results of Operations."  See Note 8 of the Notes to
Consolidated Financial Statements of the Company included herein for certain
revenue, profit/loss and asset information regarding the Company's business
segments.

     The Company does not presently plan to resume the purchase of Automotive
Contracts and instead intends to focus on JMAC's elective health care procedure
financing business.  The Company believes the elective health care financing
business is currently less competitive than the automotive financing business
and will generate installment contracts for purchase from borrowers with
substantially better credit than its automotive financing business.  The Company
may also in the future examine other specialty finance areas that it believes
would generate contracts for purchase meeting generally the criteria of the
Medical Contracts JMAC is currently purchasing.

     Since JMAC's elective health care program was originally based on the
business model used by the Company in its automotive finance business, it is
subject to many of the same risks that affected the Company's automotive finance
business, including the risk that collections on Medical Contracts purchased by
JMAC will not be sufficient to recover the amounts paid by JMAC for such Medical
Contracts.  See "--Background" and "Item 7.  Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     SALES AND MARKETING

     JMAC focuses substantial sales and marketing efforts on increasing the
number and quality of Medical Contracts purchased and, to a lesser extent,
enrolling new Providers into its elective health care program.  At March 31,
1999, 626 Providers were enrolled in JMAC's program and the Company's
installment contracts receivable for Medical Contracts was $14.0 million.

     Initially, these efforts primarily consisted of targeted radio, television
and print advertising designed to increase public awareness of and participation
in JMAC's elective health care program.  Since the first quarter of 1999, JMAC
has substantially curtailed such advertising in favor of banner advertising on
internet websites that JMAC believes will likely be viewed by prospective
patients.  These banner advertisements are linked to a website providing
information about JMAC's elective health care program.  Upon accessing this
website, the prospective patient can access and complete an application asking a
series of screening questions to preliminarily determine whether that person
will be eligible to participate in JMAC's program.  If a positive determination
is made, JMAC furnishes the prospective patient the names of Providers
participating in JMAC's program that offer the requested medical procedures and
offers to arrange an appointment.  A prospective patient will then meet with a
Provider.  If the prospective patient and the Provider reach an agreement as to
the required services and the cost thereof, the patient will complete a credit
application for review by JMAC.  JMAC will then verify information provided by
the prospective patient in the screening process and review information in the
prospective patient's credit report, among other procedures, and determine the
amount of any financing it is willing to provide in connection with the
requested procedures.  See "--Medical Contract Underwriting."

                                    Page 3
<PAGE>
 
     PROVIDER DUE DILIGENCE AND ACCEPTANCE

     Prior to accepting a Provider into JMAC's program, JMAC performs certain
procedures designed to verify that the Provider has obtained necessary licenses
and will operate within JMAC's guidelines.  These procedures include: (i)
reviewing copies of necessary licenses; (ii) performing a background
investigation, which may include obtaining credit reports, accessing certain
public data repositories and talking with local and state governmental agencies
and medical boards; and (iii) requiring the Provider to enter into a Provider
Agreement.

     Under the Provider Agreement, a Provider agrees that it will not submit a
Medical Contract to JMAC for purchase unless it meets certain conditions,
including that it complies with all applicable federal, state and local laws and
regulations.

     The Provider Agreement may be terminated for any reason by JMAC or by the
Provider upon 30 days' prior written notice, or JMAC may terminate the Provider
Agreement immediately upon an event of default by the Provider. Events of
default include: (i) the breach by the Provider of any of its obligations or
covenants under the Provider Agreement, which breach continues unremedied for a
period of ten days after JMAC provides written notice thereof to the Provider;
(ii) the breach by the Provider of any representations or warranties set forth
in the Provider Agreement; or (iii) the misrepresentation by the Provider of any
information or circumstances relating to any Medical Contracts submitted to
JMAC, any obligor under any such Medical Contract or any health care services.
If the Provider Agreement is terminated and an event of default has not occurred
on the part of the Provider, JMAC will pay the Provider any Pool Distribution
Payments to which he may be entitled as they become due.  If JMAC determines
that an event of default has occurred or if any claim or action is made or
brought against JMAC that arises out of or relates to the Provider's sale and/or
provision of health care services or the Provider's origination of any Contract,
then the Provider is obligated to (a) repurchase from JMAC the Medical Contracts
that are the subject of or affected by such event of default or claim or action
for an amount equal to the lesser of the Acquisition Payments paid for such
Medical Contracts or the sum of all amounts remaining to be paid on such Medical
Contracts or (b) upon the demand of JMAC, repurchase all of the Medical
Contracts sold by such Provider for an amount equal to the lesser of the
aggregate total of Acquisition Payments paid by JMAC for all of the purchased
Medical Contracts or the aggregate total sum of all amounts remaining to be paid
on all the Medical Contracts sold to JMAC by such Provider.

     MEDICAL CONTRACT UNDERWRITING

     If the prospective patient and the Provider reach an agreement as to the
required services and the cost thereof, the patient will complete a credit
application for review by JMAC.  JMAC will then verify information provided by
the prospective patient in the initial screening process and review the
prospective patient's credit report and certain other personal information.  A
credit analyst then determines the terms on which JMAC would be willing to
purchase a Medical Contract financing the health care procedures.  If the
Provider agrees to such terms, a Medical Contract is prepared and executed by
the patient and the Provider and subsequently sold to JMAC.

     SERVICING AND COLLECTIONS

     Customer service representatives monitor and manage the collection of their
assigned Contracts supported by a computerized priority system.  The Company's
computer system provides personnel with immediate access to all information
contained in a Contract, including the amount of the Contract, maturity,
interest rate, and payment history. The Company's practice is to work with the
delinquent consumers to ensure they continue making payments.  However, if the
Company believes a delinquent consumer will be unable to service the Contract in
an acceptable manner or is dealing in bad faith, the Company typically will
commence additional collection efforts.  The Company will generally pursue the
customer for deficiency amounts either directly or through agents.

COMPETITION

     Although the Company does not believe that JMAC currently directly competes
with commercial banks, savings and loans, and credit unions, it does face
competition from a number of companies providing or capable of providing
financing to individuals for elective health care procedures.  Many of these
competitors or potential 

                                    Page 4
<PAGE>
 
competitors have significantly greater resources than the Company. To the extent
that any of such lenders significantly expand their activities in this market,
the Company could be materially adversely affected. The Company believes that it
competes primarily on the basis of service to its participating Providers and
the price paid for Medical Contracts. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

CUSTOMERS AND CONCENTRATION OF BUSINESS

     JMAC purchases Medical Contracts from participating Providers located in
major metropolitan areas throughout the United States.  No single state
accounted for more than 28% of the total number of Medical Contracts purchased
by JMAC between December 31, 1997 and December 31, 1998 or between December 31,
1998 and March 31, 1999.

     No single Provider accounted for more than 3% of the total number of
Medical Contracts purchased by JMAC between December 31, 1997 and December 31,
1998 or between December 31, 1998 and March 31, 1999, and the groups of 25
Providers that sold the greatest number of Medical Contracts to JMAC during such
periods accounted for less than 36% of the total number of Medical Contracts
purchased by JMAC during such periods.

     All of the Company's assets are located in the United States.

REGULATION

     The Company's (including JMAC's) operations are subject to federal and
state laws and regulations.  Consumer lending laws generally require licensing
of the lender and purchasers of consumer loans and adequate disclosure of loan
terms and impose limitations on the terms of consumer loans and on collection
policies and creditor remedies.  Federal consumer credit statutes primarily
require disclosures of credit terms in consumer finance transactions.  In
general, the Company's business is conducted under licenses issued by individual
states and is also subject to the provisions of the federal Consumer Credit
Protection Act and its related regulations.  The Company maintains an internal
compliance staff to stay informed of changes in applicable law.

     Due to the consumer-oriented nature of the industries in which the Company
has and does operate and uncertainties with respect to the application of
various laws and regulations in certain circumstances, industry participants are
named from time to time as defendants in litigation, including class action
suits, involving alleged violations of federal and state consumer lending or
other similar laws and regulations.  See "Item 3. Legal Proceedings."  A
significant judgment against the Company in connection with any litigation could
have a material adverse effect on the Company's financial condition and results
of operations.  In addition, if it were determined that a material number of
Automotive Contracts or Medical Contracts purchased by the Company involved
violations of applicable lending laws by Dealers, Providers or the Company, the
Company's financial condition and results of operations could be materially
adversely affected.

EMPLOYEES

     As of March 31, 1999, the Company had approximately 80 full time employees,
approximately half of which were primarily performing services in connection
with the Company's elective health care financing business.  None of the
Company's employees are represented by a union.

ITEM 2. PROPERTIES
        ----------

     The Company leases approximately 26,526 square feet that it uses for its
corporate offices in Dallas, Texas. The lease is for a term ending June 30, 1999
and provides for monthly rent of approximately $23,200.  Management is
considering its options with respect to the period after the termination of its
existing lease and believes that its current facilities are sufficient to meet
its current needs and that alternative space will be available on reasonable
terms if needed.

                                    Page 5
<PAGE>
 
ITEM 3. LEGAL PROCEEDINGS
        -----------------

CHAPTER 11 PROCEEDING

     On February 7, 1997, the Company (excluding its subsidiaries) filed the
Chapter 11 Petition and commenced the Chapter 11 Proceeding.  See "Item 1.
Business--Background."

     On October 10, 1997, the Bankruptcy Court entered an order, effective
October 21, 1997, confirming the Plan.  Since that date, substantially all
collections on the Company's portfolio of Automotive Contracts have been used to
fund operating expenses and to liquidate Plan obligations.  Obligations to the
Company's revolving lender, other secured creditors and unsecured trade
creditors aggregating approximately $41.6 million on October 21, 1997, plus
interest as required, have been paid in full in accordance with the terms of the
Plan.

     Under the terms of the Plan, all current and future obligations to Dealers
are fixed at either a settlement offer contained in the Plan or an amount to be
adjudicated by the Bankruptcy Court.  The Company is obligated under the Plan to
make payments to settling Dealers aggregating approximately $6.0 million.  In
addition, non accrual automotive contracts receivable with principal balances
totaling approximately $99.0 million dollars (which were previously charged off
for financial statement purposes) were transferred to a trust benefiting the
settling Dealers.  Dealers to which the Company made settlement offers totaling
approximately $2.4 million have rejected such settlements and the value, if any,
of related claims will be determined by the Bankruptcy Court.

     The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers) in order to ensure the adequacy of
its working capital after a scheduled payment.  As collections on its Automotive
Contracts since October 1997 have been lower than contemplated by the Plan, the
Company deferred approximately $3.9 million of the $4.6 million originally
scheduled for payment to JMAC and settling Dealers through September 30, 1998.
At December 31, 1998, the Company continues to owe approximately $7.9 million to
Dealers (including an estimated $2.4 million to non-settling Dealers) and
approximately $7.5 million to JMAC (including accrued interest of approximately
$.4 million), which amounts are generally due under the Plan in quarterly
installments through December 31, 1999.  The Plan also allows the Company to
defer the future scheduled payments.  Based on current projected levels of
future collections on its Automotive Contracts, the Company expects to defer
some of the future scheduled payments to JMAC and the Dealers into the year
2000.  Further, although the Company believes the projected levels of
collections are attainable, there can be no assurance that such projections will
ultimately be realized.  See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Chapter 11 Proceeding" and Note 2
of the Notes to Consolidated Financial Statements of the Company included
herein.

OTHER

     In the normal course of its business, the Company is named as defendant in
legal proceedings.  These legal proceedings include claims for alleged truth-in-
lending violations, nondisclosures, misrepresentations and deceptive trade
practices, among other things.  The relief requested by plaintiffs varies, but
often includes requests for compensatory, statutory and punitive damages.  In
the opinion of management, resolution of these matters will not have a material
adverse effect on the Company.

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

     No matter was submitted to a vote of the Company's security-holders during
the quarter ended December 31, 1998.

                                    Page 6
<PAGE>
 
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         ---------------------------------------------------------------------

     The Company's outstanding common stock, par value $.01 per share (the
"Common Stock"), was quoted on the Nasdaq National Market under the trading
symbol "JACC" from the Company's initial public offering in August 1995 until
the Chapter 11 Proceeding on February 7, 1997.  From February 7, 1997 until
November 10, 1998, the Common Stock was quoted on the Nasdaq National Market
under the trading symbol "JACC(Q)." On November 10, 1998, the Common Stock was
delisted from the Nasdaq National Market, and since that time has been quoted on
the OTC Bulletin Board under the symbol "JACC."  The following table sets forth,
for the periods indicated, the high and low closing sale prices for the Common
Stock as reported by the Nasdaq National Market during the period the Common
Stock was quoted on the Nasdaq National Market and the high and low closing bid
prices as reported by the OTC Bulletin Board thereafter.  Such over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.

 
                                                           High    Low
                                                          ------  ------

     Calendar 1997:
               First Quarter                                11.5    1.25
               Second Quarter                             2.4375  0.9375
               Third Quarter                                 2.0    0.75
               Fourth Quarter                             2.5938   1.125
 
     Calendar 1998:
               First Quarter                              1.5625   0.875
               Second Quarter                             1.0312  0.4688
               Third Quarter                              0.6875  0.1875
               Fourth Quarter                             0.9062  0.0312
 
     Calendar 1999:
               First Quarter                                0.25  0.0156
               Second Quarter (through April 12, 1999)    0.0625  0.0312


     On April 12, 1999, the closing bid price as reported on the OTC Bulletin
Board for the Common Stock was $0.035 per share.

     The Company believes that as of April 12, 1999, there were approximately
2,000 holders of Common Stock of record or through nominee or street name
accounts with brokers.

     Since inception, the Company has not paid any dividends.  The Company has
no present plans to pay any cash dividends on its Common Stock and currently
intends to retain its earnings to finance its business.

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

     The selected historical financial data presented below as of and for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998 are derived from the
Company's audited financial statements. The data set forth below should be read
in conjunction with the financial statements of the Company and the notes
thereto and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein.

                                    Page 7
<PAGE>
 
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:                              FOR THE
                                                         YEAR ENDED
                                                         DECEMBER 31,
                                  ------------------------------------------------------------
                                      1994          1995        1996        1997       1998
                                  -------------  ----------  ----------  ----------  ---------
Revenues:                                (dollars in thousands, except per share data)
<S>                               <C>            <C>         <C>         <C>         <C>
 Finance charges................      $  4,695    $ 17,693   $  41,905    $ 22,798   $ 12,075
 Dealer and provider fees.......         1,084       4,095       8,455       8,692      2,910
 Service contracts..............           ---         ---       3,206       4,058         42
                                      --------    --------   ---------    --------   --------
 Total revenue..................         5,779      21,788      53,566      35,548     15,027
Costs and expenses:
 Sales and marketing............         2,808       4,730       9,198       8,973      2,547
 Operating......................         4,622       7,408      16,654      18,786     11,231
 Provision for credit losses....           526       2,243      71,062      30,674      2,200
 Provision for service contract            
  claims........................           ---         ---       1,310       1,070        --- 
 Loss on impairment of fixed               
  assets........................           ---         ---         ---       4,346        --- 
 Interest.......................           305       1,320       6,268       7,996      3,005
                                      --------    --------   ---------    --------   --------
 Total costs and expenses.......         8,261      15,701     104,492      71,845     18,983
                                      --------    --------   ---------    --------   --------
Income (loss) before                    
 reorganization expense.........        (2,482)      6,087     (50,926)    (36,297)    (3,956) 
Reorganization expense..........           ---         ---         ---       4,701        ---
                                      --------    --------   ---------    --------   --------
Income (loss) before income             
 taxes..........................        (2,482)      6,087     (50,926)    (40,998)    (3,956) 
 Income taxes expense (benefit).           ---       1,187      (1,187)        ---        ---
                                      --------    --------   ---------    --------   --------
Net income (loss)...............      $ (2,482)   $  4,900   $ (49,739)   $(40,998)    (3,956)
                                      ========    ========   =========    ========   ========
 
Net income (loss) per common          
 and equivalent
 share - diluted................      $   (.16)   $    .26   $   (2.17)   $  (1.68)  $   (.14) 
Weighted average number of              
 common and equivalent shares
 outstanding - diluted (in
 thousands).....................        15,345      18,732      22,931      24,456     27,785 
 
CASH FLOW DATA:
Provided by (used in) operating       
 activities.....................      $ (2,015)   $  6,093   $   8,194    $  4,779   $ (8,475) 
Provided by (used in) investing        
 activities.....................       (13,217)    (68,654)   (125,665)     49,457     37,218 
Provided by (used in) financing         
 activities.....................        20,322      56,557     117,604     (52,584)   (29,832) 
Net increase (decrease) in cash          
 and cash equivalents...........         5,090      (6,004)        133       1,652     (1,089) 
 
                                          1994        1995        1996        1997       1998
                                      --------    --------   ---------    --------   --------
BALANCE SHEET DATA:
Installment contracts receivable      $ 35,114    $167,491   $ 373,740    $157,440     45,760
Allowance for credit losses.....          (533)     (2,308)    (74,742)    (96,830)   (16,991)
                                      --------    --------   ---------    --------   --------
Installment contracts                   
 receivable, net................        34,581     165,183     298,998      60,610     28,769 
All other assets................         7,738       8,190      22,462      10,076      5,264
                                      --------    --------   ---------    --------   --------
 Total assets...................      $ 42,319    $173,373   $ 321,460    $ 70,686     34,033
                                      ========    ========   =========    ========   ========
 
Dealer holdbacks, net...........      $ 20,239    $ 82,373   $ 157,968    $  ---          ---
Total debt......................         7,500      32,386     108,647      51,072     21,240
Other liabilities...............         2,571      10,034      14,661      15,437     12,572
Shareholders' equity............        12,009      48,580      40,184       4,177        221
                                      --------    --------   ---------    --------   --------
 Total liabilities and                
  shareholders' equity..........      $ 42,319    $173,373   $ 321,460    $ 70,686     34,033
                                      ========    ========   =========    ========   ======== 
</TABLE>

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

     The Company is a specialized financial services company that, through JMAC,
its wholly owned subsidiary, has been principally engaged in offering an
indirect financing source for elective health care procedures since confirmation
of the Plan.  In addition to its elective health care business, the Company
continues servicing and collecting its portfolio of Automotive Contracts
acquired prior to confirmation of the Plan.  See "Item 1. Business--General" and
"--Background."  JMAC's elective health care program involves the purchasing of
Medical Contracts originated by participating Providers that finance elective
health care procedures performed by the Providers.  JMAC has been engaged in the
elective health care financing business since August 1996.  As of March 31,
1999, approximately 626 Providers were enrolled in JMAC's elective health care
program and JMAC had purchased over 13,000 Medical Contracts and financed in
excess of $49 million of elective health care procedures. JMAC incurred 

                                    Page 8
<PAGE>
 
losses of approximately $2.8 million in 1998. See Note 8 of the Notes to
Consolidated Financial Statements of the Company included herein for certain
revenue, profit/loss and asset information regarding the Company's business
segments.

     The Company's Medical Contracts are short-term in duration (generally 6 to
24 months with an average original term of approximately 20 months for Medical
Contracts purchased in 1998) and unsecured.   Since the health care procedures
provided through the Company's program are elective in nature, the Company
believes its revenues could be adversely impacted by changes in interest rates.

     Although JMAC's elective health care program was originally based on the
business model used by the Company in its automotive finance business, JMAC has
made significant changes to such model and expects that it will continue to
refine its elective health care business model.  Currently, JMAC offers
Providers two elective health care financing programs - the "Experience Program"
and the "Walk-Away Program."  In order to participate in  either program, a
Provider enters into a Provider Agreement with JMAC. There is no enrollment fee
associated with the Company's Walk-Away Program, but each Provider participating
in the Experience Program currently pays JMAC a nonrefundable enrollment fee
(generally $1,500) at the time it executes a Provider Agreement and an annual
fee (generally $1,500) to continue participation in the program.

     EXPERIENCE PROGRAM

     Under the Experience Program, upon its purchase of a Medical Contract, JMAC
pays the Provider an Acquisition Payment that generally approximates 58% to 68%
of the principal amount of the Medical Contract.  This percentage is higher than
what the Company paid Dealers, in part, because the obligors under Medical
Contracts are generally "A," "B," and "C" credits as opposed to the "D credits"
that typically participated in the Company's automotive finance program.
Beginning in 1998, once a Medical Contract is purchased under this program,
eight percent (8%) of the principal amount of the Medical Contract is paid on
the Provider's behalf (in lieu of to the Provider) to Jayhawk Medical
Advertising Fund, a non-profit corporation,  for use in informing the public of
programs available from JMAC to finance elective health care procedures and to
promote the use of such programs.

     Each Medical Contract purchased under the Experience Program becomes part
of a pool of Medical Contracts purchased from Providers.  JMAC retains 100% of
the principal collected on Medical Contracts included within a pool until JMAC
has eliminated its credit risk related to that pool.  JMAC generally is
obligated to make a Pool Distribution Payment to Providers with respect to a
pool, if and to the extent, at the end of any calendar quarter, the cumulative
total of all principal collections, less applicable costs, received by JMAC on
all Medical Contracts in the pool exceeds the Pool Balance.  The Pool Balance is
the sum of (i) the cumulative total of all Acquisition Payments paid for all
Medical Contracts in that pool, plus (ii) an amount equal to 20% of the
aggregate total of the amount financed by all Medical Contracts in the pool,
plus (iii) the cumulative total of all prior Pool Distribution Payments made
with respect to the pool.

     JMAC "closes" an active pool on the last day of each calendar year and
establishes a "new" pool for the subsequent calendar year.  Since Providers are
entitled to Pool Distribution Payments with respect to a pool only after JMAC
recovers all Acquisition Payments paid in connection with Medical Contracts
included within the pool and receives an amount equal to 20% of the aggregate
total of the amount financed by all Medical Contracts in the pool, the "closing"
of a pool and inclusion of subsequently purchased Medical Contracts in a "new"
pool results in Providers receiving distributions with respect to pools sooner
than would otherwise be the case.  Notwithstanding the establishment of "new"
pools, however, the Provider Agreement provides that if JMAC determines that
principal collections with respect to any pool are likely to be less than the
Pool Balance for such pool, JMAC may add all or a portion of the Pool Balance
for that pool to the Pool Balance for any other pool, which effectively cross-
collateralizes Medical Contracts within and among pools.

     As a result of the Experience Program business model, the performing
Medical Contracts within a pool effectively secure JMAC's recovery of
Acquisition Payments paid with respect to any non-performing Medical 

                                    Page 9
<PAGE>
 
Contracts within the pool. In addition, because the Acquisition Payment
generally approximates 58% to 68% of the principal amount of the Medical
Contract, the credit risk associated with JMAC's purchase of Medical Contracts
is mitigated. Furthermore, by tying the amount of any Pool Distribution Payment
to the performance of a pool of Medical Contracts, JMAC's program aims to align
the interests of the Providers and JMAC in maximizing the quality of, and
therefore the collections on, Medical Contracts included within a pool. However,
risk does exist that Acquisition Payments made to a Provider may not be fully
recouped from the collections related to a pool since the default rate on any
individual pool could be so extreme that collections would not be sufficient to
recover all Acquisition Payments paid with respect to the Medical Contracts
included within such pool. See "Item 1. Business--General."

     WALK-AWAY PROGRAM

     Under JMAC's Walk-Away Program, upon its purchase of a Medical Contract,
JMAC pays the Provider an Acquisition Payment that generally ranges from 50% to
90% of the principal amount of the Medical Contract, depending on the
creditworthiness of the obligor.  With respect to Medical Contracts purchased
under this program, Providers are not entitled to any Pool Distribution Payments
or other payments relating to the performance of the Medical Contract or a pool
of such contracts.

CHAPTER 11 PROCEEDING

     GENERAL

     On February 7, 1997, the Company filed the Chapter 11 Petition in the
Bankruptcy Court.  The discussion below sets forth various aspects of the
Chapter 11 Proceeding but is not intended to be an exhaustive summary.  For
additional information regarding the Chapter 11 Proceeding, reference is made to
the Plan and the related disclosure statement filed as exhibits to the Company's
Current Report on Form 8-K, dated October 23, 1997. See "Item 1. Business--
Background" and "Item 3. Legal Proceedings--Chapter 11 Proceeding."

     In the fourth quarter of 1996, following a reevaluation of the overall
profitability and credit quality of its existing pools of Automotive Contracts,
the Company terminated its relationship with a number of its participating
Dealers and changed the basis on which it was willing to purchase Automotive
Contracts from others.  As a result of these actions and because a continuing
business relationship was an important factor in the Company's determination of
the recoverability of amounts paid to Dealers for Automotive Contracts, on
January 30, 1997, the Company announced a special charge of $15.5 million in the
fourth quarter of 1996 to increase its allowance for credit losses.

     The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Furthermore, the Company's planned additional financing in January 1997 failed
to materialize.  The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of its failure to
consummate the additional financing.  On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding its subsidiaries) filed the Chapter 11 Petition
and commenced the Chapter 11 Proceeding.  See "--Liquidity and Capital
Resources."

     After filing the Chapter 11 Petition and prior to confirmation of the Plan,
the Company managed its business as a debtor-in-possession subject to the
supervision and control of the Bankruptcy Court.  As the Company's assets were
pledged to secure its lenders, the Company was required to obtain Bankruptcy
Court authorization for its use of such lenders' cash collateral.  Although the
Company received authorization to use a portion of its revolving lender's cash
collateral, such authorization was limited to the payment of expenses and
purchase of Automotive Contracts in accordance with a court approved budget.  As
a result of these limitations and the lack of available borrowings, the Company
implemented a number of cost saving measures.  Among other things, the Company
ultimately discontinued marketing its automotive finance program to Dealers and
discontinued 

                                    Page 10
<PAGE>
 
purchases of Automotive Contracts. On October 10, 1997, the Bankruptcy Court
entered an order, effective October 21, 1997, confirming the Plan.

     The Company does not presently intend to resume the purchase of Automotive
Contracts. Since October 21, 1997, substantially all collections on the
Company's portfolio of Automotive Contracts have been used to fund operating
expenses and to liquidate Plan obligations. Obligations to the Company's
revolving lender, other secured creditors, and unsecured trade creditors
aggregating approximately $41.6 million on October 21, 1997, plus interest as
required, have been paid in full in accordance with the terms of the Plan.

     Under the terms of the Plan, all current and future obligations to Dealers
are fixed at either a settlement offer contained in the Plan or an amount to be
adjudicated by the Bankruptcy Court. The Company is obligated under the Plan to
make payments to settling Dealers aggregating approximately $6.0 million. In
addition, non-accrual automotive contracts receivable with principal balances
totaling approximately $99 million (which were previously charged off for
financial statement purposes) were transferred to a trust benefiting the
settling Dealers. Dealers to which the Company made settlement offers totaling
approximately $2.4 million have rejected such settlements, and the value, if
any, of related claims will be determined by the Bankruptcy Court. See "Item 3.
Legal Proceedings--Chapter 11 Proceeding" and Note 2 of the Notes to
Consolidated Financial Statements of the Company included herein.

     While JMAC was not a party to the Chapter 11 Petition, it was adversely
affected by the Chapter 11 Proceeding.  JMAC had loaned approximately $7.1
million (the "JMAC Loan") to the Company prior to the Company's filing of the
Chapter 11 Petition, and the Bankruptcy Court prohibited the Company from
providing JMAC with any cash to finance its activities, including any repayment
of the JMAC Loan (which is eliminated in consolidation for financial statement
purposes), prior to confirmation of the Plan.

     The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers and JMAC) in order to ensure the
adequacy of its working capital after a scheduled payment.  As collections on
its Automotive Contracts since October 1997 have been lower than contemplated by
the Plan, the Company deferred approximately $3.9 million of the $4.6 million
originally scheduled for payment to JMAC and settling dealers through September
30, 1998.  At December 31, 1998, the Company continues to owe approximately $7.9
million to Dealers (including an estimated $2.4 million to non-settling Dealers)
and approximately $7.5 million to JMAC (including accrued interest of
approximately $.4 million), which amounts are generally due under the Plan in
quarterly installments through December 31, 1999.  The Plan also allows the
Company to defer some or all of future scheduled payments.  Based on current
projected levels of future collections on its Automotive Contracts, the Company
expects to defer some of the future scheduled payments to JMAC and the Dealers
into the year 2000.  Further, although the Company believes the projected levels
of collections are attainable, there can be no assurance that such projections
will ultimately be realized.

                                    Page 11
<PAGE>
 
RESULTS OF OPERATIONS

     The following table sets forth the percentage relationship of certain items
to total revenue for the periods indicated.

<TABLE>
<CAPTION>
                                                                    Percentage of Total Revenue
                                                                   ------------------------------
                                                                   For the Year Ended December 31,
                                          -------------------------------------------------------------------------
                                                  1994            1995           1996         1997         1998
                                            -----------------  -----------  -------------   --------  --------------
<S>                                         <C>                <C>          <C>             <C>       <C>
Revenues:
 Finance charges                                        81.2%        81.2%           78.2%     64.1%           80.4%
 Dealer and provider fees                               18.8         18.8            15.8      24.5            19.4
 Service Contracts                                       ---          ---             6.0      11.4             0.2
                                                ------------    ---------    ------------   -------    ------------
   Total revenue                                       100.0        100.0           100.0     100.0           100.0
Costs and expenses:
 Sales and marketing                                    48.6         21.7            17.2      25.2            17.0
 Operating                                              80.0         34.0            31.1      52.9            74.7
 Provision for credit losses                             9.1         10.3           132.7      86.3            14.6
 Provision for service                                   ---          ---             2.4       3.0             ---
   contract claims
 Loss on impairment of assets                            ---          ---             ---      12.2             ---
 Interest                                                5.3          6.1            11.7      22.5            20.0
                                                ------------    ---------    ------------   -------    ------------
   Total costs and expenses                            143.0         72.1           195.1     202.1           126.3
                                                ------------    ---------    ------------   -------    ------------
Income (loss) before reorganization                    (43.0)  27.9  27.9          (95.1)    (102.1)          (26.3)  
 expense
Reorganization expense                                   ---          ---             ---     (13.2)            ---
                                                ------------    ---------    ------------   -------    ------------
Income (loss) before income taxes                      (43.0)        27.9           (95.1)   (115.3)          (26.3)
Income taxes                                             ---         (5.4)           (2.3)      ---             ---
                                                ------------    ---------    ------------   -------    ------------
Net income (loss)                                      (43.0)%       22.5%          (92.9)%  (115.3)%         (26.3)%
                                                ============    =========    ============   =======    ============
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Total Revenue. Total revenue decreased from $35.5 million for the year
ended December 31, 1997 to $15.0 million for the same period in 1998, a decrease
of $20.5 million or 57.7%. The decrease was due to a $20.9 million, or 68.2%,
decrease in revenues attributable to the Company's automobile finance program,
offset by a $.4 million, or 7.7% increase in revenues attributable to JMAC's
elective health care program. JMAC incurred losses of approximately $2.8 million
in the year ended December 31, 1998, and the Company anticipates that JMAC will
continue to incur losses until JMAC obtains additional financing. The decrease
in total revenue reflects decreased finance charges, dealer and provider fees,
and service contract revenue.

     The decrease in finance charges resulted primarily from the overall
reduction of the Company's Automotive Contract portfolio as existing Automotive
Contracts are repaid. The Company's Automotive Contracts receivable, net of
allowance for credit losses, decreased from $47.5 million at December 31, 1997
to $16.7 million at December 31, 1998, a decrease of $30.8 million or 64.8%.
Finance charges from Automotive Contracts decreased from $21.5 million for the
year ended December 31, 1997 to $9.7 million for the same period in 1998, a
decrease of $11.8 million or 54.9%. Non-accrual Automotive Contracts as a
percentage of the total number of active (consisting of contracts that have not
been charged off for financial statement purposes) Automotive Contracts in the
Company's portfolio increased from 51.8% at December 31, 1997 to 61.3% at
December 31, 1998. Due to the discontinuation of Automotive Contract purchases,
the average age of the Automotive Contracts included in the Company's portfolio
will increase, which the Company anticipates will result in an increase in non-
accrual Automotive Contracts as a percentage of the total number of Automotive
Contracts included in the Company's portfolio.

     The Company's Medical Contracts receivable, net of allowance for credit
losses, remained relatively constant between December 31, 1997 and December 31,
1998.  However, in 1997, the Company's portfolio of 

                                    Page 12
<PAGE>
 
Medical Contracts grew from $2.1 million to $13.1 million. As a result, finance
charges from Medical Contracts increased from $1.3 million in 1997 to $2.4
million in 1998. At December 31, 1998, the non-accrual Medical Contracts as a
percentage of the total number of Medical Contracts included in the Company's
portfolio was 17.4% as compared to 29.4% at December 31, 1997. This decrease is
due primarily to the refinement of underwriting standards for Medical Contracts
purchased during the second half of 1997 and the charge-off in 1998 of non-
accrual Medical Contracts originated during 1997.

     Dealer and provider fees decreased from $8.7 million for the year ended
December 31, 1997 to $2.9 million for the year ended December 31, 1998, a
decrease of $5.8 million or 66.7%. As no new Dealers are enrolling in the
Company's automobile finance program, no dealer fees were recognized during the
year ended December 31, 1998, resulting in a $5.1 million decrease in revenues
as compared to the same period in 1997.  Fees from Providers related to Medical
Contracts purchased in JMAC's elective health care program approximated $2.9
million for the year ended December 31, 1998 compared to $3.6 million for the
same period in 1997, a decrease of $0.7 million or 19.4%.  This decrease is the
result of lower volumes of new Provider enrollments and new loan originations in
the second half of 1998 compared to the same period in 1997 as JMAC continued
its search for additional financing.  See "--Liquidity and Capital Resources"

     Since the Company has discontinued new Automotive Contract purchases and
because substantially all service contracts related to existing loans had
expired by March 31, 1998, the Company recognized only $42,000 of service
contract revenue during 1998.  Service contract revenue was $4.1 million in
1997.

     Sales and Marketing.  Sales and marketing expenses decreased from $9.0
million for the year ended December 31, 1997 to $2.5 million for the year ended
December 31, 1998 and decreased as a percentage of total revenue from 25.2% in
1997 to 17.0% in 1998. No sales and marketing expenses related to the Company's
automobile finance program were incurred during 1998, resulting in a $4.2
million decrease in expenses when compared to 1997. Sales and marketing expenses
related to JMAC's elective health care program decreased from $4.8 million in
1997 to $2.5 million in 1998, a decrease of $2.3 million or 47.9%, and decreased
as a percentage of related revenues from 97.9% for 1997 to 48.3% for 1998. These
decreases are primarily attributable to the formation of an advertising fund to
which JMAC pays, on behalf of Providers, 8% of the amount financed on certain
Medical Contracts for use by the fund to inform the public of programs available
from JMAC to finance elective health care procedures and to promote the use of
such programs.  See Note 10 of the Notes to Consolidated Financial Statements of
the Company included herein.

     Operating Expenses.  Operating expenses decreased from $18.8 million for
the year ended December 31, 1997 to $11.2 million for the year ended December
31, 1998, a decrease of $7.6 million or 40.4%, but increased as a percentage of
total revenue from 52.8% in 1997 to 74.7% in 1998.  The dollar decrease in
operating expenses was due to a decrease of $7.8 million, or 49.5%, in operating
expenses attributable to the Company's automobile finance program offset by an
increase of $.2 million, or 7.6%, in operating expenses attributable to JMAC's
elective health care program. The increase in operating expenses as a percentage
of total revenue is primarily attributable to the reduction of revenue as a
result of the overall reduction in the Company's portfolio of Automotive
Contracts.

     Provision for Credit Losses. The provision for credit losses decreased from
$30.7 million in 1997 to $2.2 million in 1998.  In the fourth quarter of 1998,
the Company recognized a charge of $1.1 million as a result of an increase in
the estimated time required to collect its portfolio of Automotive Contracts and
a corresponding increase in the estimated costs of collecting and servicing the
portfolio.  In addition, $1.1 million was provided for estimated credit losses
on the Company's portfolio of Medical Contracts.  The decrease in the provision
for credit losses is primarily due to the substantial elimination of new
Automotive Contract purchases in 1997, the maturity of the Company's portfolio
of Automotive Contracts, and the level of allowances for credit losses
established in prior periods.  See "--Credit Loss Policy".

     Provision for Service Contract Claims. As all service contracts have
expired and previously established accruals were adequate to cover claims
incurred, no provision for service contract claims was included in the results
of operations for the year ended December 31, 1998.  The Company provided $0.2
million for service contract 

                                    Page 13
<PAGE>
 
claims in 1997.

     Interest Expense.  Interest expense decreased from $8.0 million for the
year ended December 31, 1997 to $3.0 million for the year ended December 31,
1998. The decrease was due primarily to the retirement of debt secured by the
Company's portfolio of Automotive Contracts.

     Reorganization Expenses.  Reorganization expenses relate to costs incurred
by the Company in connection with its Chapter 11 Proceeding.  The Company
incurred $4.7 million of reorganization expenses during 1997.  The Plan was
confirmed effective October 21, 1997, and no further reorganization expenses
were incurred during 1998.

     Income Taxes. Due to net operating losses and the availability of net
operating loss carryforwards, the Company's effective income tax rate was 0% for
the years ended December 31, 1998 and December 31, 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Total Revenue.  Total revenue decreased from $53.6 million for the year
ended December 31, 1996 to $35.6 million for the same period in 1997, a decrease
of $18.0 million or 33.6%.  Revenues attributable to the Company's automobile
finance program decreased by $22.5 million, or 42.3%.  The decrease in
automotive revenues was comprised primarily of a $19.1 million decrease in
finance charges and a $2.9 million decrease in dealer fees, resulting primarily
from the Company's discontinuation of its automotive finance program in July
1997, the increased number of non-accrual Automotive Contracts held in the
Company's portfolio, and the overall reduction of the Automotive Contract
portfolio as existing Automotive Contracts are repaid.  The number of Automotive
Contracts purchased during 1997 decreased by 71,323 compared to 1996, and
Automotive Contracts receivable, net of the allowance for credit losses,
decreased from $297 million at December 31, 1996 to $48 million at December 31,
1997.  Revenues attributable to JMAC's elective health care program increased by
$4.5 million. JMAC was formed in August 1996 and recognized revenues of only
$0.4 million in 1996.  Medical Contracts  receivable, net of the allowance for
credit losses, increased from $2 million at December 31, 1996 to $13 million at
December 31, 1997.

     Sales and Marketing. Sales and marketing expenses decreased from $9.2
million for the year ended December 31, 1996 to $9.0 million for the same period
in 1997 and increased as a percentage of total revenue from 17.2% for the year
ended December 31, 1996 to 25.2% for the year ended December 31, 1997.  The
increase in sales and marketing expenses as a percentage of revenue was a result
of the Company's effort to expand JMAC's elective health care program, which
incurred approximately $4.8 million of sales and marketing expenses for the year
ended December 31, 1997 (compared to $0.8 million for the same period in 1996).
Sales and marketing expenses of JMAC's elective health care program were 97.9%
of revenues attributable to the elective health care program for the year ended
December 31, 1997. Sales and marketing expenses for the Company's automobile
finance program for the year ended December 31, 1997 primarily represent
previously paid sales commissions which are amortized for financial statement
purposes over the period of the related enrollment fee revenues.  Such expenses
approximated 13.6% and 15.8% of revenues attributable to the Company's
automobile finance program for the year ended December 31, 1997 and December 31,
1996, respectively.

     Operating Expenses. Operating expenses increased from $16.7 million for the
year ended December 31, 1996 to $18.8 million for the same period in 1997, an
increase of $2.1 million or 12.6%, and increased as a percentage of total
revenue from 31.1% for the year ended December 31, 1996 to 52.9% for the same
period in 1997.  The dollar increase in operating expenses was due to an
increase of $2.0 million in operating expenses attributable to JMAC's elective
health care program and a $0.1 million increase in operating expenses
attributable to the Company's automobile finance program.  The increase in
operating expenses as a percentage of total revenue was primarily attributable
to the higher percentage of non-accrual contracts included within the Company's
portfolio during the year ended December 31, 1997 when compared with 1996 and
the higher level of operating expenses as a percentage of revenue of JMAC's
elective health care program when compared with the Company's automobile finance
program.

                                    Page 14
<PAGE>
 
     Provision for Credit Losses. The amount provided for credit losses
decreased from $71.1 million for the year ended December 31, 1996 to $30.7
million for the same period in 1997. The decrease in the provision for credit
losses was primarily due to the Company's discontinuance of Automotive Contract
purchases and the decrease in the portfolio of Automotive Contracts.  See "--
Chapter 11 Proceeding" and "--Credit Loss Policy."

     Provision for Service Contract Claims. The Company provided $1.1 million
for service contract claims for the year ended December 31, 1997 as compared to
$1.3 million for the same period in 1996.  The decrease in the provision for
service contract claims was primarily attributable to the expiration of service
contracts originated prior to 1997 and the Company's discontinuance of
Automotive Contract purchases in 1997.

     Loss on Impairment of Fixed Assets. As a result of the substantial
elimination of marketing efforts to Dealers and the discontinuation of
Automotive Contract purchases during 1997, the Company recognized a loss of $4.3
million for the impairment of fixed assets, primarily costs of computer software
used in the solicitation of Dealers and origination of Automotive Contracts.

     Interest Expense. Interest expense increased from $6.3 million during the
year ended December 31, 1996 to $8.0 million during the same period in 1997. The
increase was due primarily to higher average borrowings under the Company's
credit facilities.

     Income Taxes. The Company's effective income tax rate was 0.0% for the year
ended December 31, 1997, as compared with an effective income tax rate of (2.3)%
for the same period in 1996, due to net operating losses and the availability of
net operating loss carryforwards.  See Note 11 of the Notes to Consolidated
Financial Statements.

     Reorganization Expenses. For the year ended December 31, 1997 the Company
incurred $4.7 million of reorganization expenses, consisting primarily of
professional fees incurred in connection with the Chapter 11 Proceeding.  No
such expenses were incurred for the same period in 1996.

CREDIT LOSS POLICY

     The level of unrecovered acquisition payments and the possible impact of
economic conditions on the creditworthiness of obligors are given major
consideration in determining the adequacy of the allowance for credit losses.
Credit loss experience, changes in the character, size and age of the Company's
overall installment contracts portfolio, and management's judgment are other
factors used in assessing the overall adequacy of the resulting provision for
credit losses.  Ultimate losses may vary from current estimates, and the amount
of the provision, which is a current expense, may be either greater or less than
the actual charge-offs.  In the fourth quarter of 1997, a special charge of
approximately $12.5 million was taken to write down automotive installment
contracts receivable to then estimated net realizable value and to establish as
a liability the estimated fixed amount due to Dealers under the Plan.  The
Company estimated the net realizable value of automotive receivables based on
expected future collections of principal, interest and fees less all estimated
future costs associated with owning, collecting and managing these Automotive
Contracts.

     Revenue on Automotive Contracts is recognized under a method which
approximates the interest method of accounting until the underlying obligation
is 120 days contractually past due or the collateral securing the Contract is
repossessed, whichever occurs first.  Revenue on non-accrual Automotive
Contracts is recognized as collected, provided the estimated net realizable
value equals or exceeds the net carrying value of the remaining Automotive
Contracts. Revenue on Medical Contracts is recognized under the interest method
of accounting until the underlying obligation is 60 days contractually past due.

     The total dollar amount of non-accrual Automotive Contracts as a percentage
of Automotive Contracts receivable was approximately 77.6% and 62.7% at December
31, 1998 and December 31, 1997, respectively. Due to the discontinuation of
Automotive Contract purchases, the average age of the Automotive Contracts
included in the Company's portfolio will increase, which the Company anticipates
will result in an increase in non-accrual Automotive Contracts as a percentage
of the total number of Automotive Contracts included in the Company's portfolio.
The total dollar amount of non-accrual Medical Contracts as a percentage of
Medical Contracts receivable 

                                    Page 15
<PAGE>
 
was approximately 22.8% and 27.6% at December 31, 1998 and December 31, 1997,
respectively. Contract balances on which no material payment has been received
for a significant period of time (in no event greater than one year) are 
charged-off against the related allowance for credit losses. Prior to January 1,
1998, such Contract balances were charged against the related dealer holdback.

     The following tables set forth certain information regarding charge-offs,
the provision for credit losses, the allowance for credit losses and dealer
holdbacks for the periods indicated:

<TABLE>
<CAPTION>
                                                                For the Year Ended December 31,
                                                                    (dollars in thousands)
                                 ---------------------------------------------------------------------------------------------
                                       1994             1995               1996                1997               1998
                                    $      %(1)       $       %(1)       $       %(1)       $        %(1)       $       %/(1)/
                                 ---------------------------------------------------------------------------------------------
<S>                                <C>   <C>       <C>      <C>       <C>      <C>       <C>       <C>       <C>      <C>
Gross installment contracts        $ 21  100.0%    $11,147  100.0%    $74,573  100.0%    $184,788  100.0%    $94,596  100.0%
   receivable charged-off
Charged against dealer               17   80.1       8,918   80.0      59,658   80.0      145,999   79.0         ---  ---/(2)/
   holdbacks
Charged against unearned              4   19.9       1,761   15.8      11,290   15.1       27,221   14.7       8,610    9.1%
   finance charges
Charged against allowance           ---    ---         468    4.2       3,625    4.9       11,544    6.3      85,613   90.5%
   for credit losses
Charged against other               ---    ---         ---    ---         ---    ---           25    0.0         373    0.4%
Provision for credit losses         526     (3)      2,243     (3)     71,062     (3)      30,674     (3)      2,200     (3)
</TABLE>
                                        
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                 ---------------------------------------------------
                                                                       1994      1995    1996      1997       1998
                                                                   ----------  -------  -------  --------   --------
<S>                                                                <C>         <C>      <C>      <C>        <C>
As a % of gross installment contracts receivable:
    Dealer holdbacks                                                   80.0%     80.0%    80.0%   ---/(2)/  ---/(2)/
    Allowance for credit losses                                         1.3       1.2     16.8   55.0      32.9
As a % of installment contracts receivable:
    Allowance for credit losses                                         1.5       1.4     19.7   61.7      37.1
    Net charge-offs against allowance for credit losses                 ---       0.3      1.0    7.3     187.1
</TABLE>

______________________
(1) As a percent of gross installment contracts receivable charged-off.
(2) In conjunction with the confirmation of the Plan, obligations to dealers
    were established at fixed amounts.  Accordingly, remaining dealer holdbacks
    were credited to the allowance for credit losses in the fourth quarter of
    1997.
(3) Not meaningful.
 
LIQUIDITY AND CAPITAL RESOURCES

     The Plan was confirmed effective October 21, 1997.  The Company will rely
upon collections on its existing Automotive Contracts to meet Plan obligations,
and any funds available for purposes other than meeting Plan obligations will be
very limited.  There can be no assurance that collections ultimately realized
from Automotive Contracts will be sufficient to meet Plan obligations, and any
failure to meet Plan obligations could have a material adverse effect on the
Company.

     While JMAC was not a party to the Chapter 11 Petition, it was adversely
affected by the Chapter 11 Proceeding.  JMAC had loaned approximately $7.1
million to the Company prior to the Company's filing of the Chapter 11 Petition,
and the Bankruptcy Court prohibited the Company from providing JMAC with any
cash to finance its activities, including any repayment of the JMAC Loan (which
is eliminated in consolidation for financial statement purposes), prior to
confirmation of the Plan.

     Obligations to the Company's revolving lender, other secured creditors, and
unsecured trade creditors aggregating approximately $41.6 million on October 21,
1997, plus interest as required, have been paid in full in accordance with the
terms of the Plan. The Plan allows the Company to defer some or all of the
scheduled payments 

                                    Page 16
<PAGE>
 
to unsecured creditors (including Dealers and JMAC) in order to ensure the
adequacy of its working capital after a scheduled payment. As collections on its
Automotive Contracts since October 1997 have been lower than contemplated by the
Plan, the Company deferred approximately $3.9 million of the $4.6 million
originally scheduled for payment to JMAC and settling dealers through September
30, 1998. At December 31, 1998, the Company continues to owe approximately $7.9
million to Dealers (including an estimated $2.4 million to non-settling Dealers)
and approximately $7.5 million to JMAC (including accrued interest of
approximately $.4 million), which amounts are generally due under the Plan in
quarterly installments through December 31, 1999. The Plan also allows the
Company to defer some or all of future scheduled payments. Based on current
projected levels of future collections on its Automotive Contracts, the Company
expects to defer some of the future scheduled payments to JMAC and the Dealers
into the year 2000. See "--Chapter 11 Proceeding," "Item 3. Legal Proceedings--
Chapter 11 Proceeding" and Notes 2 and 6 of the Notes to Consolidated Financial
Statements of the Company included herein.

     Additionally, after commencement of the Chapter 11 Petition, JMAC's
revolving credit lender refused to make any further advances under JMAC's
revolving credit facility.  To fund JMAC's operations, Mr. Carl Westcott, the
Company's Chairman and largest shareholder, provided approximately $12.3 million
of financing to JMAC between January 30, 1997 and September 30, 1997 (including
the $5 million of proceeds from Mr. Westcott's purchase of 50,000 shares of JMAC
preferred stock which was subsequently exchanged for 3,855,555 shares of the
Company's Common Stock).  Furthermore, at the request of JMAC's revolving credit
lender, Mr. Westcott purchased the revolving credit promissory note evidencing
the $13.5 million principal amount of indebtedness outstanding under the
facility.

     On November 12, 1997 Mr. Westcott agreed to consolidate and extend the
maturities of the notes evidencing his loans to JMAC.  Accordingly, these loans
are now evidenced by two notes.  The first note is in the principal amount of
$7.1 million, bears interest at the prime rate and is payable when, and to the
extent, any proceeds are received by JMAC with respect to the JMAC Loan;
provided that any unpaid principal and interest is due in November 1999.  The
second note is in the principal amount of $13.7 million, bears interest at the
prime rate and is due in November 1999.  Additionally, in 1998, Mr. Westcott
loaned an additional $400,000 to JMAC, which loan bears interest at the prime
rate and is payable on demand.  All of these notes are secured by all of the
assets of JMAC, and JMAC continues to owe Mr. Westcott approximately $1.8
million of accrued interest.  Mr. Westcott has advised the Company that he does
not intend to provide additional funds to JMAC.

     Since confirmation of the Plan, the Company has sought new sources of debt
and equity financing to support the growth of JMAC's operations.  Without
obtaining this additional financing, the Company does not believe that JMAC can
achieve the level of contract purchases necessary to become profitable.
Additionally, as described above, approximately $21.2 million of loans payable
by JMAC to Mr. Westcott are due on demand or in November 1999.  The failure to
refinance this indebtedness would have a material adverse effect on the Company.
There can be no assurance that any such financing will be available on terms
which are acceptable to the Company, if at all.  The Board of Directors
appointed a special committee consisting of Paul Bass, Committee Chairman,
Arthur Hollingsworth and Dr. Kern Wildenthal to assist it in developing,
reviewing and structuring a range of strategic alternatives intended to maximize
the value of JMAC to the Company, including the possible sale of all or part of
JMAC.  The special committee has engaged the investment banking firm of Hoak
Breedlove Wesneski & Co. to assist in connection with the strategic review.
There can be no assurances, however, of the outcome of the strategic review.  As
a result of the foregoing and the other matters cited in their report, the
report of the Company's independent certified public accountants states that
these matters raise substantial doubt about the Company's ability to continue as
a going concern.  See the Consolidated Financial Statements of the Company
included herein.

YEAR 2000

     Until recently, most computer software and hardware, as well as chips and
processors imbedded in various products (collectively referred to as "computer
applications"), used two digits, rather than four, to define the applicable
year.  Such computer applications may recognize a date using "00" as the year
1900 rather than the year 2000.  Consequently, many business and governmental
entities face the risk of some degree of interruption in their operations when
using computer applications to process dates of January 1, 2000 and beyond.
This is known as the 

                                    Page 17
<PAGE>
 
Year 2000 issue.

     The Company's loan servicing, loan application, general ledger and accounts
payable systems comprise its critical information technology ("IT") systems.
The Company has conducted a review of its critical IT systems to identify
components that are not Year 2000 compliant and is developing an implementation
plan to resolve this issue.  Such plan is expected to be completed by the end of
May 1999.  Additionally, letters of compliance are being obtained from all
vendors of standard systems, and the Company plans to conduct tests of all
systems to provide an enhanced degree of confidence for Year 2000 compliance.
The Company expects to complete these tests by the end of the third quarter of
1999.  All of the Company's critical operating systems accommodate four digit
entry and processing of year data.  However, these systems also permit two digit
entry of such data, which could result in errors in the processing of such data.
The Company believes the risk of such errors can be mitigated through
enhancements of operating procedures without material cost to the Company.  In
addition, the Company uses various ancillary programs to extract and/or
manipulate data from the operating systems for reporting and other purposes.  A
preliminary assessment indicates these programs will require some modifications
to properly process data pertaining to dates after the year 2000.  Management
believes these modifications can be accomplished in conjunction with the routine
ongoing maintenance of its computer systems without material cost to the
Company.  Replacement or modification of known noncompliant systems commenced in
July 1998, and the Company expects to complete this process during the second
quarter of 1999.

     In addition to its critical systems, the Company also relies, directly and
indirectly, on the systems of third parties, such as banks and credit bureaus,
for the accurate exchange of data and for financial processing capabilities.
The Company is contacting these third parties to determine what actions, if any,
may be needed to mitigate its risks relating to the failure of such third
parties to be Year 2000 compliant in a timely fashion.  The Company expects to
complete such review and assessment by the end of the second quarter of 1999.

     Software and hardware, such as security, power management, and telephone
systems, that facilitate the operations of the Company's corporate offices
comprise the Company's primary non-IT systems.  The Company is in the process of
assessing the Year 2000 compliance of the non-IT systems that operate at its
facilities and expects to conclude the assessment by August 1999.

     The Company has not incurred, nor does it expect to incur, material costs
in readying its computer applications for the year 2000.  The IT and non-IT
systems currently in place or expected to be in place were not purchased
specifically, nor was their installation accelerated, because of the Year 2000
issue.

     The Company's failure to fully or timely implement its Year 2000 compliance
plan or the occurrence of an unexpected Year 2000 problem could result in the
disruption of normal business activities or operations and have a material
adverse effect on the Company's results of operations, liquidity, or financial
condition.  Additionally, with respect to third parties, there can be no
assurance that their systems will be rendered Year 2000 compliant on a timely
basis or that any resulting Year 2000 issues would not have an adverse effect on
the results of operations of the Company.  The Company believes that the most
likely negative effects, if any, could include delays in underwriting Medical
Contracts, delays in the Company's servicing of assigned Contracts, and delays
in the ability to pay certain suppliers.  Such effects, if significant, would
likely result in lost revenues or increased operating costs.

     The Company believes that the Year 2000 compliance of its IT and non-IT
systems, as well as its efforts to assess the Year 2000 compliance of third
parties should minimize the business difficulties encountered as a result of the
Year 2000 issue.  Should the third parties with whom the Company has banking and
credit investigation relationships fail to comply with Year 2000 requirements,
the Company will consider changing its suppliers of such services to suppliers
who are Year 2000 compliant.  Consequently, the Company does not anticipate the
need to formulate contingency plans to deal with the Year 2000 issues and has
not formulated such plans.  If this assessment changes, the Company will develop
contingency plans as deemed necessary.

SEASONALITY

                                    Page 18
<PAGE>
 
     The Company's operations are affected by higher delinquency rates during
certain holiday periods.  Collections on Automotive Contracts tend to be higher
during the period at the beginning of the calendar year when many persons are
receiving state and federal tax refunds.

IMPACT OF INFLATION

     Increases in the inflation rate generally result in increased interest
rates.  Because a significant portion of the Company's outstanding indebtedness
bears interest at variable interest rates, any increase in interest rates will
increase the borrowing costs of the Company.  In addition, since the health care
procedures indirectly financed by JMAC's program are elective in nature,
increases in interest rates may deter prospective patients from purchasing such
procedures as a result of higher borrowing costs.

STATEMENT REGARDING FORWARD LOOKING STATEMENTS

     Except for the historical information contained herein, the matters
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations or elsewhere herein, including the matters relating to the
Plan and any beliefs with respect thereto, financial projections and Year 2000
are forward looking statements that are dependent upon a number of risks and
uncertainties that could cause actual results to differ materially from those in
the forward looking statements.  These risks and uncertainties include the
recoverability of amounts paid for Contracts, the delinquency and default rates
with respect to Contracts included in the Company's portfolio, the impact of
competitive services and products, changes in market conditions, JMAC's limited
operating history, the impact of changes in regulation or litigation, the
management of growth, risks associated with technology and other risks described
herein.  The Company does not intend to provide updated information about the
matters referred to in these forward looking statements, other than in the
context of management's discussion and analysis in the Company's quarterly and
annual reports on Form 10-Q and 10-K.

                                    Page 19
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------

<TABLE> 
<CAPTION> 
                                        Description                                       Page No.
                                        -----------                                       --------
<S>                                                                                       <C> 
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                            21

REPORT OF INDEPENDENT AUDITORS                                                                22

FINANCIAL STATEMENTS:
     Consolidated Balance Sheets as of December 31, 1998 and 1997                             23
     Consolidated Statements of Operations for the years ended
        December 31, 1998, 1997 and 1996                                                      24
     Consolidated Statement of Shareholders' Equity for the years ended                       
        December 31, 1998, 1997 and 1996                                                      25
     Consolidated Statements of cash Flows for the years ended  
        December 31, 1998, 1997 and 1996                                                      26
     Notes to Consolidated Financial Statements                                               27
</TABLE> 

     No financial statement schedules required by this Item are listed in 
response to Item 14 of this report on Form 10-K as the required information is 
included in the footnotes to the consolidated financial statements.

                                      20
<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Jayhawk Acceptance Corporation

  We have audited the accompanying consolidated balance sheet of Jayhawk
Acceptance Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. 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 audit.

  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jayhawk Acceptance
Corporation and subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their cash flows for the year ended December 31,
1998, in conformity with generally accepted accounting principles.

  As discussed in more detail in Note 2 to the consolidated financial
statements, Jayhawk Acceptance Corporation incurred significant losses in 1996,
1997 and 1998, and discontinued its purchases of Automotive Contracts.  The
Company relies upon collections of its existing Automotive Contracts in order to
meet its obligations under the Plan of Organization ("Plan"), projects funds
available other than for meeting Plan obligations will be limited, and has
deferred a portion of the Plan payments originally scheduled for 1998 as allowed
under the Plan.  In addition, the Company's notes payable to its principal
shareholder are due in 1999.  These matters raise substantial doubt about the
Company's ability to continue as a going concern.  The financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.



/s/GRANT THORNTON LLP

Dallas, Texas
April 14, 1999

                                       21
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS


Board of Directors
Jayhawk Acceptance Corporation

  We have audited the accompanying consolidated balance sheet of Jayhawk
Acceptance Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1997.  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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jayhawk Acceptance
Corporation and subsidiaries at December 31, 1997, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

  As discussed in more detail in Note 2 to the consolidated financial
statements, Jayhawk Acceptance Corporation incurred significant losses in 1996
and 1997, discontinued its purchases of Automotive Contracts, relies upon
collections on its existing Automotive Contracts in order to meet its
obligations under the Plan of Organization ("Plan"), projects funds available
other than for meeting Plan obligations will be limited, and expects to defer a
portion of the Plan payments originally scheduled for 1998 as allowed under the
Plan.  These matters raise substantial doubt about the Company's ability to
continue as a going concern.  The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.



                                                            /s/ERNST & YOUNG LLP

Dallas, Texas
March 6, 1998

                                       22
<PAGE>
 
                JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                        


                                     
<TABLE>
<CAPTION>
                                      ASSETS

                                                                                    DECEMBER 31,             DECEMBER 31,
                                                                                        1998                     1997
                                                                               --------------------     -------------------
<S>                                                                            <C>                      <C>
Cash and cash equivalents...................................................               $    816                $  1,905
Restricted cash.............................................................                     --                   1,426
Medical contracts receivable, net...........................................                 12,074                  13,085
Automotive contracts receivable, net........................................                 16,695                  47,525
Furniture, fixtures and equipment, net......................................                  3,452                   5,384
Other assets................................................................                    996                   1,361
                                                                               --------------------     -------------------
Total assets................................................................               $ 34,033                $ 70,686
                                                                               ====================     ===================
                                                                               
                                                                               
                     LIABILITIES AND SHAREHOLDERS' EQUITY                      
                                                                               
Liabilities:                                                                   
  Accounts payable and accrued liabilities..................................               $  3,754                $  5,935
  Dealer payable............................................................                  7,960                   8,436
  Deferred provider fees, net...............................................                    858                   1,027
  Unearned service contract fees............................................                     --                      39
  Notes payable (including $21,240 and $20,840 to principal shareholder        
    at December 31, 1998 and 1997)..........................................                 21,240                  51,072
                                                                               --------------------     -------------------
Total liabilities...........................................................                 33,812                  66,509
                                                                               
Commitments and Contingencies                                                  
                                                                               
Shareholders' Equity:                                                          
  Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares     
   issued and outstanding...................................................                     --                      --
  Common stock, $.01 par value; 40,000,000 shares authorized;                  
   27,785,326 shares issued and outstanding at                                 
   December 31, 1998 and 1997...............................................                    278                     278
  Additional paid-in capital................................................                 93,722                  93,722
  Accumulated deficit.......................................................                (93,779)                (89,823)
                                                                               --------------------     ------------------- 
Total shareholders' equity..................................................                    221                   4,177
                                                                               --------------------     ------------------- 
Total liabilities and shareholders' equity..................................               $ 34,033                $ 70,686
                                                                               ====================     ===================
</TABLE>

                See notes to consolidated financial statements.

                                       23
<PAGE>
 
                JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                        
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,                   
                                                      ----------------------------------------------------------------
                                                             1998                   1997                    1996      
                                                      ----------------      -----------------      -------------------
<S>                                                   <C>                   <C>                    <C>                
Revenues:                                                                                                             
 Finance charges..................................             $12,075               $ 22,798                 $ 41,905
 Dealer and provider fees.........................               2,910                  8,692                    8,455
 Service contracts................................                  42                  4,058                    3,206
                                                      ----------------      -----------------      -------------------
                                                                15,027                 35,548                   53,566
                                                                                                                      
Costs and expenses:                                                                                                   
 Sales and marketing..............................               2,547                  8,973                    9,198
 Operating........................................              11,231                 18,786                   16,654
 Provision for credit losses......................               2,200                 30,674                   71,062
 Provision for service contract claims............                  --                  1,070                    1,310
 Loss on impairment of fixed assets...............                  --                  4,346                       --
 Interest.........................................               3,005                  7,996                    6,268
                                                      ----------------      -----------------      ------------------- 
                                                                18,983                 71,845                  104,492
                                                      ----------------      -----------------      ------------------- 
Loss before reorganization expense................              (3,956)               (36,297)                 (50,926)
Reorganization expense............................                  --                  4,701                       --
                                                      ----------------      -----------------      ------------------- 
Loss before income taxes..........................              (3,956)               (40,998)                 (50,926)
Income tax expense (benefit)......................                  --                     --                   (1,187)
                                                      ----------------      -----------------      -------------------
Net loss..........................................             $(3,956)              $(40,998)                $(49,739)
                                                      ================      =================      ===================
                                                                                                                      
Basic and diluted net loss per share..............              $(0.14)                $(1.68)                  $(2.17)
                                                      ================      =================      ===================
                                                                                                                      
Weighted average number of shares outstanding.....              27,785                 24,456                   22,931
                                                      ================      =================      =================== 
</TABLE>

                See notes to consolidated financial statements.

                                       24
<PAGE>
 
                JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                        PREFERRED                                ADDITIONAL            RETAINED
                                          STOCK                COMMON             PAID-IN              EARNINGS
                                         SERIES A              STOCK              CAPITAL             (DEFICIT)             TOTAL
                                      --------------       -------------       --------------       -------------        -----------
<S>                                   <C>                  <C>                 <C>                  <C>                  <C>
Balance at January 1, 1996..........  $           --                $205              $47,461            $    914         $  48,580
 
 Issuance of 3,350,000 shares of
  common stock......................              --                  34               40,757                  --            40,791
 
 Issuance of 81,725 shares of common
  stock upon exercise of stock 
  options and employee stock plan 
  purchases.........................              --                  --                  552                  --               552
 
 Net loss...........................                                                                      (49,739)          (49,739)
                                      --------------       -------------       --------------       -------------       ----------- 
 
Balance at December 31, 1996........              --                 239               88,770             (48,825)           40,184
 
 Issuance of 3,855,555 shares of
  common stock......................              --                  38                4,943                  --             4,981
 
 Issuance of 12,000 shares of common
  stock upon exercise of stock                    --                   1                    9                  --                10
   options..........................
 
 Net loss...........................              --                  --                   --             (40,998)          (40,998)
                                      --------------       -------------       --------------       -------------       -----------

Balance at December 31, 1997........              --                 278               93,722             (89,823)            4,177
 
 Net loss...........................              --                  --                   --              (3,956)           (3,956)
                                      --------------       -------------       --------------       -------------       -----------
 
Balance at December 31, 1998........  $           --                $278              $93,722            $(93,779)         $    221
                                      ==============       =============       ==============       =============       =========== 
</TABLE>

                See notes to consolidated financial statements.

                                       25
<PAGE>
 
                JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                     ---------------------------------------
                                                                         1998          1997           1996
                                                                     ---------------------------------------
<S>                                                                    <C>          <C>            <C>
Cash flows from operating activities:
  Net loss...........................................................  $ (3,956)      $ (40,998)    $(49,739)
  Adjustments to reconcile net loss to net
     cash provided by operating activities:
          Depreciation and amortization..............................     1,932          2,849         2,510
          Loss on sale/impairment of fixed assets....................        --          4,346            --
       Provision for credit losses...................................     2,200         30,674        71,062
       Deferred income taxes.........................................        --             --         2,088
       Changes in operating assets and liabilities:
       Installment contracts receivable..............................    (6,214)         8,916       (13,768)
       Income taxes receivable.......................................        --          1,122        (1,122)
       Other assets..................................................       365          1,311        (3,212)
       Dealer payable................................................      (476)            --            --
       Accounts payable and accrued liabilities......................    (2,157)        (2,414)         (414)
       Deferred dealer and provider fees, net........................      (169)        (1,027)          789
                                                                     -----------   -----------   ----------- 
Net cash provided by (used in) operating activities..................    (8,475)         4,779         8,194
 
Cash flows from investing activities:
  Payments to dealers and providers..................................   (10,056)       (35,384)     (200,728)
  Collections of installment contracts receivable....................    45,848         81,949        89,466
  Capital expenditures...............................................        --         (2,034)       (8,051)
  Decrease (increase) in restricted cash.............................     1,426          4,926        (6,352)
                                                                     -----------   -----------   ----------- 
Net cash provided by (used in) investing activities..................    37,218         49,457      (125,665)
 
Cash flows from financing activities:
  Net borrowings (principal payments) under revolving credit                                                 
   facilities........................................................   (26,359)       (39,793)       33,767 
  Proceeds from the issuance of notes payable to principal                                     
   shareholder.......................................................       400         20,840            --
  Proceeds from the issuance of secured notes payable................        --             --        95,164
  Principal payments on secured notes payable........................    (3,873)       (33,635)      (57,657)
  Proceeds from issuance (payment) of other notes payable............        --         (4,987)        4,987
  Proceeds from sales of common stock, net...........................        --          4,991        41,343
                                                                     -----------   -----------   ----------- 
Net cash provided by (used in) financing activities..................   (29,832)       (52,584)      117,604
                                                                     -----------   -----------   ----------- 
Net increase (decrease) in cash and cash equivalents.................    (1,089)         1,652           133
Cash and cash equivalents at the beginning of year...................     1,905            253           120
                                                                     -----------   -----------   ----------- 
Cash and cash equivalents at the end of year.........................  $    816       $  1,905     $     253
                                                                     ===========   ===========   ============ 
 
Supplemental disclosure of cash flow information:
  Cash paid for interest.............................................  $  2,173       $  5,186     $   6,015
                                                                     ===========   ===========   ============ 
  Cash paid for income taxes.........................................  $      --    $       --     $   1,950
                                                                     ===========   ===========   ============ 
 </TABLE> 
 
                See notes to consolidated financial statements.

                                       26
<PAGE>
 
                JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of the business The Company is a specialized financial services
company that is principally engaged in offering an indirect financing source for
elective health care procedures through Jayhawk Medical Acceptance Corporation
("JMAC"), its wholly owned subsidiary. JMAC's elective health care program
involves the purchasing of retail installment sales contracts ("Medical
Contracts", and, together with Automotive Contracts, "Contracts") originated by
participating health care providers ("Providers") that finance elective health
care procedures performed by the Providers.

     Currently, JMAC offers Providers two elective health care financing
programs- the "Experience Program" and the "Walk-Away Program." In order to
participate in either program, a Provider enters into a Provider Agreement with
JMAC. There is no enrollment fee associated with the Company's Walk-Away
Program, but each Provider participating in the Experience Program currently
pays JMAC a nonrefundable enrollment fee (generally $1,500) at the time it
executes a Provider Agreement and an annual fee (generally $1,500) to continue
participation in the program. Upon its purchase of a Medical Contract under the
Experience Program, JMAC pays the Provider an amount that generally approximates
58% to 68% of the principal amount of the Medical Contract (an "Acquisition
Payment"). Each Medical Contract becomes part of a common pool of Medical
Contracts purchased from all Providers. JMAC retains 100% of the principal
collected on Medical Contracts included within a pool until JMAC has eliminated
its credit risk related to that pool. JMAC generally is obligated to make a
payment (a "Pool Distribution Payment") to Providers with respect to a pool, if
and to the extent that, at the end of any calendar quarter, the cumulative total
of all principal collections received by JMAC on all Medical Contracts in the
pool exceeds the sum (the "Pool Balance") of (i) the cumulative total of all
Acquisition Payments paid for all Medical Contracts in that pool, plus (ii) an
amount equal to 20% of the aggregate total of the amount financed by all Medical
Contracts in the pool, plus (iii) the cumulative total of all prior Pool
Distribution Payments made with respect to the pool.

     JMAC closes an active pool on the last day of each calendar year and
establishes a new pool for the subsequent calendar year. The Provider Agreement
provides that if JMAC determines that principal collections with respect to any
pool are likely to be less than the Pool Balance for such pool, JMAC may add all
or a portion of the Pool Balance for that pool to the Pool Balance for any other
pool, which effectively cross-collateralizes Medical Contracts within and among
pools.

     Under the Walk-Away Program, upon its purchase of a Medical Contract, JMAC
pays the Provider an Acquisition Payment that generally ranges from 50% to 90%
of the principal amount of the Medical Contract, depending on the
creditworthiness of the obligor. With respect to Medical Contracts purchased
under this program, Providers are not entitled to any Pool Distribution Payments
or other payments relating to the performance of the Medical Contract or a pool
of such contracts.

     From its inception in June 1993 through June 1997, the Company was
principally engaged in serving automotive dealers ("Dealers") by providing an
indirect financing source to buyers of used vehicles with limited access to
traditional sources of consumer credit. The Company purchased automobile
installment sale contracts ("Automotive Contracts") from Dealers, secured by 
low-priced used vehicles that typically were purchased by consumers with
substandard credit histories -- commonly referred to as "D credits." The Company
used a business model similar to that used in its elective healthcare financing
business, but with Pool Distribution Payments based upon the separate
performance of pools established for each Dealer.

                                       27
<PAGE>
 
     In the fourth quarter of 1996, the Company reevaluated the overall
profitability and credit quality of existing Dealers' pools and determined to
terminate its relationship with a number of Dealers and to change the basis on
which it was willing to purchase Automotive Contracts from others.  During 1997,
the Company eliminated its sales and marketing efforts to new Dealers and
ultimately discontinued its purchases of new Automotive Contracts.  The Company
does not presently intend to resume the purchase of Automotive Contracts.

     Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, Jayhawk Services, Inc., Jayhawk Funding Trust I ("Funding Trust")
and Jayhawk Medical Acceptance Corporation ("JMAC").  All significant
intercompany balances and transactions have been eliminated upon consolidation.

     Finance charges - Finance charges on Medical Contracts are recognized under
the interest method of accounting until the underlying obligation is 60 days
contractually past due.  Finance charges on Automotive Contracts are recognized
under a method that approximates the interest method of accounting until the
underlying obligation is 120 days contractually past due or the collateral
securing the contract is repossessed, whichever occurs first.  At such time, the
Company suspends the accrual of revenue and provides an allowance for possible
losses on uncollected finance charges previously reported in earnings.

     Loan origination fees - Loan origination fees, net of related direct
incremental costs, on Medical Contracts are deferred and amortized as an
adjustment to yield over the estimated average life of the related contracts.

     Dealer fees - The nonrefundable dealer enrollment fees and the related
direct incremental costs were deferred and amortized on a straight-line basis
over the anticipated period of recovery of the Acquisition Payments made by the
Company to the Dealer. As a result of the change in the nature of the Company's
relationship with Dealers described in Note 2, all such deferred amounts were
written off during the fourth quarter 1997.

   Provider Fees - Provider  fees consist of (1) enrollment fees which are
deferred and amortized on a straight-line basis over 12 months, and (2) an
administrative fee, equal to 20% of the amount financed, which is recognized on
the interest method over the estimated average life of the related contracts.

   Cash and cash equivalents - Cash and cash equivalents consist of highly
liquid investments with original maturities of three months or less.

   Allowance for credit losses - The level of unrecovered acquisition payments
and the possible impact of economic conditions on the creditworthiness of
obligors are given major consideration in determining the adequacy of the
allowance.  Credit loss experience, changes in the character, size and age of
particular dealer and provider pools and the Company's overall installment
contracts receivable portfolio and management's judgment are other factors used
in assessing the overall adequacy  of the allowance and the resulting provision
for credit losses.  Ultimate losses may vary from current estimates and the
amount of the provision, which is a current expense, may be either greater or
less than actual charge-offs.

   Principal balances on which no material payment has been received for a
significant period of time (in no event greater than one year) are charged-off
against the allowance for credit losses and the related dealer holdback, as
appropriate.

   Service Contracts - Amounts collected on vehicle service contracts are
deferred and amortized on a straight-line basis over the terms of the contracts.
The Company records a liability for the estimated reported and unreported claims
to be paid on the contracts.  Increases to this liability are reported as
provision for service contracts.  All service contracts on existing Automotive
Contracts have expired at December 31, 1998.

                                       28
<PAGE>
 
     Concentration of credit risk - Medical Contracts receivable are from
consumers living throughout the United States, some of whom would not qualify
for traditional financing. Automotive Contracts receivable are from consumers
living throughout the United States who typically would not be expected to
qualify for traditional financing.

     Furniture, fixtures, and equipment -  Furniture, fixtures, and equipment
(including capitalized software) are recorded at cost.  Depreciation is provided
using the straight-line method over the estimated useful lives (primarily 3 to 7
years) of the related assets.  The Company capitalizes all direct external costs
and direct internal payroll costs associated with the development of software
for internal use.

     Reorganization expense -  Reorganization expense consists primarily of
professional fees incurred in connection with the Company's Chapter 11
Proceeding.

     Income taxes - The Company accounts for income taxes using the liability
method of accounting for income taxes.  Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.  If the Company determines that it is more likely than not that some
portion of the deferred tax asset will not be realized, the deferred tax asset
is reduced by a valuation allowance.

     Use of estimates -  The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

     Accounting for stock-based compensation - The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB25) and related interpretations in accounting for its employee
stock options.  Under APB Opinion 25, because the exercise price of employee
stock options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recorded.  The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" (SFAS 123).

NOTE 2  SIGNIFICANT EVENTS - BANKRUPTCY PROCEEDING

     In the fourth quarter of 1996, the Company reevaluated the overall
profitability and credit quality of its existing pools of Automotive Contracts
and determined to terminate its relationship with a number of its participating
Dealers and to change the basis on which it was willing to purchase Automotive
Contracts from others. As a result of these actions and because a continuing
business relationship was an important factor in the Company's determination of
the recoverability of amounts paid to Dealers for Automotive Contracts, on
January 30, 1997 the Company announced a special charge of $15.5 million in the
fourth quarter of 1996 to increase its allowance for credit losses.

     The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Additionally, the Company's planned additional financings in January 1997 failed
to materialize. The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of its failure to
consummate the additional financings. On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding subsidiaries) filed a voluntary petition for
reorganization under Chapter 11 of the

                                       29
<PAGE>
 
Federal Bankruptcy Code (the "Chapter 11 Petition") in the Northern District of
Texas (the "Chapter 11 Proceeding").

     After filing the Chapter 11 Petition, the Company managed its business as a
debtor-in-possession subject to the supervision and control of the Bankruptcy
Court.  As the Company's assets were pledged to secure its lenders, the Company
was required to obtain Bankruptcy Court authorization for its use of such
lenders' collateral, including cash collateral.  Although the Company received
authorization to use a portion of its revolving lender's cash collateral, such
authorization was limited to the payment of expenses and purchase of Automotive
Contracts in accordance with a court approved budget.  As a result of these
limitations and the lack of available borrowings, the Company  implemented a
number of cost saving measures.  Among other things, the Company ultimately
discontinued marketing its automotive financing program to Dealers and
discontinued its purchases of Automotive Contracts.

     On October 10, 1997, the Bankruptcy Court entered an order, effective
October 21, 1997, confirming the Company's Plan of Reorganization (the "Plan").
Since that date, substantially all collections on the Company's portfolio of
Automotive Contracts have been used to fund operating expenses and to liquidate
Plan obligations. Obligations to the Company's revolving lender, other secured
creditors, and unsecured trade creditors aggregating approximately $41.6 million
on October 21, 1997, plus interest as required, have been paid in full in
accordance with the terms of the Plan.

     Under the terms of the Plan, all current and future obligations to Dealers
are fixed at either a settlement offer contained in the Plan or an amount to be
adjudicated by the Bankruptcy Court.  The Company is obligated under the Plan to
make payments to settling Dealers aggregating approximately $6.0 million. In
addition, non-accrual Automotive Contracts with principal balances totaling
approximately $99 million (which were previously charged off for financial
statement purposes) were transferred to a trust benefiting the settling Dealers.
Dealers to which the Company made settlement offers totaling approximately $2.4
million have rejected such settlements, and the value, if any, of related claims
will be determined by the Bankruptcy Court.

     As a result, in the fourth quarter of 1997, the Company established a fixed
liability for the estimated amount due to Dealers under the Plan and reevaluated
its allowance for credit losses.  A special charge of $12.5 million was recorded
in the fourth quarter to recognize the estimated liability to Dealers and to
increase the allowance for credit losses to an amount then considered adequate
by management to cover losses inherent in the portfolio of Automotive Contracts,
as well as the costs of owning, managing, and collecting the portfolio.

     While JMAC was not a party to the Chapter 11 Petition, it was adversely
affected by the Chapter 11 Proceeding.  JMAC had loaned approximately $7.1
million to the Company (the "JMAC Loan") prior to the Company's filing of the
Chapter 11 Petition, and the Bankruptcy Court prohibited the Company from
providing JMAC with any cash to finance its activities, including any repayment
of the JMAC Loan (which is eliminated in consolidation for financial statement
purposes) prior to confirmation of the Plan.

     The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers and JMAC) in order to ensure the
adequacy of its working capital after a scheduled payment.  As collections on
its Automotive Contracts since October 1997 have been lower than contemplated by
the Plan, the Company deferred approximately $3.9 million of the $4.6 million
originally scheduled for payment to JMAC and settling dealers through September
30, 1998.  At December 31, 1998, the Company continues to owe approximately $7.9
million to Dealers (including an estimated $2.4 million to non-settling Dealers)
and approximately $7.5 million to JMAC (including accrued interest of
approximately $.4 million), which amounts are generally due under the Plan in
quarterly installments through December 31, 1999.  The Plan also allows the
Company to defer future scheduled payments.  Based on current projected levels
of future collections on its Automotive Contracts, the Company expects to defer
some of the future scheduled payments to JMAC and the Dealers into the year
2000.

                                       30
<PAGE>
 
   The Company will rely upon collections on its existing Automotive Contracts
for liquidity to meet Plan obligations.  At projected levels of collections, the
funds available for purposes other than meeting Plan obligations would be very
limited.  The Company's ability to grow JMAC's elective health care procedure
financing business is dependent upon obtaining additional financing.
Additionally, although the Company believes the projected levels of collections
on its Automotive Contracts are attainable, there can be no assurance that such
projections will ultimately be realized, and any failure to realize the
projected level of collections could have a material adverse effect on the
Company.


NOTE 3 -- MEDICAL CONTRACTS RECEIVABLE

   Medical Contracts generally have initial terms ranging from 6 to 24 months
and are substantially unsecured.  The average initial term of a Medical Contract
was approximately 20 months in 1998 and 21 months in 1997. The dollar amount of
loans in non-accrual status as a percentage of Medical Contracts receivable was
approximately 22.8% and 27.6% as of December 31, 1998 and 1997, respectively.

   Medical Contracts receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           December 31,
                                                         ---------------------------------------------
                                                                  1998                      1997
                                                         --------------------      -------------------
<S>                                                          <C>                     <C> 
Gross installment contracts receivable.................      $   16,636              $    21,375
Unearned finance charge revenue........................          (1,220)                  (1,863)
Deferred loan origination fees.........................            (841)                    (945)
                                                         --------------------      -------------------
Medical Contracts receivable...........................          14,575                   18,567
Allowance for credit losses............................          (2,501)                  (5,482)
                                                         --------------------      -------------------
Medical Contracts receivable, net                            $   12,074              $    13,085
                                                         ====================      ===================
</TABLE>

   In the fourth quarter of 1998, the Company determined a charge of $1.1
million for estimated credit losses on the portfolio of Medical Contracts was
necessary.  A summary of the changes in the allowance for credit losses for
Medical Contracts receivable is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                           Years ended
                                                                           December 31,
                                                  ------------------------------------------------------------
                                                         1998                  1997                  1996
                                                  ----------------      ----------------      ----------------
<S>                                                    <C>                  <C>                 <C> 
Balance - beginning of year.......................     $     5,482          $      1,116        $           --
Provision for credit losses.......................           1,100                   617                     9
Acquisition discounts allocated to allowance
 for credit losses................................           2,652                 5,821                 1,107
Charge-offs against allowance for credit losses...          (6,733)               (2,072)                   --
                                                  ----------------      ----------------      ----------------
Balance - end of year.............................     $     2,501          $      5,482        $        1,116
                                                  ================      ================      ================
</TABLE>


NOTE 4 -- AUTOMOTIVE CONTRACTS RECEIVABLE

   Automotive Contracts generally have initial terms ranging from 6 to 36 months
and are collateralized by the related vehicles.  The average initial term of an
Automotive Installment Contract was approximately 26 months in 1997. The dollar
amount of loans in non-accrual status as a percentage of Automotive Contracts
receivable was approximately 77.6% and 62.7% as of December 31, 1998 and 1997,
respectively.

                                       31
<PAGE>
 
   Automotive Contracts receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           December 31,
                                                         ---------------------------------------------
                                                                  1998                      1997
                                                         --------------------      -------------------
<S>                                                      <C>                       <C>
Gross installment contracts receivable...................            $ 35,079                 $156,473
Unearned finance charge revenue..........................              (3,894)                 (17,600)
                                                         --------------------      -------------------
Automotive Contracts receivable..........................              31,185                  138,873
Allowance for credit losses..............................             (14,490)                 (91,348)
                                                         --------------------      -------------------
Automotive Contracts receivable, net                                 $ 16,695                 $ 47,525
                                                         ====================      ===================
</TABLE>

   In the fourth quarter of 1998, the Company recognized a charge of $1.1
million to the provision for credit losses as a result of an increase in the
estimated time required to collect its portfolio of Automotive Contracts and a
corresponding increase in the estimated costs of collecting and servicing the
portfolio.  A summary of the changes in the allowance for credit losses for
Automotive Contracts receivable is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            Years ended
                                                                           December 31,
                                                  ------------------------------------------------------------
                                                         1998                  1997                  1996
<S>                                                 <C>                      <C>                     <C>
Balance - beginning of year.......................        $ 91,348           $  73,626               $  2,308
Provision for credit losses.......................           1,100              30,057                 71,053
Acquisition discounts allocated to allowance
 for credit losses................................              --                 592                  3,890
Charge-offs against allowance for credit losses...         (78,880)             (9,472)                (3,625)
Dealer holdbacks, net allocated to allowance
 for credit losses................................              --               5,970                     --
Establishment of dealer payable resulting from
 bankruptcy settlement............................              --              (8,436)                    --
Other.............................................             922                (989)                    --
                                                  ----------------      --------------       ----------------
Balance - end of year.............................        $ 14,490           $  91,348               $ 73,626
                                                  ================      ==============       ================
</TABLE>

NOTE 5 -- FURNITURE, FIXTURES, AND EQUIPMENT

   Furniture, fixtures, and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          December 31,
                                                          -----------------------------------------
                                                                   1998                   1997
                                                          -------------------     -----------------
<S>                                                       <C>                     <C>
Data processing equipment and software....................       $      7,517         $       7,561
Office furniture and equipment............................              3,135                 3,264
Leasehold improvements....................................                718                   718
                                                          -------------------     -----------------
                                                                       11,370                11,543
Accumulated depreciation and amortization.................             (7,918)               (6,159)
                                                          -------------------     -----------------
                                                                 $      3,452         $       5,384
                                                          ===================     =================
</TABLE>

                                       32
<PAGE>
 
NOTE 6 -- NOTES PAYABLE

   Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                         December 31,
                                                          -----------------------------------------
                                                                  1998                   1997
                                                          -------------------    ------------------
<S>                                                         <C>                    <C>
Notes payable to principal shareholder....................      $      21,240         $      20,840
Revolving credit facilities...............................                 --                26,360
Secured notes payable.....................................                 --                 3,872
                                                          -------------------    ------------------
                                                                $      21,240         $      51,072
                                                          ===================    ==================
</TABLE>

     In April 1995, the Company entered into a two-year revolving credit
facility ("Revolver") with Fleet Capital Corporation pursuant to which the
Company could borrow up to $25 million, based on defined levels of qualified
Automotive Contracts receivable. The Revolver was subsequently amended to permit
borrowings of up to $65 million and extend the expiration date of the facility
to June 30, 1998. Borrowings bore interest at the rate of interest announced
from time to time by Fleet National Bank of Connecticut at its base rate for
commercial loans ("Base Rate") plus 1.0% through April 1996, at which time the
rate was renegotiated to the Base Rate. This facility was secured by all of the
Company's assets except those assets contributed to Jayhawk Funding Trust and
the Company's investment in the common stock of Jayhawk Medical Acceptance
Corporation. In connection with the Chapter 11 Proceeding, the Revolver was
renegotiated into a term loan bearing interest at the Base Rate which was paid
in full during 1998.

     In October 1996, JMAC entered into a one year revolving credit facility to
fund its elective health care procedure finance business ("Medical Revolver").
The Medical Revolver permitted borrowings of up to $15 million and bore interest
at LIBOR plus 1.5%.  After the Company's filing of the Chapter 11 Petition in
February 1997, JMAC's revolving credit lender refused to make any further
advances under JMAC's revolving credit facility.  At the request of JMAC's
revolving credit lender, on February 28, 1997, the Company's principal
shareholder purchased the revolving credit promissory note evidencing the $13.5
million principal amount of indebtedness outstanding under the credit facility.
Additionally, to fund JMAC's operations, the Company's principal shareholder
made loans to JMAC in the aggregate principal amount of $7.7 million.  Notes
payable to the principal shareholder at December 31, 1998 totaled $21.2 million
($20.8 million at December 31, 1997).  The notes bear interest at the prime rate
announced from time to time by NationsBank Texas, N.A. (7.75% at December 31,
1998) and are payable, to the extent of $.4 million on demand, to the extent of
$7.1 million in quarterly principal installments (plus interest) aggregating
approximately $2.4 million in 1998 and $4.7 million in 1999, and to the extent
of $13.7 million (plus interest) on November 12, 1999.  In connection with the
deferral of payments from the Company to JMAC discussed in Note 2, JMAC deferred
all of the principal payments payable to the principal shareholder in 1998 and
expects to defer a portion of the principal payments scheduled in 1999.

     During 1996, the Company completed two asset securitizations of its
portfolio of Automotive Contracts.  Pursuant to these transactions, the Company
contributed Automotive Contracts having an aggregate principal balance of
approximately $137.7 million and approximately $5 million in cash to Funding
Trust, and Funding Trust sold approximately $89.7 million principal amount of
notes in  private placements to institutional investors. The notes bore interest
at fixed rates from 5.925% to 11.57%  per annum, required principal payments
contingent on the collection experience of the underlying contracts, and had
stated maturities through March 15, 2000.  The remaining aggregate unpaid note
balance at December 31, 1997 of  $3,873,000 was paid in full during 1998. Cash
balances of $1,426,000 at December 31, 1997 were restricted under the terms of
the indentures.

   In December 1996, the Company entered into a loan agreement with Prudential
Securities Credit Corporation which provided for borrowings ($4,987,000 at
December 31, 1996) based upon a specified

                                       33
<PAGE>
 
percentage of the outstanding principal balances of contracts securing certain
notes payable resulting from the asset securitization transactions.  The loan
bore interest at LIBOR plus 2.50% and was secured by 100% of the Company's
interest in Funding Trust.  The loan was paid in full during 1997.
 

NOTE 7 -- SHAREHOLDERS' EQUITY

   In April 1996, the Company issued 3,350,000 shares of common stock in
connection with a public offering, for $40,791,000.

   From April 14 through June 11, 1997, the principal shareholder purchased from
JMAC 50,000 shares of JMAC preferred stock in exchange for $2.0 million of the
indebtedness to the principal shareholder and $3.0 million of cash.  Each
outstanding share of JMAC preferred stock had a liquidation value equal to the
sum of $100 plus $1.50 for each calendar month or portion thereof that then had
elapsed from and including April 1997 (the sum of such amounts being referred to
as the "Liquidation Value"). On November 12, 1997 as provided in the Plan, the
Company issued 3,855,555 shares of common stock in exchange for the JMAC
preferred stock.

   The Company sponsors a stock option plan for selected employees of the
Company ("Employee Plan").  The term of each option issued under the Employee
Plan is 7 years and options generally vest over a period of two to five years.
A total of 1,500,000 shares of Common Stock are reserved for issuance under the
Employee Plan, 467,000 of which are available for grant.

   The changes in stock options outstanding issued under the Employee Plan for
the years ended December 31, 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED
                                                                                         AVERAGE
                                                             NUMBER OF SHARES            EXERCISE
                                                                                          PRICE
                                                          -------------------     --------------------
<S>                                                         <C>                     <C>
Options outstanding at January 1, 1996....................            732,000                   $ 7.66
 Options granted..........................................            644,500                    12.74
 Options exercised........................................            (69,425)                    6.14
 Options canceled.........................................           (102,125)                   11.14
                                                          -------------------     --------------------
Options outstanding at December 31, 1996..................          1,204,950                    10.17
 Options granted..........................................            895,000                     1.64
 Options exercised........................................             (2,000)                    4.73
 Options canceled.........................................         (1,092,450)                   10.78
                                                          -------------------     --------------------
Options outstanding at December 31, 1997..................          1,005,500                     1.93
 Options granted..........................................             33,500                     1.10
 Options canceled.........................................           (100,500)                    1.97
                                                          -------------------     --------------------
Options outstanding at December 31, 1998..................            938,500                   $ 1.89
                                                          ===================     ====================
 
Options exercisable at December 31, 1996..................            339,325                   $ 7.53
 
Options exercisable at December 31, 1997..................            200,000                   $ 2.82
 
Options exercisable at December 31, 1998..................            555,000                   $ 2.09
</TABLE>

   The Company also sponsors a stock option plan for selected individuals not
employed by the Company ("Non-Employee Plan").  The Non-Employee Plan provides
for the grant of options to directors of the Company and other persons rendering
critical services to the Company who are not full-time

                                       34
<PAGE>
 
employees of the Company.  The term of each option issued under the Non-Employee
Plan is 10 years and options vest over a three-year period.  A total of 450,000
shares of Common Stock are reserved for issuance under the Non-Employee Plan,
240,000 of which are available for grant.

   The changes in the stock options issued under the Non-Employee Plan
outstanding for the years ended December 31, 1998, 1997 and 1996 were as
follows:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED
                                                                                         AVERAGE
                                                             NUMBER OF SHARES            EXERCISE
                                                                                          PRICE
                                                          -------------------     --------------------
<S>                                                         <C>                     <C>
Options outstanding at January 1, 1996....................            100,000                   $ 4.31
 Options granted..........................................             60,000                    12.81
                                                          -------------------     --------------------
Options outstanding at December 31, 1996..................            160,000                     7.50
 Options granted..........................................             30,000                     1.46
 Options exercised........................................            (10,000)                     .01
 Options canceled.........................................            (40,000)                    6.77
                                                          -------------------     --------------------
 
Options outstanding at December 31, 1997..................            140,000                     6.95
 Options granted..........................................             60,000                      .63
                                                          -------------------     --------------------
Options outstanding at December 31, 1998..................            200,000                   $ 5.06
                                                          ===================     ====================
 
Options exercisable at December 31, 1996..................             72,500                   $ 5.47
 
Options exercisable at December 31, 1997..................            110,000                   $ 8.45
 
Options exercisable at December 31, 1998..................            125,000                   $ 6.10
</TABLE>

   The number, weighted average exercise price and weighted average remaining
contractual life of options outstanding at December 31, 1998, within specified
ranges of exercise prices, are as follows:

<TABLE>
<CAPTION>
                                    OPTIONS                WEIGHTED AVERAGE           WEIGHTED AVERAGE
    EXERCISE PRICE                OUTSTANDING               EXERCISE PRICE             REMAINING LIFE
-----------------------     ----------------------    ------------------------    -----------------------
<S>                           <C>                       <C>                         <C>
$  0.01 - 4.00                             948,500                      $ 1.49                       6.05
$  4.01 - 8.00                             130,000                      $ 4.46                       3.69
$  8.01 +                                   60,000                      $13.25                       6.53
</TABLE>

   The Company adopted its Employee Stock Purchase Plan (the "Stock Purchase
Plan") in April 1995, and it became effective on January 1, 1996.  A total of
150,000 shares of Common Stock are reserved for issuance under the Stock
Purchase Plan, 12,300 of which have been offered or sold at December 31, 1998.
The Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended.  The term of the Stock Purchase Plan is ten
years commencing on its effective date.  All full-time employees, except
directors, five percent shareholders and key executives, are eligible to
participate in the Stock Purchase Plan if they have been continuously employed
by the Company for 180 days. These employees may contribute up to 10% of their
salary, up to an annual maximum of $25,000.

   The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("Opinion 25"), and related
Interpretations in accounting for its employee stock options because, in
management's belief, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123") requires use of option valuation models that were
not developed for use in valuing

                                       35
<PAGE>
 
employee stock options.  Under Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

   Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement and is
not materially different from reported amounts.

   The effects of applying Statement 123 for providing pro forma disclosures are
not likely to be representative of the effects of that statement for future
years.  The 1997 disclosure reflects expense for three years' vesting and the
1998 disclosure reflects expense for four years' vesting.


Note 8 -- Segment Information

   In June 1997, the Financial Accounting Standards Board issued Statement No.
131, " Disclosures about Segments of an Enterprise and Related Information",
which the Company adopted this year.  The Company  identifies such segments
based on the type of loan serviced:  the Automotive segment includes all
activities, revenues, and costs associated with the Company's portfolio of
Automotive Contracts receivable, and the Medical segment includes all
activities, revenues, and costs associated with JMAC's portfolio of Medical
Contracts receivable.

   The Company measures segment profit (loss) as net income (loss) before income
taxes. The following tables provide financial data by segment for the years
ended December 31, 1998, 1997, and 1996 (in thousands):

<TABLE>
<CAPTION>
                                                     Automotive             MEDICAL               TOTAL
                                                   ---------------      ---------------      ---------------
1998
----
<S>                                                <C>                  <C>                  <C>
 Finance charges.................................         $ 9,714              $ 2,361              $12,075
 Other revenue...................................              42                3,508                3,550
 Less:  intersegment income......................                                 (598)                (598)
                                                 ----------------     ----------------     ----------------
 Revenue from external customers.................         $ 9,756              $ 5,271              $15,027
                                                 ================     ================     ================
 
 Interest expense................................         $ 1,884              $ 1,719              $ 3,603
 Less:  intersegment expense.....................            (598)                                     (598)
                                                 ----------------     ----------------     ----------------
 Reported interest expense.......................         $ 1,286              $ 1,719              $ 3,005
                                                 ================     ================     ================
 
 Provision for credit losses.....................         $ 1,100              $ 1,100              $ 2,200
 Depreciation and amortization...................         $ 1,763              $   169              $ 1,932
 Loss before income taxes........................         $(1,178)             $(2,778)             $(3,956)
 
 Capital additions...............................               -                    -                    -
 
 Total assets....................................         $20,538              $21,280              $41,818
 Less: intersegment receivables..................               -               (7,785)              (7,785)
                                                 ----------------     ----------------     ---------------- 
 Reported total assets...........................         $20,538              $13,495              $34,033
                                                 ================     ================     ================
</TABLE>

                                       36
<PAGE>
 
<TABLE>
<CAPTION>
                                                     AUTOMOTIVE             MEDICAL               TOTAL
                                                   ---------------      ---------------      ---------------
1997
-------------------------------------------------
<S>                                                <C>                  <C>                  <C>
 Finance charges.................................        $ 21,459              $ 1,339             $ 22,798
 Other revenue...................................           9,196                4,097               13,293
 Less:  intersegment income......................               -                 (543)                (543)
                                                 ----------------     ----------------     ----------------
 Revenue from external customers.................        $ 30,655              $ 4,893             $ 35,548
                                                 ================     ================     ================
 
 Interest expense................................        $  6,882              $ 1,657             $  8,539
 Less:  intersegment expense.....................            (543)                   -                 (543)
                                                 ----------------    -----------------    -----------------
 Reported interest expense.......................        $  6,339              $ 1,657             $  7,996
                                                 ================     ================     ================
 
 Provision for credit losses.....................        $ 30,059              $   615             $ 30,674
 Depreciation and amortization...................        $  2,688              $   161             $  2,849
 Reorganization expense                                  $  4,701                                  $  4,701
 Loss before income taxes........................        $(36,325)             $(4,673)            $(40,998)
 
 Capital additions...............................        $  1,647              $   387             $  2,034
 
 Total assets....................................        $ 55,671              $22,859             $ 78,530
 Less: intersegment receivables..................                               (7,844)              (7,844)
                                                 ----------------     ----------------     ----------------
 Reported total assets...........................        $ 55,671              $15,015             $ 70,686
                                                 ================     ================     ================

<CAPTION>
1996
----
<S>                                                <C>                  <C>                  <C>
 Finance charges.................................        $ 41,896             $      9             $ 41,905
 Other revenue...................................          11,211                  450               11,661
                                                 ----------------     ----------------     ----------------
 Revenue from external customers.................        $ 53,107             $    459             $ 53,566
                                                 ================     ================     ================
 
 Interest expense................................        $  6,189             $     79             $  6,268
 Provision for credit losses.....................        $ 71,062             $      -             $ 71,062
 Depreciation and amortization...................        $  2,508             $      2             $  2,510
 Loss before income taxes........................        $(48,769)            $   (970)            $(49,739)
 
 Capital additions...............................        $  7,705             $    346             $  8,051
 
 Total assets....................................        $316,073             $ 16,223             $332,296
 Less: intersegment receivables..................               -              (10,836)             (10,836)
                                                 ----------------     ----------------     ----------------
 Reported total assets...........................        $316,073             $  5,387             $321,460
                                                 ================     ================     ================
</TABLE>

NOTE 9 - IMPAIRMENT OF FIXED ASSETS

   As a result of the Chapter 11 Proceeding and the absence of available
financing, the Company discontinued its purchases of Automotive Contracts from
automobile dealers and eliminated its marketing efforts to such dealers. Related
furniture, fixtures and equipment, consisting primarily of development costs of
computer software used in the solicitation of dealers and origination of
Automotive Contracts, are believed to have negligible fair market value.
Accordingly, the carrying values of such assets were reduced, and the related
loss of $4,346,000 was included in the results of operations in 1997.

                                       37
<PAGE>
 
NOTE  10  RELATED PARTY TRANSACTIONS

   In 1998, the Company established a cooperative advertising program whereby a
portion of the purchase price of certain Medical Contracts which would otherwise
be paid to the Provider is paid to a not-for-profit corporation controlled by
the Company and used to fund advertising costs attributable to JMAC's elective
healthcare program.  Payments to this entity during 1998 totaled $2,717,000, all
of which were expended for advertising costs.

   Service contracts are administered by an entity affiliated to the Company
through common ownership by the principal stockholder.  The Company paid
approximately $196,000 during 1998, $1,537,000 during 1997, and $614,000  during
1996 to this affiliate for reimbursement of service contract claims and
administrative services.

   In 1996, the Company entered into an agreement with an entity wholly owned by
the principal shareholder to develop and produce advertisements and execute
media buys for the Company.  The Company paid approximately $335,000 in 1998,
$2,603,000 in 1997, and $242,000 in 1996 for these services.

   See Notes 6 and 7 for information concerning debt and equity transactions
involving the principal shareholder.


NOTE 11 - INCOME TAXES

   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  Significant components
of the net deferred tax asset are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                  -------------------------------------------
                                                                           1998                    1997
                                                                  --------------------     ------------------
<S>                                                                 <C>                      <C>
Deferred tax liabilities:
Furniture, fixtures and equipment.................................            $   (428)              $   (213)
Prepaid expenses and other........................................                (135)                  (135)
                                                                  --------------------     ------------------
                                                                                  (563)                  (348)
                                                                  --------------------     ------------------
Deferred tax assets:
Installment contracts receivable..................................                (842)                 5,867
Net operating loss carryforward...................................              33,495                 25,380
Deferred dealer and provider fees, net............................                 529                    335
Other.............................................................                  56                     60
                                                                  --------------------     ------------------
                                                                                33,238                 31,642
                                                                  --------------------     ------------------ 
Net deferred tax asset before valuation allowance.................              32,675                 31,294
Valuation allowance on deferred tax assets........................             (32,675)               (31,294)
                                                                  --------------------     ------------------
Net deferred tax assets...........................................  $                -       $              -
                                                                  ====================     ==================
</TABLE>

   At December 31, 1998, the Company had approximately $95.6 million of net
operating loss carryforwards available to offset future taxable income expiring
in varying amounts from 2011 through 2013.

                                       38
<PAGE>
 
   The differences, expressed as a percentage of pretax income (loss), between
statutory and effective federal income tax rates are as follows:
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                           -----------------------------------------------------------
                                                   1998                1997                  1996
                                           -----------------     --------------      -----------------
<S>                                        <C>                   <C>                 <C>
Statutory tax rate.........................            (34.0)%            (35.0)%                (35.0)%
Change in valuation allowance..............             34.0               35.0                   33.4
Other......................................                -                  -                   (0.7)
                                           -----------------     --------------      -----------------
Effective tax rate.........................                -                  -                   (2.3)%
                                           =================     ==============      =================
</TABLE>

   Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                           -----------------------------------------------------------
                                                   1998                1997                  1996
                                           ------------------    ---------------     -----------------
<S>                                        <C>                   <C>                 <C>
Current:                                     $              -      $           -               $(3,275)
Deferred:                                                   -                  -                 2,088
                                           ------------------    ---------------     -----------------
                                             $              -      $           -               $(1,187)
                                           ==================    ===============     =================
</TABLE>


NOTE 12 - NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
 
                                                                             YEAR ENDED
                                                                            DECEMBER 31,
                                              ----------------------------------------------------------------------
                                                       1998                      1997                     1996
                                              --------------------      --------------------      ------------------
<S>                                           <C>                       <C>                       <C>
Numerator:
 Net loss.....................................         $(3,956,000)            $  40,998,000)          $  49,739,000)
                                              ====================      ====================      ==================
 
Denominator:
  Denominator for basic earnings per share
   share - weighted average shares............          27,785,326                24,456,373              22,931,389
 
  Effect of dilutive securities:
   Stock options..............................                   -                         -                       -
                                              --------------------      --------------------      ------------------
  Dilutive potential common shares............                   -                         -                       -
 
  Denominator for diluted earnings per
   share - adjusted weighted average shares
   and assumed conversions....................          27,785,326                24,456,373              22,931,389
                                              ====================      ====================      ==================
 
Basic net income (loss) per share.............         $     (0.14)            $       (1.68)          $       (2.17)
                                              ====================      ====================      ==================
 
Diluted net income (loss) per share...........         $     (0.14)            $       (1.68)          $       (2.17)
                                              ====================      ====================      ==================
</TABLE>

                                       39
<PAGE>
 
   Options outstanding during 1998, 1997 and 1996 were not included in the
computation of diluted net loss per share because the effect would be anti-
dilutive.  For additional information regarding outstanding stock options and
the convertible preferred stock, see Note 7.


NOTE 13 - COMMITMENTS AND CONTINGENCIES

Lease Commitments --  The Company leases office space for its corporate office
under an operating lease expiring June 30, 1999.  The Company also leases office
equipment under operating leases with initial terms of more than one year.

   The Company incurred lease expense of approximately $318,000 in 1998,
$601,000 in 1997, and $998,000 in 1996 associated with operating leases for its
corporate office.  Future minimum lease payments under operating leases are
approximately $370,000 in 1999, $76,000 in 2000, $16,000 in 2001, and $8,000 in
2002.

Self-Insurance -- The Company is self-insured for medical and dental claims up
to $50,000 per occurrence, with an annual aggregate, based on year end
enrollment, of approximately $336,000.  The Company has provided a liability for
estimated known and unknown claims related to these risks of $65,000 and $81,000
at December 31, 1998 and 1997, respectively, which amounts are included in
accrued liabilities in the accompanying balance sheet.

Other -- In the normal course of its business, the Company is named as defendant
in legal proceedings.  These cases include claims for alleged truth-in-lending
violations, nondisclosures, misrepresentations and deceptive trade practices,
among other things.  The relief requested by plaintiffs varies, but often
includes requests for compensatory, statutory and punitive damages.
Additionally, certain bankruptcy claims are subject to adjudication by the
Bankruptcy Court as discussed in Note 2.  In the opinion of management,
resolution of these matters will not have a material adverse effect on the
Company.
 

NOTE 14 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

   The carrying amounts of cash and cash equivalents, installment contracts
receivable, net, and dealer holdbacks, net, approximate fair value because of
the actual or expected short maturity of these instruments.  The carrying amount
of notes payable approximates fair value because the interest rates generally
change with market interest rates.

                                       40
<PAGE>
 
                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

          Information in the Company's Proxy Statement, which will be filed
          within 120 days of the end of the Company's 1998 fiscal year, is
          incorporated herein by reference in response to this Item 10.

ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

          Information in the Company's Proxy Statement, which will be filed
          within 120 days of the end of the Company's 1998 fiscal year, is
          incorporated herein by reference in response to this Item 11.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

          Information in the Company's Proxy Statement, which will be filed
          within 120 days of the end of the Company's 1998 fiscal year, is
          incorporated herein by reference in response to this Item 12.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

          Information in the Company's Proxy Statement, which will be filed
          within 120 days of the end of the Company's 1998 fiscal year, is
          incorporated herein by reference in response to this Item 13.

                                    Page 41
<PAGE>
 
                                    PART IV
                                        
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------

(a)  Financial Statements and Financial Statement Schedules:

The following documents are filed as part of this report:

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT AUDITORS

FINANCIAL STATEMENTS:
     Balance Sheets as of December 31, 1998 and 1997
     Statements of Operations for the years ended
          December 31, 1998, 1997 and  1996
     Statements of Shareholders' Equity for the years ended
          December 31, 1998, 1997 and 1996
     Statements of Cash Flows for the years ended
          December 31, 1998, 1997 and 1996
     Notes to Financial Statements
 
(b)  Reports on Form 8-K:

No reports on Form 8-K were filed during the quarter ended December 31, 1998.

(c)  Exhibits:


Exhibit Number                             Description
--------------                             -----------

     2.1       Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
               Code Proposed by the Debtor and the Creditors' Committee
               (incorporated by reference to Exhibit 2.1 to the Company's
               Current Report on Form 8-K, originally filed with the SEC on
               October 23, 1997)

     2.2       First Modification to Joint Plan of Reorganization Under Chapter
               11 of the Bankruptcy Code Proposed by the Debtor and the
               Creditors' Committee, dated September 29, 1997 (incorporated by
               reference to Exhibit 2.2 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 1997)

     2.3       Second Modification to Joint Plan of Reorganization Under Chapter
               11 of the Bankruptcy Code Proposed by the Debtor and the
               Creditors' Committee, dated October 7, 1997 (incorporated by
               reference to Exhibit 2.3 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 1997)

     2.4       Disclosure Statements pursuant to Section 1125 of the Bankruptcy
               Code with respect to the Joint Plan of Reorganization, dated
               August 19, 1997 (incorporated by reference to Exhibit 99.1 to the
               Company's Current Report on Form 8-K, originally filed with the
               SEC on October 23, 1997)

     3.1       Amended and Restated Articles of Incorporation of the Company
               (incorporated by reference to Exhibit 3.1 to the Company's
               Current Report on Form 8-K, originally filed with the SEC on
               October 23, 1997)

     3.2       Amended and Restated Bylaws of the Company (incorporated by
               reference to Exhibit 3.2 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 

                                    Page 42
<PAGE>
 
               1997)

     4.1       Form of certificate for Common Stock of the Company (incorporated
               by reference to Exhibit 4.1 to Amendment No. 1 to the Company's
               Registration Statement on Form S-1 No. 33-92646 filed with the
               SEC on July 12, 1995)

     10.1      Amended and Restated 1994 Stock Option and Restricted Stock Plan
               (incorporated by reference from Exhibit 10.2 to the Company's
               Registration Statement on Form S-1 No. 33-92646, originally filed
               with the SEC on May 24, 1995)

     10.2      Amended and Restated Non-Employee Stock Option Plan (incorporated
               by reference to Exhibit 10.3 to Amendment No. 1 to the Company's
               Registration Statement No. 33-92646 on Form S-1, filed with the
               SEC on July 12, 1995)

     10.3      Employee Stock Purchase Plan (incorporated by reference to
               Exhibit 10.4 to the Company's Registration Statement on Form S-1
               No. 33-92646, originally filed with the SEC on May 24, 1995)

     10.4      Stock Purchase Agreement dated February 18, 1994 between the
               Company and each of Carl H. Westcott, C. Gregory Earls, as
               Trustee under the Earls' Children Irrevocable Educational Trust
               Agreement, and John C. Tolleson (incorporated by reference to
               Exhibit 10.6 to the Company's Registration Statement on Form S-1
               No. 33-92646, originally filed with the SEC on May 24, 1995)

     10.5      Shareholders Agreement dated February 18, 1994 between Carl H.
               Westcott, C. Gregory Earls, as Trustee under the Earls' Children
               Irrevocable Educational Trust Agreement, and John C. Tolleson
               (incorporated by reference to Exhibit 10.7 to the Company's
               Registration Statement on Form S-1 No. 33-92646, originally filed
               with the SEC on May 24, 1995)

     10.6      Form of Dealer Agreement (incorporated by reference to Exhibit
               10.7 to the Company's Annual Report on Form 10-K for the year
               ended December 31, 1996)

     10.7      Letter Agreement dated August 15, 1996 between the Company and C.
               Fred Jackson (incorporated by reference to Exhibit 10.1 to the
               Company's Quarterly Report on Form 10-Q for the three months
               ended September 30, 1996)

     10.8      Letter Agreement dated September 5, 1996 between the Company and
               Jack T. Smith (incorporated by reference to Exhibit 10.22 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.9      Letter Agreement dated September 27, 1996 between the Company and
               John D. Curtis (incorporated by reference to Exhibit 10.24 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.10     Promissory Note dated October 1, 1996 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott as
               successor to NationsBank of Texas, N.A., as lender (incorporated
               by reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q for the three months ended September 30, 1996)

     10.11     Guaranty dated October 1, 1996 between Jayhawk Medical Acceptance
               Corporation, as borrower, Carl H. Westcott as successor to
               NationsBank of Texas, N.A., as lender, and Carl H. Westcott, as
               guarantor (incorporated by reference to Exhibit 10.5 to the
               Company's Quarterly Report on Form 10-Q for the three months
               ended September 30, 1996)

     10.12     Letter Agreement dated December 2, 1996 between the Company and
               David C. Carrithers regarding compensation arrangements
               (incorporated by reference to Exhibit 10.28 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

                                    Page 43
<PAGE>
 
     10.13     Security Agreement dated January 13, 1997 between Jayhawk Medical
               Acceptance Corporation and Carl H. Westcott (incorporated by
               reference to Exhibit 10.30 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.14     Promissory Note dated February 11, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.31 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.15     Promissory Note dated February 18, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.32 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)
     
     10.16     Promissory Note dated February 26, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.33 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)
     
     10.17     Promissory Note dated March 4, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.34 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.18     Security Agreement dated March 6, 1997 between Jayhawk Medical
               Acceptance Corporation and Carl H. Westcott (incorporated by
               reference to Exhibit 10.35 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.19     Promissory Note dated March 10, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.36 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.20     Promissory Note dated March 31, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.37 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.21     Promissory Note dated April 11, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.38 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.22     Amendment No. 1 to the Company's 1994 Amended and Restated Stock
               Option Plan effective as of March 6, 1996 (incorporated by
               reference to Exhibit 10.39 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.23     Preferred Stock Purchase Agreement dated April 11, 1997 between
               Jayhawk Medical Acceptance Corporation and Carl H. Westcott
               (incorporated by reference to Exhibit 10.42 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

     10.24     Settlement Agreement dated April 17, 1997 by and among the
               Company, Fleet Capital Corporation and Carl H. Westcott
               (incorporated by reference to Exhibit 10.43 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

     10.25     Form of Health Care Provider Agreement (incorporated by reference
               to Exhibit 10.27 to the Company's Annual Report on Form 10-K for
               the year ended December 31, 1997)

     10.26     Promissory Note dated November 12, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.28 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997)

     10.27     Promissory Note dated November 12, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to 

                                    Page 44
<PAGE>
 
               Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 1997)

     10.28     Amendment to the Amended Restated Non-employee Stock Option Plan
               of Jayhawk Acceptance Corporation (incorporated by reference to
               Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 1997)

     10.29     Amendment to the Amended Restated 1994 Stock Option and
               Restricted Stock Plan (incorporated by reference to Exhibit 10.32
               to the Company's Annual Report on Form 10-K for the year ended
               December 31, 1997)

     10.30     Lease Agreement dated April 23, 1997 between Jayhawk Acceptance
               Corporation, as tenant, and Equitable-Crow Tower 2001, Ltd., as
               landlord (incorporated by reference to Exhibit 10.33 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997)

     10.31     Form of Health Care Provider Agreement (Doctor Direct Program)
               (filed herewith)

     10.32     Promissory Note dated June 8, 1998 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (filed herewith)

       16      Letter regarding change in certifying accountant (incorporated by
               reference to Exhibit 16.1 to the Company's Current Report on Form
               8-K/A-1, filed with the Commission on March 18, 1999)

       21      Subsidiaries of the Company (filed herewith)

      23.1     Consent of Grant Thornton LLP (filed herewith)

      23.2     Consent of Ernst & Young LLP (filed herewith)

       27      Financial Data Schedule (filed herewith)

                                    Page 45
<PAGE>
 
                                  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.


                         JAYHAWK ACCEPTANCE CORPORATION
                                    (Registrant)


Date: April 15, 1999       By: /s/ DOUGLAS B. THEODORE
                               -----------------------
                               Douglas B. Theodore
                               President and Chief Executive Officer
                               (Principal Executive Officer)



Date:  April 15, 1999      By: /s/ PHILIP E. FALCOSKY
                               ----------------------
                               Philip E. Falcosky
                               Controller and Chief Accounting Officer
                               (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:


Date:  April 15, 1999      By: /s/ CARL H. WESTCOTT
                               --------------------
                               Carl H. Westcott
                               Chairman of the Board and Director


Date:  April 15, 1999      By: /s/ PAUL M. BASS
                               ----------------
                               Paul M. Bass
                               Director


Date:  April 15, 1999      By: /s/ JOHN D. CURTIS
                               ------------------
                               John D. Curtis
                               Director


Date:  April 15, 1999      By: /s/ C. GREGORY EARLS
                               --------------------
                               C. Gregory Earls
                               Director


Date:  April 13, 1999      By: /s/ ARTHUR W. HOLLINGSWORTH
                               ---------------------------
                               Arthur W. Hollingsworth
                               Director


Date:  April 15, 1999      By: /s/ REGINA T. MONTOYA
                               ---------------------
                               Regina T. Montoya
                               Director

                                    Page 46
<PAGE>
 
Date:  April 15, 1999      By: /s/ JOE J. POLLARD
                               ------------------
                               Joe J. Pollard
                               Director


Date:  April 15, 1999      By: /s/ JACK T. SMITH
                               -----------------
                               Jack T. Smith
                               Director


Date:  April 13, 1999      By: /s/ KERN WILDENTHAL, M.D., Ph.D
                               -------------------------------
                               Kern Wildenthal, M.D., Ph.D
                               Director

                                    Page 47
<PAGE>
 
                                 EXHIBIT INDEX


Exhibit Number                              Description
--------------                              ---------------
     2.1       Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
               Code Proposed by the Debtor and the Creditors' Committee
               (incorporated by reference to Exhibit 2.1 to the Company's
               Current Report on Form 8-K, originally filed with the SEC on
               October 23, 1997)

     2.2       First Modification to Joint Plan of Reorganization Under Chapter
               11 of the Bankruptcy Code Proposed by the Debtor and the
               Creditors' Committee, dated September 29, 1997 (incorporated by
               reference to Exhibit 2.2 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 1997)

     2.3       Second Modification to Joint Plan of Reorganization Under Chapter
               11 of the Bankruptcy Code Proposed by the Debtor and the
               Creditors' Committee, dated October 7, 1997 (incorporated by
               reference to Exhibit 2.3 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 1997)

     2.4       Disclosure Statements pursuant to Section 1125 of the Bankruptcy
               Code with respect to the Joint Plan of Reorganization, dated
               August 19, 1997 (incorporated by reference to Exhibit 99.1 to the
               Company's Current Report on Form 8-K, originally filed with the
               SEC on October 23, 1997)

     3.1       Amended and Restated Articles of Incorporation of the Company
               (incorporated by reference to Exhibit 3.1 to the Company's
               Current Report on Form 8-K, originally filed with the SEC on
               October 23, 1997)

     3.2       Amended and Restated Bylaws of the Company (incorporated by
               reference to Exhibit 3.2 to the Company's Current Report on Form
               8-K, originally filed with the SEC on October 23, 1997)

     4.1       Form of certificate for Common Stock of the Company (incorporated
               by reference to Exhibit 4.1 to Amendment No. 1 to the Company's
               Registration Statement on Form S-1 No. 33-92646 filed with the
               SEC on July 12, 1995)

     10.1      Amended and Restated 1994 Stock Option and Restricted Stock Plan
               (incorporated by reference from Exhibit 10.2 to the Company's
               Registration Statement on Form S-1 No. 33-92646, originally filed
               with the SEC on May 24, 1995)

     10.2      Amended and Restated Non-Employee Stock Option Plan (incorporated
               by reference to Exhibit 10.3 to Amendment No. 1 to the Company's
               Registration Statement No. 33-92646 on Form S-1, filed with the
               SEC on July 12, 1995)

     10.3      Employee Stock Purchase Plan (incorporated by reference to
               Exhibit 10.4 to the Company's Registration Statement on Form S-1
               No. 33-92646, originally filed with the SEC on May 24, 1995)

     10.4      Stock Purchase Agreement dated February 18, 1994 between the
               Company and each of Carl H. Westcott, C. Gregory Earls, as
               Trustee under the Earls' Children Irrevocable Educational Trust
               Agreement, and John C. Tolleson (incorporated by reference to
               Exhibit 10.6 to the Company's Registration Statement on Form S-1
               No. 33-92646, originally filed with the SEC on May 24, 1995)

     10.5      Shareholders Agreement dated February 18, 1994 between Carl H.
               Westcott, C. Gregory Earls, as Trustee under the Earls' Children
               Irrevocable Educational Trust Agreement, and John C. Tolleson
               (incorporated by reference to Exhibit 10.7 to the Company's
               Registration Statement on Form S-1 No. 33-92646, originally filed
               with the SEC on May 24, 1995)

                                    Page 48
<PAGE>
 
     10.6      Form of Dealer Agreement (incorporated by reference to Exhibit
               10.7 to the Company's Annual Report on Form 10-K for the year
               ended December 31, 1996)

     10.7      Letter Agreement dated August 15, 1996 between the Company and C.
               Fred Jackson (incorporated by reference to Exhibit 10.1 to the
               Company's Quarterly Report on Form 10-Q for the three months
               ended September 30, 1996)

     10.8      Letter Agreement dated September 5, 1996 between the Company and
               Jack T. Smith (incorporated by reference to Exhibit 10.22 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.9      Letter Agreement dated September 27, 1996 between the Company and
               John D. Curtis (incorporated by reference to Exhibit 10.24 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.10     Promissory Note dated October 1, 1996 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott as
               successor to NationsBank of Texas, N.A., as lender (incorporated
               by reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q for the three months ended September 30, 1996)

     10.11     Guaranty dated October 1, 1996 between Jayhawk Medical Acceptance
               Corporation, as borrower, Carl H. Westcott as successor to
               NationsBank of Texas, N.A., as lender, and Carl H. Westcott, as
               guarantor (incorporated by reference to Exhibit 10.5 to the
               Company's Quarterly Report on Form 10-Q for the three months
               ended September 30, 1996)

     10.12     Letter Agreement dated December 2, 1996 between the Company and
               David C. Carrithers regarding compensation arrangements
               (incorporated by reference to Exhibit 10.28 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

     10.13     Security Agreement dated January 13, 1997 between Jayhawk Medical
               Acceptance Corporation and Carl H. Westcott (incorporated by
               reference to Exhibit 10.30 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.14     Promissory Note dated February 11, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.31 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.15     Promissory Note dated February 18, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.32 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.16     Promissory Note dated February 26, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.33 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.17     Promissory Note dated March 4, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.34 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.18     Security Agreement dated March 6, 1997 between Jayhawk Medical
               Acceptance Corporation and Carl H. Westcott (incorporated by
               reference to Exhibit 10.35 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.19     Promissory Note dated March 10, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.36 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.20     Promissory Note dated March 31, 1997 between Jayhawk Medical
               Acceptance Corporation, as 

                                    Page 49
<PAGE>
 
               borrower, and Carl H. Westcott, as lender (incorporated by
               reference to Exhibit 10.37 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.21     Promissory Note dated April 11, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.38 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996)

     10.22     Amendment No. 1 to the Company's 1994 Amended and Restated Stock
               Option Plan effective as of March 6, 1996 (incorporated by
               reference to Exhibit 10.39 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996)

     10.23     Preferred Stock Purchase Agreement dated April 11, 1997 between
               Jayhawk Medical Acceptance Corporation and Carl H. Westcott
               (incorporated by reference to Exhibit 10.42 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

     10.24     Settlement Agreement dated April 17, 1997 by and among the
               Company, Fleet Capital Corporation and Carl H. Westcott
               (incorporated by reference to Exhibit 10.43 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996)

     10.25     Form of Health Care Provider Agreement (incorporated by reference
               to Exhibit 10.27 to the Company's Annual Report on Form 10-K for
               the year ended December 31, 1997)

     10.26     Promissory Note dated November 12, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.28 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997)

     10.27     Promissory Note dated November 12, 1997 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (incorporated by reference to Exhibit 10.29 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997)

     10.28     Amendment to the Amended Restated Non-employee Stock Option Plan
               of Jayhawk Acceptance Corporation (incorporated by reference to
               Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 1997)

     10.29     Amendment to the Amended Restated 1994 Stock Option and
               Restricted Stock Plan (incorporated by reference to Exhibit 10.32
               to the Company's Annual Report on Form 10-K for the year ended
               December 31, 1997)

     10.30     Lease Agreement dated April 23, 1997 between Jayhawk Acceptance
               Corporation, as tenant, and Equitable-Crow Tower 2001, Ltd., as
               landlord (incorporated by reference to Exhibit 10.33 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997)

     10.31     Form of Health Care Provider Agreement (Doctor Direct Program)
               (filed herewith)

     10.32     Promissory Note dated June 8, 1998 between Jayhawk Medical
               Acceptance Corporation, as borrower, and Carl H. Westcott, as
               lender (filed herewith)

       16      Letter regarding change in certifying accountant (incorporated by
               reference to Exhibit 16.1 to the Company's Current Report on Form
               8-K/A-1, filed with the Commission on March 18, 1999)

       21      Subsidiaries of the Company (filed herewith)

      23.1     Consent of Grant Thornton LLP (filed herewith)

      23.2     Consent of Ernst & Young LLP (filed herewith)

       27      Financial Data Schedule (filed herewith)

                                    Page 50